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How to Sublet an Office Space
When you need office space to conduct business, you have several options. Business rentals can be expensive, but you can sublease office space, share office space or even rent it by the day or month.
Benefits of Flexible Office Space Rentals
If you’re a business owner looking for flexible solutions for office space, you’re not alone. More and more professionals are looking outside the box as they search for work space to conduct business. Of course, you could always sign a fixed lease, but maybe this isn’t what’s best for your company.
A short-term lease or a sublet might be the perfect way to get started renting office space. This allows you to test the waters to see what works for your business. For example, if you were to sublease medical office space, you’d have options if you thought that you might outgrow your space within a short time.
How to Sublet Office Space
When you sublease office space, you assume a lease for a sub-lessor who needs to vacate the space before the lease expires. Subleasing is often less expensive than typical rental rates, and you may also luck out and find a furnished space with furniture and office equipment already in place for you to use. When the lease expires, you should have first right of occupancy to continue the lease.
The subleasing process typically involves touring the space to make sure it will fit your needs. Once you’ve decided you can make it work, you’ll need to submit an application with the lessor to be approved to take over the lease. With approval, you’ll sign a contract to assume all responsibilities of the lease in exchange for all rights included with occupancy. You’ll need to pay any deposits and fees, and then you can assume occupancy.
Month-to-Month Office Space
Renting month-to-month office space is a smart strategy for many business owners. When you opt for this flexibility, you can often seal the deal and move in within days. Many of these office spaces are set up for the optimal convenience of tenants, furnished with office furniture and equipment that you lease along with the office space. You have the flexibility to fold up shop at the end of a month if occupying the space isn’t working for you. You can also keep extending your lease if you wish. Be aware that the terms of the lease can change with little warning, and your landlord could even opt not to continue your lease without much advance notice.
Rent Office Space by the Day
Renting office space by the day might be your solution. This type of rental agreement is ideal for professionals who don’t need office spaces every day. Perhaps only you need a place to receive clients occasionally. In this case, you could rent office space for one day when you need it. Renting office space by the day can also give you access to office equipment if you need it occasionally.
Share Office Space
When your business is just getting off the ground, sharing office space can be an ideal solution. This arrangement involves sharing the rent with other professionals, and also sharing the physical space. Perhaps you can co-exist in the space at the same time by dividing the work space and sharing common rooms with office equipment. Or, you might work out a schedule where you use the space during specific hours or days of the week and the other professionals use it when you’re not there. Open communication is crucial to make this type of arrangement work.
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Assignments and Sub-Leases
Video-course: tenant’s duties - module 4 of 5, video-course: warranties and limits on sales contracts - module 3 of 5.
Assignments and subleases are terms for situations in which a tenant in possession of property transfers his or her right to possess that property to a third party. If the lessee transfers his or her entire remaining interest in the tenancy, then the transfer is known as an assignment. If the lessee transfers only part of his or her interest, then the transfer is known as a sublease. For example:
Barney leases Rubbleacre from Fred for two years, beginning January 1, 2013 and ending on December 31, 2014 at the rental price of $1,000 per month. On January 1, 2014, with one year remaining on the lease, Barney and Kazoo agree that Kazoo will occupy the land for the remainder of the lease, and that Kazoo will pay the $1,000 per month rent to Fred. In this case, Barney has “ assigned ” his lease to Kazoo. Barney leases Rubbleacre from Fred for two years, beginning January 1, 2013 and ending on December 31, 2014 at the rental price of $1,000 per month. On January 1, 2014, with one year remaining on the lease, Barney and Kazoo agree that Kazoo will occupy the land for the next six months and pay the rent for those months. At the end of six months, Barney will move back onto the land and finish out the remainder of the lease. In this case because Barney and Kazoo have agreed that Kazoo will assume less than the full remainder of the lease, Barney has “ sublet ” part of his interest in Rubbleacre to Kazoo.
See McClain Airlines, Inc. v. Republic Airlines, Inc. , 1991 U.S. App. LEXIS 18047 (1991) .
As a general principle, both assignments and subleases are allowed, and so any tenant can assign his or her lease to a third party or sublease his or her interest in the property to a third party at any time. However, as a practical matter, many lease agreements specifically prohibit assignments or subleases. Of course, any agreement between landlord and tenant that prohibits assignments or subleases is fully binding and enforceable.
