Commercial Sublease AgreementsJuly 28, 2019
Subleasing is almost inevitable, and as the landlord of a commercial property, you must prepare for this possibility. Therefore, in this article we’ll explain how subleasing works, and how you must legally protect your interests and your assets. Furthermore, we’ll discuss special considerations for a commercial sublease agreement in Texas, and a commercial sublease agreement in California. Finally, we’ll provide the answers to a few frequently asked questions about commercial subleasing.
What is a Commercial Sublease Agreement?
A commercial sublease agreement is a contract that clarifies the applicable conditions if a tenant subleases its commercial space. Explicitly, a sublease is the rental of property by a tenant to a third party, the subtenant. Accordingly®®, the tenant draws up the agreement and signs it along with subtenant. Naturally, the sublease covers all or part of the space the tenant leases and the sub-rent the subtenant is to pay. The tenant’s lease may require that the landlord agree to any sublease through a landlord sublease consent form. Indeed, the consent form is the landlord’s opportunity to protects its rights regarding any new subtenant.
When a tenant signs a lease, it establishes a rental period in which it uses the leased property. In return, the tenant agrees to continue paying the specified rent and fees included in the lease agreement. Normally, a simple commercial lease agreement prohibits the tenant from subleasing its commercial space without landlord consent. Of course, the landlord can specify many conditions that the renter must satisfy before permitting the sublease. Accordingly, the landlord must approve a sublease consent form specifying those conditions. Typically, the tenant and subtenant present a simple consent document to the landlord. But the consent gives landlords the opportunity to specify numerous provisions to protect the landlord. Importantly, the landlord should always control consent of the sublease in the original lease agreement.
Contents of a Commercial Sublease Agreement
At minimum, the agreement should fully identify the tenant and subtenant, including full names, business addresses and other data. Also, it should completely identify and describe the subleased premises. In addition, the agreement should show the lease amount, the occupancy date and the sublease term. Specifically, the agreement should set out when the rent is due and how the subtenant will submit such rent. Of course, the agreement should spell out any late fees for past due rents and how to handle defaults.
Naturally, the agreement should specify whether and how the tenant will share the space with the subtenant. Shared-space rules should cover conference rooms, break rooms, lobby space, storage rooms, bathrooms, hallways, stairwells, interview rooms, etc. Furthermore, the rules should specify responsibilities for maintaining and cleaning shared spaces, and how to reserve shared rooms. The sublease should describe access, maintenance and rental charges for shared equipment, such as printers and copy machines. Naturally, the sublease should set out any parking arrangements, especially when parking space is tight. Conveniently, you can find examples of a sample commercial sublease agreement online and purchase one for a modest fee. You should have your lawyer review any sample commercial sublease agreement you use.
Beyond the basics, the commercial sublease agreement should specify any items that the landlord requires before giving consent. Therefore, the remainder of this article addresses landlord requirements for a commercial sublease agreement.
Considerations for Landlords
Landlords should take the opportunity to approve a landlord sublease consent form to shape the commercial sublease agreement. This is an effective way for landlords to protect their rights. Naturally, as the landlord, you should consider which of the following items must appear in a commercial sublease agreement.
Notification and Permission
Even a simple commercial lease agreement should require that the tenant notify you about an intended sublet. Furthermore, whether you use a simple commercial lease agreement or even a more complex and detailed one, it should give you consent rights. Naturally, you will require detailed information, including:
- Who is the subtenant and what is its financial condition?
- What will the subtenant do with the property?
- Will the subtenant fit into your tenant mix?
- Will the subtenant be willing to sign a detailed commercial sublease agreement?
Representations and Warranties from Tenant
The commercial sublease agreement may require various representations and warranties from the tenant alone, such as:
- You, the landlord, are in compliance with the lease terms.
- The tenant has not proceeded to assign or sublet the property without your permission.
- The tenant cannot skirt its obligations under the lease.
Representations and Warranties from Subtenant
Some representations and warranties pertain directly to the subtenant alone, including:
- The subtenant used accurate financial statements to represent its financial condition.
- The subtenant should fairly represent and warrant any other information on which you depend.
