If you have been reading my blogs you know that I often offer my thoughts on the ins and outs of important lease clauses. Subleasing, Transfer and Assignment rights are typically handled in the same clause and are very important to the flexibility of any lease. Multiple concepts are covered in the Sublease & Assignment or Transfers clause and the clause is dependent upon the satisfactory compliance with the entire lease.
One thing to keep in mind about most “rights” in a lease, is that the actual language is meant to define and limit those rights. In the case of sublease and assignment, or “transfer” rights, it is important to negotiate the broadest rights possible (from the tenant’s perspective). Other paragraphs in the lease will also affect the right to sublease and should be considered (see my blog on “USE” as an example). Remember to not only have broad rights to sublease the space, but also broad rights to market the space.
Issues to consider:
- Timing: How long should a landlord have to approve a sublease (30 days is a long time when you are trying to close a deal with a short term tenant)?
- Credit: How much creditworthiness should a landlord demand (Especially if the original tenant is not released from liability under the lease)?
- Does the building’s lender need to approve the sublease (Usually, but try to make sure such approval/disapproval must be issued inside the landlord’s response time)?
- Should the landlord have the right to prohibit a tenant from subleasing to a company that is an existing tenant in the building or a prospect that the landlord is considering (No!)?
- Can the landlord recapture the space? Or can the landlord participate in profits? How does the lease define profits?
- Can signs be placed on the building, or in the window (Usually not in an office lease, but necessary in a retail lease).
- Can the lease be transferred to an affiliate of the tenant without landlord approval.
In most cases the details of the S&A paragraph are dealt with when negotiating the lease, but I recommend that the letter of intent deal with most of these business issues. The tenant’s attorney will have much greater leverage when negotiating if they must only deal with legal and drafting issues.