The key issue to be discussed, then, is what affect the transfer of interest has on all the involved parties. Since there are several parties involved in these transactions, we will start by defining the parties. In an assignment, there is the landlord/ lessor (the property owner), the tenant/ assignor (the person who leased it from the landlord and then assigned his or her interest to a third party) and the assignee (the person who received the assignment). In a sublease, there is the landlord/ lessor, the tenant/ sublessor (the party who leased the property from the landlord but is now subleasing the property to a third party), and the sublessee.
As a further necessary introduction, there are two forms of relationship between every landlord and tenant. There is a contractual relationship that took effect and exists by virtue of the lease agreement itself. That relationship is known as “ privity of contract ”. In addition, there is a property ownership relationship, by virtue of their sharing of the ownership of the property. That relationship is known as “ privity of estate ”. “Privity of estate” exists between two parties when those two parties have successive ownerships in the same property (i.e., one holds a present interest while the other holds a future interest or they both hold future interests, one after another).
An assignment is a full transfer of the lease between the tenant and the assignee. Therefore, since the tenant no longer has any ownership interest in the property, there is no longer any relationship between the landlord and the tenant as far as the property ownership is concerned. Therefore, there is no longer “privity of estate” between the landlord and the tenant. On the other hand, there now is privity of estate between the landlord and the assignee. This is because the assignee now owns the present interest in the property. This present interest will end only at the end of the lease when it will go back to the landlord. Since the landlord’s right to possession is now successive to the possession of the assignee, the landlord and assignee are in privity of estate.
Privity of contract, on the other hand, still exists between the landlord and the tenant. This is because the original contract that existed between the landlord and the tenant is still fully valid even after the assignment. In other words, the landlord does not give up his or her right to enforce the lease agreement with the tenant just because the tenant transfers his or her interest to the third party. There is no privity of contract, of course, between the landlord and the assignee because those two parties never agreed to anything between themselves. For example:
Ethel owns Blackacre. She leases Blackacre to Lucy for 5 years. During year 2, Lucy assigns her interest in Blackacre to Ricky. Ethel is in privity of estate with Ricky and not Lucy and in privity of contract with Lucy and not Ricky. Also note that Lucy and Ricky are in privity of contract (because they made an agreement with each other), but not in privity of estate (Lucy has no possession interest in Blackacre, and so she does not have an interest that either follows or is followed by Ricky’s interest).
The sublease is only a partial transfer of interest from the tenant to the sublessee. The tenant is transferring part of his or her interest in time to the sublessee. Therefore, there is no privity of contract or privity of estate between the landlord and the sublessee in a sublease. The reason that there is no privity of estate between the landlord and the sublessee is that the landlord’s right to possession of the property does not follow the sublessee’s right to possession. Instead, it still follows the tenant’s right of possession. The landlord is, however, still in both privity of estate and privity of contract with the tenant. Privity of contract is still applicable for the same reason as with the assignment (the landlord and the tenant agreed on the terms of the original lease). In addition, there is privity of estate between the landlord and the tenant because the right to possession of the landlord still follows the right of possession of the tenant. For example:
Ethel owns Blackacre. She leases Blackacre to Lucy for 5 years. During year 2, Lucy subleases Blackacre to Ricky for one year. Ethel is not in privity of estate or privity of contract with Ricky because she did not make an agreement with Ricky and because her interest in possession of Blackacre does not follow Ricky’s (it follows the end of Lucy’s five year lease). On the other hand, Ethel and Lucy are in both privity of contract (because their agreement is still valid) and privity of estate (because Ethel’s interest follows the end of Lucy’s lease). Note that Lucy and Ricky are in both privity of estate and privity of contract. They are in privity of contract because they made an agreement with each other. They are in privity of estate because Lucy’s interest (in the remainder of her lease) follows Ricky’s interest (Lucy will get Blackacre at the end of Ricky’s one year sublease).
The ramifications of who is in privity of what with whom can be crystalized in a few rules:
- A party collecting rent (landlord from the tenant or tenant from assignee or sublessee) can collect rent from someone with whom he or she is in privity of contract or privity of estate.
- A party looking to enforce obligations of the landlord can only enforce those obligations against a party with whom he or she is in privity of estate.
- The contractual terms of the lease itself can only be enforced against a party with whom the party seeking to enforce the terms is in privity of contract.
1. Ethel owns Blackacre. She leases Blackacre to Lucy for 5 years. During year 2, Lucy assigns her interest in Blackacre to Ricky.
- Ethel may collect rent from Ricky or Lucy.
- Lucy may not collect rent from Ricky.