Representations and Warranties from Tenant and Subtenant
These are the items that both the tenant and subtenant should affirm:
- The commercial sublease agreement is subordinate and subject to the prime lease between landlord and tenant.
- The subtenant and tenant have provided a true and complete copy of the commercial sublease agreement.
- The commercial sublease agreement doesn’t release the tenant from any of its obligations under the prime lease.
- The commercial sublease agreement specifies all the thing(s) of value that the subtenant will give to the tenant. Normally, this is the rent that the subtenant will pay to the tenant but could include other things.
- The landlord’s right, if the prime lease specifies it, to receive the excess rent that the subtenant pays. Explicitly, excess rent is any rent the subtenant pays that is greater than the tenant’s rent.
- The landlord will consider any subtenant acts violating the prime lease as violations for which the tenant is responsible.
- Neither the commercial sublease agreement nor the sublease consent form modifies the prime lease or alter the parties’ obligations.
- The terms of the commercial sublease agreement don’t bind to the landlord.
- The subtenant cannot enforce against the landlord any terms in the prime lease.
The landlord should consider including the following covenants in the sublease consent form before approving the sublease:
- The subtenant cannot further sublease the premises without the landlord’s consent.
- The landlord must approve in writing and in advance any sublease amendments.
- The landlord will receive immediate notification of any default by the tenant or subtenant.
- Tenant default automatically extinguishes the commercial sublease agreement unless specified otherwise. Naturally, tenant default may force the subtenant to vacate the premises. Alternatively, the landlord may offer a new prime lease to the subtenant. In any event, the subtenant must pay rent directly to the landlord if the tenant defaults. Notably, such payment does not automatically create a new prime lease arrangement between the landlord and subtenant.
- Despite default, the landlord does not waive any of its rights under a complex or simple commercial lease agreement. The landlord doesn’t have to complete any construction the tenant negotiated before default.
- The landlord can request financial information from the subtenant.
- The subtenant must carry specified property insurance and liability insurance.
Commercial Sublease Agreements Texas
If you want to sublease in the Lone Star State, you’ll have to follow the rules governing a commercial sublease agreement in Texas. Under Texas law, the landlord can lock out a tenant or subtenant for certain reasons. Normally, landlords lock out tenants or subtenants for not paying their rent. The lockout provisions could extend to other lease or sublease violations. The landlord does not have to give any prior warning of a lockout, but must post a notice. Typically, the landlord affixes the notice to the front door of the premises. The notice must identify a source for a new key and how to obtain the key. The tenant or subtenant can recover costs and damages for an illegal lockout.
Commercial Sublease Agreement California
The section pertains to a commercial sublease agreement in California. In most of California, a prime lease that prohibits subleasing without prior consent is completely enforceable. If the lease says no subleasing, then you should expect no subleasing. However, San Francisco allocates more rights to the tenant. For example, in San Francisco, a tenant can replace a roommate without landlord objection within 14 days. The landlord can reject a sublease request for any of these reasons:
- The subtenant cannot assume financial responsibility for the sublease.
- The landlord objects to the subtenant’s proposed use of the premises, including illegal use.
- The subtenant’s compatibility with other tenants.
In California, the burden of proof for withholding consent rests with the tenant. If the tenant meets that burden of proof, it can collect damages and terminate the lease, according to law.
Frequently Asked Questions: Commercial Sublease Agreement
They spell out the responsibilities of the subtenant. A landlord must approve the contents of a commercial sublease agreement and can refuse to approve it. This gives the landlord great leverage to protect itself from subrenters.
Typically, the tenant prepares a commercial sublease agreement that the subtenant must sign. Because the landlord must consent to the sublease, the landlord can have great influence upon its contents. Therefore, tenant, subtenant and landlord should negotiate the terms of the commercial sublease agreement together. Naturally, the landlord’s lawyer should review the agreement before the landlord consents to it.
AssetsAmerica.com has all sorts of information useful to landlords. For example, to learn about Subordination, Non-Disturbance, and Attornment (SNDA) Agreements, see How SNDA Agreements Can Simplify Your Life. Also, for a complete rundown on rent rolls, see Rent Roll Guide – Everything You Need to Know. Furthermore, always consult your real estate attorney!