Understanding Assignment and Subletting in Commercial Leases
In the world of commercial real estate, knowing your rights is essential to negotiating the best deal on your lease. Your business needs are likely to shift and change over the course of a longer lease, so it’s important to have guidelines included that allow some wiggle room should this be the case. This is where the concepts of assignment and subletting become crucial to understand for tenants. Taking some time to get familiar on the differences between the two, why you may want to consider doing either, and the pros and cons of each could mean the distinction between success and failure for your company.
What is the Difference?
Choosing to sublet or assign your commercial real estate property is a big decision that shouldn’t be taken lightly. So, let’s first discuss the difference between the two procedures.
- Sublease: A sublease is designed so that a tenant may transfer a portion, or all, of their rental rights to a subtenant (or third party) for a temporary length of time. The original tenant may essentially create his/her own lease with the third party outlining stipulations they agree upon. If the terms are accepted by the subtenant, the original tenant still remains fully liable to the landlord and the subtenant is only obligated to meet the terms of the lease between him/her and the tenant. Should there be a breach of contract between the two, the tenant is responsible for handling it privately and is still bound to carry out the terms of his/her original lease with the landlord.
- Assignment: If a tenant chooses to assign their lease to a third party, they are choosing to permanently pass on their rights and interest to a new tenant who will take their place. This does not, however, always mean that the original tenant is free from obligation once the lease has been re-assigned. Depending on the structure of the original lease, the landlord may still be able to hold the primary tenant liable in case of any damages or breach of contract by the new tenant. This can be avoided by reading over your lease terms carefully before you sign, which we will discuss in a moment.
So, the next question becomes, why is it important to have the option to sublease or assign your commercial real estate property? There are actually quite a few important components that factor in.
- Seasonal Business: A business that only operates for a portion of the year does not want to be locked into a full-term lease. Subletting the lease will allow this business to pay for the space only while it was being utilized, saving them lots of money in the long run.
- Too Much Space: If a commercial property checks all of the boxes but has too much space, this will be another reason a tenant may want to have the ability to sublet a portion of it.
- Unforeseen Economical Challenges: Should a business be negatively impacted by the constantly fluctuating economy, it will be important for them to be able to get out of a lease that challenges their bottom line.
As with anything, choosing to sublet or assign your commercial real estate property has a few negative connotations as well.
- Additional Workload: Subletting your space means taking on the role of a temporary landlord, which can affect your productivity.
- Extra Liability: Choosing to offer your space to a third party in any capacity could create additional liability, even if you are permanently leaving the space.
Before You Sign
Based on what you now know, you hopefully have a better understanding of why it is important to have the option to sublet or assign your commercial real estate property. Keep in mind, however, that the landlord is concerned about his/her bottom line too and they will do what it takes to ensure that their investment is protected. Read your lease carefully to understand whether or not subletting or assigning will even be permitted. If it does not expressly prohibit it, it can be assumed that you can, but you will want to be clear under what terms. Does the landlord need to approve the next subtenant? If assigning your lease, will the landlord be willing to release you of your prior financial obligations? Getting crystal clear on the parameters and procedures will help you to guarantee that you are getting exactly what you need.
Interested in Subletting or Assigning a Commercial Lease in Tampa?
If you need help understanding your rights when it comes to subletting or assigning your commercial lease, the best way to do it is to sit down with a skilled professional who can walk you through the process. John Milsaps has spent the past decade gaining expertise on the ins and outs of the commercial real estate market in Tampa and the surrounding areas. He works hard to represent tenants in an effective and professional manner. Contact him today to begin to better understand your tenant rights.