- Ricky may enforce landlords’ obligations against Ethel, but not against Lucy. Lucy may not enforce landlords’ obligations against Ethel.
2. Ethel owns Blackacre. She leases Blackacre to Lucy for 5 years. During year 2, Lucy subleases Blackacre to Ricky for one year.
- Ethel may collect rent from Lucy, only, not Ricky.
- Lucy may collect rent from Ricky.
- Ricky may enforce landlords’ obligations against Lucy, but not against Ethel.
- Lucy may enforce landlords’ obligations against Ethel.
Assignment, Subleasing, And Why It's Important To Negotiate The Right To Do Both
Share this article
In the market for commercial space? Chances are you’re focusing your efforts on sourcing a property that suits your current business requirements.
However, in today’s ever-changing economy/business climate, companies often need to upsize or downsize at short notice.
As a tenant, where does that leave you when locked into a long-term commercial lease?
Keep it flexible
It’s hard to anticipate whether you’ll be faced with breaking a lease before it happens. So, it’s important to keep your contract flexible by negotiating a subleasing and assignment clause into your agreement. This means you’ll be able to transfer all or part of your space to another tenant down the track if the situation calls for it.
What’s the difference between an assignment and a sublease?
Lease assignments and subleases are often viewed in a similar light. This is because both bank on a third party taking over a commercial lease. But, there are some important differences to consider:
A lease assignment is when an entire property/space, including the existing tenant’s rights and interest in the commercial lease, is transferred over to a new party.
When it comes to leasing assignments, the new tenant takes on the rights and responsibilities of the assigning tenant. That means the original tenant is not liable anymore if the new tenant breaches the lease.
Lease assignment is best undertaken when:
- The whole lease can be disposed of
- The current lease has favourable terms that would be accepted by another tenant
Major hurdles when it comes to lease assignment:
- Requires upfront capital incentive
- Requires landlord consent
A sublease, on the other hand, is a separate contract between the original tenant and a subtenant. Unlike an assignment, a sublease only turns over part of a property. That means that the original tenant shares the rights and responsibilities to the premises.
A sublease may be preferable for tenants who wish to lease out part of their property to another company for the remainder of the lease term. It may also suit if a tenant needs to rent out the entire property for a period within their fixed-term lease.
In this case, the sublessee treats the sublessor as their landlord. In turn, the sublessor assumes liability on behalf of the sublessee.
Subleasing is best undertaken when:
- You're looking for a partial or temporary cost saving initiative
- Your landlord does not consent to or permit assignment
- Your current lease has. onerous clauses that another tenant wouldn’t agree to
Major hurdles when it comes to subleasing:
- Inherent security risks
- You’ll likely recuperate less than 50%-70% of the rent
You can learn more about some of the benefits of commercial subleasing here and what commercial sublessors should expect from subleasing here .
The importance of a lease assignment and sublease clause
The right to assign or sublet a premises comes down to the language used in the commercial leasing agreement.
If there is no prohibiting or limiting clause, a tenant does not need the landlord’s permission to do so. However, if the contract contains such provisions, the existing tenant needs to get the landlord’s consent. This can prove quite costly for the tenant, who may have to continue to pay rent even if they no longer occupy the premises.
Other options for breaking a commercial lease
The odds usually aren’t stacked in the tenant’s favour when it comes to breaking a commercial lease . However, if you used a tenant representation specialist before signing your contract, you should have received the right advice to protect yourself.
Well negotiated leases may have a ‘break clause’, however, most landlords are reluctant to include one of these. A break clause basically lays out the circumstances and the manner in which a tenant can break a commercial lease early.
As with any contract, it’s up to the two parties to negotiate terms. One option may be to allow early termination of a lease if a new tenant with similar financial security takes over. This is similar to an assignment. However, the new tenant would take over the full liability of the remaining lease.
Pay out the commercial lease term
Not a desirable option for most tenants, however, there may be situations where it is the only choice. For example, if you were closing your business before the expiry of your lease term and there was no way to arrange an assignment or sublease, paying out the remainder of your term may be the only course of action.
Most people would consider this a worst-case scenario. This, again, highlights the importance of seeking the help of a tenant representation specialist prior to signing any commercial lease .
Commercial tenants should try to mitigate their risks upfront. Before signing a lease, or even at the heads of agreement stage , we suggest negotiating a clause which requires a landlord to act reasonably in the case of lease assignment or sublease.
Work with a commercial tenant advocate
Negotiating commercial lease terms can be tricky (even daunting at times). This is because most businesses only have to do it once every 5-10 years. Being able to negotiate provisions that would not otherwise be included may also prove challenging because landlords prefer not to limit their options.
