Subleasing Toolkit

This Toolkit aggregates important Practical Law resources on commercial subleasing.

Practical Law Real Estate

The subleasing clause in a lease agreement is a crucial clause in most lease negotiations. Many times, if a tenant needs flexibility in its lease, the tenant's right to sublease all or a part of its space is negotiated during the letter of intent ( www.practicallaw.com/0-382-3575) stage. A landlord is generally more willing to grant to the tenant greater rights to sublease its premises if the lease term is for a longer period of time.

Subletting clauses can provide a tenant with a great deal of flexibility. A tenant may want to sublease all or a portion of its space during its lease term as the need arises but have the opportunity at a later date to take back the subleased space as the tenant's demand for its space increases. The landlord may also prefer to grant to the tenant the right to sublease its space rather than the right to assign its lease to keep more control over the leased premises.

Subleasing can have advantages and disadvantages for a tenant.

The advantages of subleasing the tenant's space are:

  • The space is often subleased in its as-is condition, so the tenant does not have to spend any money to build-out the space, make improvements to the subleased premises or provide a tenant allowance to the subtenant.

  • The tenant and the subtenant can often quickly negotiate and execute a sublease.

  • The tenant can maintain maximum flexibility regarding its space by controlling:

    • the amount of space subleased; and

    • the term of the sublease.

Subleasing space can be disadvantageous to the tenant because:

  • The tenant is still liable for all of the tenant obligations under the lease.

  • The subleased space is often priced well below the fair market rate for comparable properties and the tenant may still have to come out-of-pocket to make up the difference in rent.

  • The tenant must deal directly with the landlord on behalf of the subtenant.

  • If the subtenant defaults, the tenant must cure the default on behalf of the subtenant and then seek reimbursement from the subtenant.

This Toolkit contains continuously maintained practice notes, standard documents and state-specific laws multistate leases guidance to help counsel for landlords, tenants and subtenants manage the sublease negotiation process.

The What’s Market Lease database contains a sampling of commercial real estate leases from multiple jurisdictions. The database's filtering tool on the left side can pinpoint specific subleasing options to view regarding subleasing consent and recapture rights. The database also links to the subleasing clauses for each of the leases in the database.

 

Practice Notes

 

Standard Documents

 

State-specific Content

 
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