Commercial Sublease: What You Need To Know
Written by: Alan Nochumson
It goes without saying that many commercial landlords and tenants struggled over the past year and a half as the world struggled to confront the Coronavirus and the many ways it changed our daily lives. Within the business community, commercial landlords were some of the hardest hit and, in many cases, are still trying to recoup unpaid rent payments from tenants while also trying to avoid broken leases. For tenants, there are a few reasons why a business may choose to sublet their premises including to reduce cost, optimize space, or consolidate sites. This has left some landlords and tenants wondering if a commercial sublease could help.
What is a Commercial Sublease?
When it comes to terminating a commercial lease, business owners understand it is a very expensive process. In many instances, the landlord can terminate the lease, and seek all amounts still owed, minus whatever the landlord could receive in replacement rents at fair market value. Because this year has been wrought with financial strife for business owners, the “fair market value” is significantly lower than what was actually negotiated in the lease. Thus, terminating a commercial lease could cost commercial landlords much more in the long run. With this in mind, committing to a commercial sublease agreement with another tenant could provide a potential alternative that could help commercial landlords and tenants alike during this difficult time. A commercial sublease refers to the transfer of a portion of an existing tenant’s right to a third party. The tenant who subleases a rented space is known as the sublessor and the new tenant is known as the sublessee. The sublessee stays in the tenant’s rented space for the remainder of the tenant’s lease period or the duration of the agreed sublease term. Commercial subleasing often lasts for several years, and this commitment will ensure the landlord receives full and timely payments from the new subletting business.
For sublessors planning to sublease, it is important to pay attention to the following points:
- How much rent will the new tenant pay to the original tenant?
- What are the existing lease provisions concerning subleasing and the landlord’s consent?
- What happens when the sublease terminates?
- Who pays utility expenses?
- Do the parties have obligations to secure insurance?
- What security (including bank guarantee, cash security, and/or personal guarantees) is the subtenant providing?
- How are other costs (including rent, outgoings, levies, etc.) passed on?
Normally, the sublessor is still responsible for your lease payments, so it is important to have a system in place to collect monthly payments when due. It is also essential to be well acquainted with the terms in the existing commercial contract to avoid any legal issues with the landlord. Preferably, you may want to approach your landlord before subleasing your office space.
Some Benefits of Subleasing Commercial Space
Subleasing a space has its benefits especially in a time like this when many employees work from home. Here are some advantages to subleasing commercial space as a tenant:
- Subleasing unused space can be a great way to save money. Subleased spaces are usually more cost-efficient than a standard commercial lease.
- Subleasing is a great alternative for small businesses who do need a big space especially when they are just starting.
- Your rent can be paid as a flat monthly payment.
- Since it is part of a larger property, you may not need to spend time and money in upgrading the space.
- As a sublessee, you may not need to pay for some expenses such as security systems or Internet access.
- Subleases may also not be responsible for the maintenance of the common areas (CAM).
At Nochumson P.C., we are more than legal counsel. We are people serving our neighbors and community in Pennsylvania and New Jersey. Knowing that real communication between real people can help lead to real positive results, our team of attorneys are available 24/7 to help answer your legal questions and to fight for you with skill and fortitude, whatever the case may be. When you hire us, you can expect a sensible and cost-effective approach to legal counsel. We think fast, think ahead, and get things done. Contact us today or call us at (215) 399-1346 to see how we can represent you.