Luckily, an experienced tenant representative will guide you through the lease negotiation process so your needs are met every step of the way. So, the next time you face a lease negotiation, let Tenant CS balance the playing field.
Considering breaking your lease? Whether you're exploring options like subleasing, assigning, or surrendering, a detailed property strategy is crucial.
Consulting with a tenant representation specialist is your best move, especially if there's less than a year remaining on your lease. At Tenant CS, we exclusively represent tenants, not landlords. Whether you need assistance with subleasing, exiting your lease, finding and negotiating a new lease, or undertaking a mid-lease rent review, appointing us can potentially save you hundreds of thousands of dollars over your lease term while protecting your interests.
Book a call with us today to discover how we can help you effectively negotiate your next lease or exit your current lease early !
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What is the Difference Between an Assignment and a Sublease?
by Pam Pester | Sep 17, 2019
Commercial real estate clients frequently ask how an assignment of a lease differs from a sublease. The difference is primarily a legal one, although each achieves a similar practical result.
Assignment . An assignment of a real estate lease is a complete transfer of the right to be the tenant under the lease. The third-party assignee becomes the “tenant” under the lease, taking over all of the leased premises, and is substituted for the old tenant. The new commerial real estate tenant pays the rent required under the lease directly to the landlord and is treated as the tenant under the lease for all purposes. However, the catch is that the assignor tenant, unless released from liability by the landlord, remains liable for the obligations under the lease if the new tenant defaults. The old tenant can be sued by the landlord for back rent and other obligations imposed by the lease if the new tenant fails to pay or perform as required by the lease. Given that a commercial real estate tenant who assigns a lease remains liable for the default of the new tenant, tenants should try to negotiate an automatic release provision. Unfortunately, many landlords are unwilling to make this concession. An alternative strategy is to ask the landlord for a release if the proposed new tenant is of similar financial strength and creditworthiness.
Sublease. A sublease is a new lease agreement between the real estate tenant as sublessor and a third party as sublessee for all or a portion of the leased premises. The original commercial real estate lease between the tenant and the landlord remains in place, unaffected by the sublease. This means that the tenant remains liable for monthly rent under the original lease, while collecting rent from the subtenant under the sublease, which may be more, less or the same as the rent due under the main lease.
A sublease can be for less than all of the leased premises, while an assignment that transfers the entire lease must be for all of the premises. A sublease is a more involved transaction, as it requires a full sublease document between the commercial tenant as sublessor and the sublessee.
Reasonable Consent . The landlord must be reasonable in consenting to the proposed assignment or sublease. Under Florida law a landlord cannot be unreasonable or arbitrary in withholding consent to an assignment or sublease. Nonetheless, it is still better to state in the text of the lease that the landlord will be reasonable.
In drafting an assignment or sublease clause, the tenant’s goal is flexibility. Being able to assign or sublet excess space with minimal interference from the landlord and minimal liability in the event the new tenant defaults can be a tremendous benefit to the tenant as the business climate changes from year to year.
When you need assistance with your commercial lease in Tampa, FL and surrounding areas contact Pam Pester, Owner and President of Mobiliti CRE. Mobiliti CRE is an independently owned commercial real estate company specializing in exclusive tenant and buyer representation.
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Articles > Commercial Property
What is the Difference Between Subletting and Assigning a Lease ?
June 22, 2022 Philip Evangelou Sarah El Hallak
Where a tenant decides they no longer wish to be bound by a lease, they may either sublet the premises or assign the lease. Both require the consent of the landlord.
What is a sublease ?
A sublease is an arrangement where the tenant grants another party the right to lease part or all the premises. The sublessee is given the right to exclusive possession as part of the interest has been assigned. However, the original tenant is still legally responsible under the lease. It is important to note that if you choose to sublet your premises, you essentially become the sublandlord. Reasons for subleasing include :
- To relieve financial pressure, particularly if there is unused space on the premises.
- They provide flexibility for individuals seeking a short- term lease as they tend to fall within 6-24 months.
- The landlord may secure further party for rental income.
What does it mean to assign your lease ?
An assignment of a lease involves transferring the lease from one party to another. The entire proprietary interest is transferred to the assignee. All your obligations as a tenant are now transferred to the new party (assignee). Once assigned, they are responsible for paying the rent and any maintenance obligations as they become the new tenant. Like a sublease, you are still legally responsible if the new tenant breaches the lease. However, there are some exceptions to this, including if a clause in the lease releases you from any obligations upon assignment.
