Is a sublease right for you?

Last week I wrote about some considerations when considering subleasing your office. This week, I’ll outline a few realities of subleasing from the tenant’s perspective. There are quite a few positives that can be achieved with a sublease, but a few risks as well.

Opportunities:

1. You are getting a smoking deal! The sublandlord is eager to start collecting rent and recovering whatever he can from what he’s paying in rent. Your rent will be less than similar space that would be negotiated directly from a landlord. This allows you to occupy a nicer building than you might otherwise be able to at the same price point.

2. An additional bonus… Furniture, phone systems, and other infrastructure may be included.

3. Legal fees will probably be less. A sublease document is typically 1/3 the length of a traditional lease. While you’ll have to review the master lease (as you’ll be subject to the same responsibilities as the sublessor) there won’t be any terms to negotiate. It’s just an easier document to review.

Risks:

1. You don’t have the same rights as a master tenant. The sublease document makes you subordinate to the sublandlord and master landlord. Most landlords will treat you as if you are a tenant, but occasionally, you’ll be stuck using the master landlord as a go-between when you need maintenance or repairs. There should be clear mechanisms in the sublease document outlining how issues like burned out light bulbs or other minor repairs will be addressed.

2. You may be evicted if the sublandlord defaults. If the sublandlord can’t meet all of their obligations under the master lease, and your sublease rent payments won’t make the landlord whole, chances are he’ll want you out. Be sure to understand the financial health of the sublandlord before entering into a sublease arrangement.

3. There will be a big bump in rent when the sublease expires. Chances are the landlord isn’t going to let you renew on a direct basis for the same rate as the sublease. You’ll either end up paying more or relocating at the end of the term, which may negate the savings you achieved during the sublease.

Subleases should be considered with direct space when evaluating options as your existing lease term nears expiration. As with direct leases, be aware of the opportunities and the potential exposure.

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