Could Commercial Sublease Agreements Help Landlords?

Originally published by Jeff Raizner.

As we begin to transition into the New Year, many business owners continue to struggle to turn a profit – especially commercial landlords. This year has brought many challenges for landlords, who are still trying to recoup unpaid rent payments from tenants while also trying to avoid broken leases. As the COVID-19 pandemic continues to negatively impact commercial landlords, some have wondered if subleasing could help. While commercial subleasing can be complicated, having an additional tenant on a commercial lease agreement could potentially benefit landlords struggling financially.

Commercial Sublease

When it comes to terminating a commercial lease, business owners understand it is a very expensive process. In many instances, the landlord can terminate the lease, and seek all amounts still owed, minus whatever the landlord could receive in replacement rents at fair market value. Because this year has been wrought with financial strife for business owners, the “fair market value” is significantly lower than what was actually negotiated in the lease. Thus, terminating a commercial lease could cost commercial landlords much more in the long run. With this in mind, committing to a commercial sublease agreement with another tenant could provide a potential alternative that could help commercial landlords and tenants alike during this difficult time.

A commercial sublease agreement is an agreement between the tenant (which then also known as the sublandlord) and another party who occupies the space, also known as a subtenant. In these instances, the tenant will draw up the agreement and sign it along with subtenant. Naturally, the sublease covers all or part of the space the tenant leases and the sub-rent the subtenant is to pay. Importantly, the landlord will always need to consent to a sublease; this is usually accomplished by a landlord sublease consent form. This allows commercial landlords to protect their interests with regard to a new subtenant. Commercial subleasing often lasts for several years; and this commitment will ensure the landlord receives full and timely payments from the new subletting business.

Sublease Considerations for Landlords

Because of the lack of legal protections afforded in commercial subleasing, it’s important that landlords are aware of the potential risks. Landlords should take ample time to consent to the sublease to ensure they are protected from a tenant or subtenant potentially taking advantage of them.

Even the most basic commercial lease agreement should require that the tenant notify the landlord regarding an intended sublet. Additionally, the agreement should always give the landlord consent rights. The pertinent information should include:

• The identity of the subtenant and its financial condition
• The business the subtenant runs and whether it will require alterations to the space
• Whether or not the subtenant fits into the established tenant mix
• If the subtenant is willing to sign a commercial sublease agreement under the landlord’s conditions

Additionally, it is imperative that commercial landlords receive immediate notice in the event a tenant or subtenant defaults on rent payments. This is incredibly important now, considering there have been multiple instances of well-established commercial tenants forgoing rent payments. When a tenant defaults, it automatically negates the commercial sublease agreement and could force the subtenant to vacate the premises. The subtenant must be able to pay its rent directly to the landlord if the original tenant defaults. Because the potential for a tenant or a subtenant to default on a commercial lease is so prevalent during this time, landlords should request all necessary financial information from the subtenant before committing to a commercial sublease agreement.

Assisting Texas Commercial Landlords

As the near year approaches, it’s apparent the many hurdles commercial landlords have faced this year will only continue. No matter if a commercial landlord is dealing with a tenant or a subtenant wrongfully delaying or forgoing rent payments, they should seek legal counsel to protect their livelihoods. At Raizner Law, our attorneys have years of experience working with commercial landlords in Texas and around the nation. If you are a commercial landlord dealing with a large or national tenant that is delaying or refusing to make rent payments at the expense of your business, contact us today to learn more about how we can help.

The post Could Commercial Sublease Agreements Help Landlords? appeared first on Raizner Slania LLP.

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