What to Consider When Subleasing Office Space

By: Raymond F. Triana
– Commercial Property Executive

In many markets, large blocks of office space are scarce. A company may decide to lease more space than needed in order to reserve space for future growth. When this strategy is executed, the cost can be mitigated by subleasing. Prospective subtenants, on the other hand, may want to sublease for a short term at a discount from market rents, and/or may not be interested in a permanent office location. However, subleasing presents a number of unique risks to both the tenant as sublandlord and the subtenant. In this article, “landlord” will refer to the primary landlord under the direct lease, “tenant” will refer to the primary tenant and “subtenant” will refer to the subtenant.

Most leases contain provisions that require the tenant to pay a portion of sublease rent to the landlord after deducting the rent payable under the lease and costs of subleasing. These provisions should be analyzed carefully with legal counsel. The lease may also provide that the tenant will lose certain rights, such as expansion rights or renewal rights, if the tenant subleases, or the tenant may lose sign rights on the building. The tenant and its advisors should confirm that the tenant will not forfeit a valuable right by subleasing. Many leases require that the consent of the landlord to any subleasing must be obtained, and a process for obtaining such consent including a time in which the landlord must respond to any request must be defined.

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