Subleasing Isn’t for Wimps

You May Need Some Extra Muscle to Sublease!

In mid-2016 my ITRA partners located on both coasts started seeing more subleases. There weren’t may here in the Detroit area until several months later. The few that were listed below market in the city of Detroit were quickly leased.

Subleasing can be tricky because the original lease may limit your ability to sublease or make it impossible to sublease. Here are a few common issues:

One common clause in states that the tenant can’t reduce the rent below the asking rate for the building. This can eliminate incentives for someone to step into your lease, and it is harder to compete with the landlord. After all, if you want to sublease you most likely don’t have the cash to rebuild the space for another tenant.

Another common clause, often overlooked, states the landlord must give the tenant 2 to 6 months notice to approve the sublease. Think about it – if you want to sublease someone’s space, but the landlord can take up to six months to approve you, would you wait around?

Another consideration is the financial strength of the subleassor – the tenant to the landlord. What if this subleassor/tenant is in serious financial trouble and you are paying them less rent than their lease payment, and they default on their payments to the landlord? Where does this leave your firm as the Sublessee?

Subleasing without clauses to protect your firm can be dangerous and it isn’t for wimps!

/ Commercial Real Estate