Should I choose to sublet or assign the lease ?
Your intentions regarding the premises will determine the most suitable option. Assigning the lease will be recommended if you wish to sell or relocate your business. You will be absolved of any responsibilities if there is a clause in the lease agreement. Alternatively, subletting the lease would be suitable if there is unused space within the premises or you wish to be relieved of some financial burdens.
It is important to note the main difference between assigning and subletting a lease. With subleasing, only a part of the interest is given to the sublessee. You are still legally responsible under the lease. When assigning a lease, you transfer your entire interest in the property. Depending on the lease agreement, you are generally released from any obligations. Subletting or assigning the lease must be conducted in accordance with the Retail Leases Act 1994 .
About Philip Evangelou
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About Sarah El Hallak
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What is the Difference Between Subletting and Assigning a Lease?
By Lianne Tan Lawyer
Updated on February 5, 2020 Reading time: 5 minutes
This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .
What Is a Lease Assignment?
What is subleasing, is assignment or sublease more appropriate, key takeaways.
As a tenant, you might find yourself in a situation where you need to get out of the lease. Here, you can choose to either:
- assign the lease; or
- sublet the premises.
Both assignment and subletting will require your landlord’s consent before you do so. While there are some similarities between both options, there are key differences between the subletting and assigning a lease. This article explains the crucial distinctions between assignment and subletting and outlines when each would be appropriate.
Assigning a lease is the process of transferring all your obligations as a tenant under a lease to a new tenant. The new tenant will then be responsible for:
- paying rent;
- paying outgoings; and
- any repair and maintenance obligations.
The party that you assign the lease to will become the tenant under the lease.
However, it is important to understand that an assignment does not release you from your legal responsibilities under the lease. This means that you are still responsible to the landlord if the new tenant breaches the lease.
For example, if the new tenant does not pay their rent, you will be legally responsible for paying it.
There are some exceptions to this, including:
- where your lease includes a clause releasing you from all your obligations under the lease on an assignment; or
- if you are a retail tenant and the relevant state or territory-based laws outline that you will no longer be legally responsible on an assignment.
If you wish to be released from your legal responsibilities after you assign your lease, you will need to negotiate this with your landlord.
Assigning a lease will often require that you meet a set process and conditions, including:
- obtaining your landlord’s consent; and
- proving that the new tenant will be able to meet their obligations under the lease.
When finalised, all parties should sign a deed of assignment which formalises the arrangement.
Subletting your premises allows a new tenant to take over either:
- part of your premises; or
- all of your premises.
Depending on how much of your premises you have sublet, the third party will also take over some of your legal obligations under the lease.
For example, if you run a teaching centre at your premises, you might sublet a classroom to a tutoring business. The tutoring business will then pay part of your rent and may be responsible for maintaining the classroom that you have sublet out.
If you sublet your premises, you are still legally responsible under the lease. This means that if your subtenant does not meet their obligations under the lease, you will be responsible for rectifying any breaches.
For example, if your subtenant fails to pay their rent, you must still pay the full rent to the landlord. If you do not, you will be in breach of the lease.
It is important to remember that if you sublet your premises, you effectively become the sublandlord under your sublease. Generally, a sublease will include and incorporate the terms of the original lease you signed with the landlord as well. In this case, you should take care to exclude certain obligations of your landlord, like to insure the building.
If you are subletting the premises to share the financial cost of the lease, you should pay attention to the timing of the subtenant’s obligations. This will ensure that the subtenant will pay you their portion of the rent before you are due to pay the landlord.
Like an assignment, subletting will require you to follow a certain procedure and meet certain conditions. You will also need to obtain the landlord’s consent before you proceed. To formalise the arrangement, both you and the subtenant must sign a sublease.
Whether an assignment or a sublease is more appropriate for you will depend on your intention for your business.
A sublease may be more appropriate if you:
- intend to downsize your business;
- wish to share part of the costs under your lease; or
- have additional space in the premises that you have no use for.
On the other hand, if you intend to sell your business or end your lease early, an assignment will be more appropriate.
While both assigning and subletting your premises allows you to pass on part or all of your premises to another party, they are two distinct types of dealings. An assignment passes on the whole of the property to a third party and may allow you to be released from legal responsibility. In comparison, a sublet allows you to offload part of your lease obligations to another party, while you still remain legally responsible under the lease. If you have any questions about assigning or subletting a lease, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
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