Subleasing in Today’s Economy

A tenant’s prerogative to sublease surplus space creates an ongoing opportunity to “right size” its operations and reduce costs. As such, it is surprising how many commercial tenants blithely accept lease clauses restricting their rights in this critical area.

Subleasing can generate friction with your landlord because you are competing, in effect, with other space offered in the same building. As a result, landlords often impose onerous requirements within a tenant’s commercial lease to regulate or even stop this activity.

Sometimes, you are forbidden to offer a sublease to a tenant in the same building or to anyone the landlord has negotiated with during the past six months. This makes procuring a subtenant exponentially more difficult because it prohibits the most interested prospects from considering your offer.

The restrictions against subleasing can take on a monetary aspect as well. Prohibitions against advertising at a below market rate prevent the tenant from publicizing a bargain. And if you can’t offer the space to people down the hall as well, or those who have toured the building months ago, then some of your prime candidates are prevented from subleasing your space.

Sometimes, the discouragement can come at the back end, with landlords reserving the right to take back all or a portion of your space for themselves before you put the space on the market — a negative if you want to sublease a portion of your space for a limited period of time and then expand back into it — and/or after you have negotiated final terms with a potential subtenant.

You need to be aware of these clauses when negotiating lease terms to provide maximum flexibility for your company.