Lengthening the Term of a Sublease

Tenants looking for office space will occasionally consider a sublease rather than a direct deal with the landlord. Subleases can be very favorable for tenants, as they often include furniture, and even phone systems, free rent and rental rates lower than a standard lease. However, tenants often make a mistake by dismissing subleasing opportunities when the term is too short. We encourage our clients to think “outside the box” and consider two methods for augmenting the term:

1) Simultaneously commit to the sublease “and” a direct deal with the landlord beyond the sublease expiration date.

When you calculate the typical five-to-ten year lease average in this scenario, you will reap the upfront benefit of a lower rental rate during the sublease term. In addition, as typically you will not require the landlord for the direct deal portion to provide construction dollars to retrofit the space, you should be able to negotiate a generous amount of free rent and/or a lower base rent. Even though the rental costs may be higher for the back end, the overall average of the combination sublease/direct deal transaction will still be lower than a standard direct deal on vacant space.

2) Negotiate a transaction where the existing tenant buys out of their current lease and then sign a direct lease with the landlord for your required term in the newly vacant suite.

The landlord will invest part or all of the buyout dollars into your transaction via free rent, discounted base rent and/or a larger tenant improvement allowance for renovation of the space. As a result, the tenant gets a great deal, sometimes far better than a standard lease.