What is it?Sublease is the name given to an arrangement in which the lessee in a lease assigns the lease to a third party, thereby making the old lessee the sub-lessor, and the new lessee the sub-lessee, or subtenant. This means they are renting the property and renting it out at the same time.
For example, the owner of an office building may lease the whole building to a management company. This company may then sublease parts of the building to other people. The management company is said to sublet the property to the individual tenants by means of a sublease. In this event, the management company becomes the sub-lessor, and the individual tenants are subtenants or sub-lessees.The sub-lessor remains liable to the original lessor for any damage to the property and for payment of rent.
The landlord is not necessarily a party to a sublease and, therefore, no contractual relationship exists between the landlord and the subtenant.
Other forms of subleasing may be to rent out the entire unit to someone else while you are paying your landlord the rent for the property, which often means pocketing the difference . One example of subleasing an entire unit is when a person is paying low rent for the unit and charges more rent than the principal tenant is paying, such as if the original renter is participating in a rental assistance program, something that is highly illegal.
Sub – tenants Beware:
Original Lease Termination: If the prime lease terminates, the sublease will automatically terminate as well. This is because a subtenant’s rights to the leased premises are purely derivative of the sub-landlord’s rights. This is the fundamental deficiency of a sublease.
Non-Disturbance Agreement :A prospective subtenant can address this fundamental problem by receiving a non-disturbance agreement from the landlord, if the landlord is willing.
Under a non-disturbance agreement, the landlord agrees with the subtenant that should the prime lease be terminated due to a prime tenant default, the landlord will treat the sublease as a direct lease between the landlord and the subtenant. The granting of such a non-disturbance agreement is almost always at the sole discretion of the landlord.
If not :A subtenant may reduce its risk to some degree by negotiating for the right to pay its sublease rent directly to the landlord. This may be an important right of a subtenant w Note, however, that under the terms of the prime lease, the landlord may have the right to refuse rent payments from any party other than the prime tenant.
Incorporation of Original Lease: Sublease rights are derivative of the rights granted under the original lease,and hence, well-drafted subleases should address to what extent the provisions of the prime lease are incorporated into the sublease.
Some sublease documents provide that the subtenant take on all the obligations of the prime tenant under the prime lease. Prospective subtenants should understand what those obligations are and if they are unwilling to accept a particular obligation, the sublease should specifically say so.
The sublease should also incorporate responsibilities of the landlord under the prime lease as the obligation of the sub-landlord. For obligations that must, by their nature, be performed directly by the landlord , the sublease should specify that the sub-landlord will take all necessary actions to enforce the landlord’s obligations under the prime lease for the subtenant’s benefit.
Landlord Consent: As the starting point for any prospective sublease transaction, the subtenant should be fully cognizant of what the prime lease says about the landlord’s right to approve a sublease.
Generally, the sublease document should provide that the sublease only becomes effective after the landlord’s consent has been obtained. It is also important to understand whether the prime lease grants the landlord the right to “recapture” the space in the event of a proposed sublease.
We shall discuss the key issues that a sub-landlord have to be careful about in our next post about legal issues.
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