In a sublease, the tenant acts as a landlord, leasing some or all of his or her space in a leased property to a third party while still retaining interest in the premises. Many of us become familiar with this type of arrangement in the course of finding housing during college, but savvy commercial real estate investors can also take advantage of a well-written sublease.
When you need flexibility in commercial real estate, subleasing can often be the answer. Subleases may allow you to lease only the portion of the property you’ll use, negotiate a different term than what is listed on the prime lease agreement, or even pay a reduced rate. And, though this type of contract can provide the right amount of space for the right time frame, the ins and outs of a sublease are worth extra consideration.
1. Review the prime lease.
Obtain and review a full copy of the prime lease, including amendments, modifications and any other documents that may affect tenant rights, and be sure all terms are acceptable. Also be clear about which, if any, terms of the prime lease will be incorporated into the sublease to protect you from unwanted liability.
2. Outline benefits and responsibilities.
When the subtenant takes less than the total leased property, the amenities of the space – conference rooms, shared reception areas and the like – should be divided or shared appropriately and addressed in the sublease. This also goes for responsibilities such as utility payments and property maintenance.
3. Protect the sublease.
Subtenants may wish to enter into a nondisturbance agreement with the landlord to preserve the sublease in the event that the prime lease is terminated. Just be sure that the agreement will be in accordance with the sublease rather than the terms of the prime lease.
4. Make a means for the end.
The end of the prime lease and sublease can be tricky, so be aware of obligations related to the surrender of the property. If the property must be returned to the landlord in original condition, clearly state in the sublease which party will be responsible for this expense.
Finding the commercial space that’s right for your needs can be complex, but with careful consideration, subleasing may provide the flexibility you’re looking for.
Talk to the real estate professionals at Intelica if you need help managing the ins and outs of your next commercial real estate investment.