Why Sublease Office Space?

There are two perspectives when considering the sublease of office space -the perspective of the original tenant and that of the sublessee. Office space that has been leased from a landlord can become available when a company decides to move out of the space for any of a number of reasons. For example, the company might decide to move or to downsize which happens regularly in a tight economy.

Options of Original Tenant

When a lease agreement has been signed, the leasehold value must be paid even though the space is unused. One way to avoid paying for unused space is to sublet the space to another tenant with the permission of the landlord.  One of four conditions is usually found in commercial real estate leases addressing early vacating of the premises by a tenant.

• Buyout – the tenant pays the landlord a sum of money to release the tenant from the remaining lease with no sublease involved
• Subleasing – tenant finds a sublessee and the landlord agrees but tenant usually remains responsible in event sub-lessee defaults
• Recapture – a new tenant signs a new lease and the original tenant is released
• Pay the Balance – the tenant pays off the lease

Negotiating a sublease can be a complex process because the landlord, tenant and sub-lessee must come to an agreement on the terms.

The Sub-Lessee

A sublease can benefit a sub-lessee in several ways after successful negotiations.  The original tenant may be willing to accept a lesser lease amount if the early termination fees written into the lease exceeds the remaining leasehold value. By subleasing the space the tenant can avoid paying the early termination penalty. The original lessee would pay the difference between the lease amount and the amount paid by the sublessee.

The sub-lessee may be able to lease prime office space for a shorter time period than normal lease terms would require. If the sub-lessee does not want to get locked into a 5 or 10 year commercial lease then a sublease is a good option.

A business may decide to sublease in order to lease space in a particular building or geographical area where rental space is limited.

Get Legal Advice

An attorney should be involved in sublease negotiations whether it is for the tenant or the sub-lessee.  There are many lease terms that must be evaluated, negotiated and rewritten addressing topics like payment terms, disposition or acceptance of original leasehold improvements, space improvements for sub-lessee and much more.