A tenant leasing commercial property may want to retain the right to assign or sublease a portion of the property at some time in the future. Discussed below are some of the legal, financial and practical considerations for both parties in negotiating the terms of a commercial sublease or assignment.
Lease provisions. In general, if the lease does not contain an express provision prohibiting assignment or sublease, then the tenant is free to do so without the consent of the lessor. A lessor however may place restrictions on the right to transfer the property through an explicit clause in the lease. In the event the terms of the lease are ambiguous on this matter, the lease will generally be construed in favor of the party desiring transferability. The lease provisions regarding assignments and subleases can be drafted in various ways. Some leases prohibit an assignment or sublease without the prior written consent of the landlord, which cannot be unreasonably withheld. In making this determination, a landlord may assess the suitability of the tenant and whether a sublease or assignment will have an effect on his financial or business interest. A tenant typically regards a lessee who meets commercially reasonable standards and is prepared to assume the lease as an acceptable transferee.
Financial status of transferee. In many cases the financial status of the tenant is the most relevant consideration after establishing the legality of a lease transfer. Because commercial leases are highly negotiated between the parties, the original lease terms reflect the creditworthiness of the lessee in several respects including the calculation of rent payments, the provision of the security deposit, and even the allocation of repair and maintenance costs. The landlord’s position will heavily depend upon whether the lease is being transferred to a financially healthier or riskier business operation.
Liability allocations. In a sublease, the original lessor remains responsible for complying with the terms of the lease. In an assignment, however, the parties must examine which entity assumes liability- in some cases the original tenant is released from the lease obligations, and in other cases he remains a party to the lease and is liable for the assignee.
Use restrictions. Leases often have different permitted uses which can impact the landlord’s willingness to assent to a transfer. Leases are designed to be used either for office spaces, retail or for industrial purposes.
Contact Shane Coons at 949-333-0900 or visit his website at www.ShaneCoonsLaw.com to find out more about his practice.