Before a master tenant can sublease property, some important questions should be answered. Your attempt to mitigate a lease, may result in you litigating your lease; if you are not careful. First, the master lessor – that is you – has to ask for and receive approval from the landlord to sublease the space to a third party. I suggest that you consider waiting until you have a prospect for the space. Anytime you have a material question about your lease, before calling your landlord, read the lease. The language of the original lease should be read thoroughly to ensure that any restrictions about a sublease agreement with another business are adhered to. Beyond that, there are some important questions that the master tenant has to ask of a third party interested in subleasing office space. Here are some important ones that get overlooked:
What will the space be used for? Before the master tenant signs an office sublease agreement with a third party, it’s critical to determine what kind of business the sublessor will be conducting. Beyond weeding out individuals who intend to use the subleased space for questionable purposes, it’s critical to find out if there will be any activity taking place within the subleased space that could get the master tenant in trouble with the landlord. For example, if the sublessor decides to operate an adult entertainment club on the premises, this could cause the master tenant to be in default of their lease with regard to any language in the agreement about permitted uses of the premises. Likewise, if the sublessor is in the business of distributing hazardous materials, this could kick up a lot of dust with local authorities — not to mention the potential damage to the property that could come as a direct result. Your landlord will have a provision in the lease regarding hazardous materials; the part about leasee not handling green goo also applies to your sublessor. As a matter of fact, all of the lease will apply to your sublessor. It’s okay for a master tenant to be discriminating, especially if the activities of the sublessor could result in these kinds of issues.
Are there any special needs the sublessor will need in the course of its regular business operations? Before subleasing office space, it’s a master tenant’s responsibility to find out if the sublessor’s electrical needs could cause problems for other tenants sharing the facility. Businesses that operate high-powered equipment should only be considered if the property they’re subleasing was intended for that express purpose. Also, don’t forget that most office lease agreements specify caps in electricity use. If a master tenant agrees to sublease office property to a company that either operates around the clock or will be using an inordinate amount of electricity, the master tenant could find themselves in the unenviable position of having to pay a massive bill for electricity overage. Most of the time, these types of restrictions will be spelled out in the section of the master lease that speaks to office sublease agreements.
How many parking spaces will the sublessor require for regular operations? If a master tenant intends to sublease office property to a business whose need for parking outweighs what’s available, this could be a deal breaker. If parking is scarce but the sublessor is okay with that, it’s still important for the master tenant to determine if it’s possible the business will create an undesirable parking situation by taking up more than a fair share of the allotted space. This is especially important if the parking lot is shared with other businesses.
Other Considerations – If you’re the master tenant and you want to sublease office space, ensure there’s no ambiguity in the agreement. Spell out what will be included with the subleased space, and cover your interests by taking pictures of the property before the subtenant moves in. This will come in handy in the event you ever have to go to court to recover damages caused by the sublessor.
If you want a comprehensive list of sublease gotchas, let us know and we will get it to you