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Subletting and Assignments in Commercial Leases

SUBLETTING, ASSIGNMENTS and COMMERCIAL REAL ESTATE LAW

A commercial tenant must understand that its business may change after it has executed a lease and taken possession of commercial space.  That change may cause them to want to either sublet a portion or all of the leased premises to a third party sublessee, or abandon the leased premises completely and, if possible, assign the lease to a third party assignee who would be responsible for all obligations under the lease.  Accordingly, it is important to remember a few key points with regard to this aspect of commercial leases.

First, most commercial leases preclude a tenant from subletting a portion or all of the leased premises or assigning the lease without the prior written consent of the landlord.  Therefore, commercial tenants should ensure that the lease provides that the landlord will not unreasonably withhold consent for a sublet or an assignment. 

Second, unless the lease specifies to the contrary, when a tenant sublets a portion or all of the leased premises, the original tenant remains fully liable under the terms of the lease.  By contrast, unless the lease or assignment specifies to the contrary, a tenant who assigns a lease is no longer liable under the terms of the lease.  In our experience, a commercial landlord will not consent to a sublease unless the tenant agrees to remain liable to the landlord if the sublessee does not timely fulfill all of the obligations of the lease. In addition, the landlord will likely want to be paid a fee for its time and the fee of landlord’s lawyer in evaluating the sublease and the sublessee.

Third, since the tenant remains completely responsible for the lease if the sublessee does not timely comply with the lease, the tenant should try to negotiate, before executing the lease, the removal in whole or in part of the prohibition on subletting. If the landlord will agree to remove the prohibition on subletting, the landlord may insist that the sublessee engage in the same use and/or insert additional restrictions on the sublessee’s activities if the landlord is concerned about the sublessee’s effect on the building.  These restrictions may include environmental hazards, noise, parking, and deliveries.

Fourth, if the landlord will agree that a tenant can sublease, the landlord will most likely want a written copy of the executed sublease.

Fifth, if a tenant wants to abandon the entire leased premises, it may want to assign the lease so that it no longer has any liability to the landlord under the lease.

Sixth, to convince the landlord to allow assignment of a lease, the tenant must understand that from the landlord’s perspective, the landlord is entering into a new lease with the assignee.  Therefore, the landlord will want to evaluate the assignee in the same manner that the landlord evaluated the the original tenant. 

Commercial leases are generally prepared by the landlord and, therefore, most of the language in the lease will favor the landlord.  A commercial tenant must review every provision of the lease and negotiate specific changes to the lease that are customary and reasonable based upon the type of lease, the location of the leased premises, and numerous other factors.  

The real estate lawyers at Lundy, Beldecos & Milby routinely draft and negotiate commercial leases for both landlords and tenant. We have the experience to provide advice to protect your rights and reduce your risk. Please contact any of the real estate attorneys of Lundy, Beldecos & Milby for further information regarding legal services in this area.

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