As we’ve recently discussed, a commercial lease is a written contract that is meant to be a binding agreement for the rental of specific property or space for a specific time. Many commercial leases contain a sublease clause which gives the existing tenant the right to rent the property to another person or business.
Like signing any lease, signing a sublease agreement means you agree to be bound by its terms. With the right to possession come responsibilities. Following are several important points to consider if a sublease might be in your near future:
1. The tenant from whom you wish to sublease the property must have the authority to do so. This is usually known as the sublease clause and would be contained in the original lease agreement. The landlord or property owner usually retains the right to approve a proposed sublease, so you may have to meet the landlord before he or she approves the sublease arrangement.
2. A subtenant’s rights are usually dependent on the existing tenant’s rights. If the tenant’s rights are terminated under any clause in the original lease, then the subtenant’s rights are also terminated. A subtenant is generally required to follow the same terms and conditions as the original tenant, so it is critical to read and understand all of the terms in the prime lease.
3. A subtenant’s contractual relationship is with the existing tenant, sometimes referred to as the Master-tenant. A subtenant has no direct contractual relationship with the landlord. Lease and sublease negotiations must be conducted accordingly.
4. A subtenant normally rents the property in “as is” condition. The Master-tenant is not responsible for repairs, and the landlord does not have to do so because the landlord has no contractual obligation to the tenant. (See paragraph 3.)
5. On the flip side, the landlord can hold a subtenant responsible for damage to the property under basic property law.
Depending on the nature of your business, you may need a particular space and the only way to gain use of the space is through a sublease. If you find yourself in this situation, read the prime lease and the sublease very carefully and consider the tips listed above and be sure to consult with an attorney experienced in commercial and consumer lending, finance, and litigation before you sign.
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