Please Rotate Your Device
Sometimes business does not go well. Sometimes it goes exceedingly well. In either case, the need to get out of your existing lease (whether for good reasons or bad) will come up from time to time. The answer is often to sublet, but common commercial lease sublet restrictions can effectively block your ability to sublease.
The first thing you should know is that you cannot just sublet to any other tenant without the landlord's consent.
You may be surprised to find out what rights the landlord actually has with respect to limiting your ability to sublet (in some cases they are so bad that you may as well not have a right at all).
Here are the common sublet restrictions (but if you prefer to just watch a video, we have that for you too...:
The landlord does not want you to encroach on their turf (this is the most personal sublet restriction for them). If another tenant in your building wants to expand, your landlord would want first crack at leasing their vacant space to their existing customer instead of you subletting your space to them.
If that happens the landlord does not achieve any incremental revenue.
Although this seems logical and fair, many landlords will agree to remove this sublet restriction when you are at the negotiating table with them. It certainly does not hurt to ask to have this removed.
Imagine being able to sell your garage sale items at the entrance to a power mall. Your landlord does not want to compete with your discounted sublet rental rate and may have a clause in the lease that you cannot discount your rate on sublet.
The problem is that people looking at sublets are also looking for a deal.
Most landlords will agree to give in on this clause so long as you are not allowed to advertise the rental rate. That is a fair trade off. Your sublet marketing flyer will state "negotiable" for the rental rate and your sublisting agent can just tell prospects verbally what the posted rental rate is.
This is an important sublet restriction to have removed - if you cannot discount the rent on your sublease, you may not be able to sublet it!
This exists to cover off on the times when a tenant is interested in the building and then half way through a negotiation they discover they could just lease the same space through you, at a discount.
This is a common sublet restriction found in landlords' lease templates, but usually one that can be deleted early in a negotiation.
With such ease of access to information these days, most prospective tenants find out about direct space and sublet space at the same time and there is still a benefit to the landlord to have subtenants occupying spaces from sublandlords (they usually end up renewing at the end of the term).
You may be at a below market rental rate and subletting could be profitable.
Although this would be an unexpected bonus, it may be a sublet restriction to consider conceding on.
If you are able to break-even and walk away from a lease perhaps you can chalk that up in the victory column and move on with life. It certainly can be a "throw away" item in a lease negotiation to help you win on something else more meaningful.
If the landlord will agree to it, propose a 50/50 splitting of the profit.
Since the landlord has to protect the image of the building, they will be conscious of fire sale sublets that could damage the perceived value of the building. It is common for tenants to accept this and use "negotiable" or "call agent" for the posted net rental rate.
Any serious prospective subtenants would make contact and tour the space anyway and then find out what the asking net rent is. This is by far the sublet restriction you should be happiest to concede on.
This one can be tricky. If you are a decent size (5,000 square feet+), it could be that you are downsizing and the most logical sublet is to divide the space, and stay in a portion.
If you are less than 2,000 square feet, then the landlord may not approve of a demising of the space. In some cases a division of the space may not even be possible from a fire code standpoint. As a general rule, if you are over 5,000 square feet then we recommend that you have the right to sublet "all or a portion" of the space.
Remove this sublet restriction.
Although the landlord will have a clause that states that the subtenant must be acceptable, having strength at least equal to the sub-landlord is not reasonable. The reason for this is that you, as a sub-landlord, are still on the hook for the lease.
(a) The Tenant covenants with the Landlord that it will not sublet the Leased Premises or any part thereof, without the consent of the Landlord in writing first had and obtained, such consent not to be unreasonably or arbitrarily withheld, or delayed. The Tenant shall furnish to the Landlord copies of any sublease herein contemplated. Notwithstanding any other provision in this section, subletting shall in any way release or be deemed to release the Tenant from its obligations under the terms of this Lease during the Term. Provided further that the proposed subtenant of the Leased Premises shall be required to provide financial statements or other financial information as the Landlord may reasonably require. The Tenant agrees to pay the reasonable administrative fee of the Landlord and the legal fees of the Landlord's solicitor relating to the preparation of the Landlord's consent, and determination as to whether to give the consent.
Translation: the landlord has to consent to the sublet, you are still on the hook, and you have to pay the out of pocket expenses for the landlord to approve your paper work. All are standard.
(b) In the event of any subletting by the Tenant by virtue of which the Tenant receives rent from the subtenant which is higher than the rent payable hereunder to the Landlord, the Tenant shall pay any such excess to the Landlord, in addition to all rent and other costs payable hereunder, for the period of time during which the said subtenant remains in possession of the premises sublet to it.
Translation: any profit from subletting has to be turned over to the landlord.
(c) In the event of any proposed subletting of the Leased Premises by the Tenant, the Landlord shall not be obligated to consider such a proposal nor be required to consent to same, unless the base rent payable by the proposed assignee or sublessee is, in the sole discretion of the Landlord, at the then current market rate for similar space in the immediate and surrounding area.
Translation: the landlord does not have to provide consent to the sublet if the rent is too low. Hint: negotiate this out - sublets are typically at a discount, so this sublet restriction is just too unrealistic.
(d) Upon the Tenant assigning, subletting, the Option to Extend shall automatically become null and void.
Translation: your right to renew cannot be passed along to the subtenant. This is a normal sublet restriction.
(e) Notwithstanding the above provisions, within ten (10) business days after the receipt by the Landlord of such request for consent and of all information which the Landlord shall have requested hereunder, the Landlord shall have the right upon written notice of termination submitted to the Tenant to, if the request is to assign this Lease or sublet the whole of the Leased Premises, cancel and terminate this Lease, or to, if the request is to sublet a part of the Leased Premises only, cancel and terminate this Lease with respect to such part, in each case, as of a termination date to be stipulated in the notice of termination which shall be ninety (90) days following giving of such notice.
Translation: the landlord has the right to just cancel your lease instead of consenting to the sublet. This normally happens in the event your subtenant is so creditworthy the landlord is happy to just deal with them, or if the sub-tenant wants to do a longer term than your remaining lease term. This is good news, as it exonerates you completely.
Still stuck? We can help. Just click HERE.