A sublease is when Tenant A negotiates a lease with another Tenant B to take over the commercial space that Tenant A is responsible for. The answer to the the question, “Is a sublease a good deal?” depends upon what has happened to the market for the type of space that is being considered since the lease was originally agreed to. For example, if the market is tight and the vacancy rate is lower than when the lease was originated, then Tenant A may be able to make money on the lease by negotiating a new sublease at a rate that is higher than what Tenant A is paying. This is only possible if the existing lease or master lease does not restrict Tenant A from subleasing the property or if it is permitted, does not restrict Tenant A from charging a rate higher than Tenant A is paying. On the other hand, if the market has an over supply of available space and the vacancy rate is higher, then Tenant A may have to subsidize the rate to make it attractive for potential Tenants. How big this subsidy turns out to be depends upon not only the market, but what the reason is that Tenant A is needing to get rid of the space. It could be that the space does not meet a growing companies needs, and Tenant A may be more than willing to make a very attractive deal for Tenant B. If Tenant A is subleasing the space because of a business failure and is financially in a bad way, Tenant A may not have the financial ability to help out. Both Tenant A and Tenant B need to make sure that the master lease allows Tenant A to sublease the space. A sublease agreement will usually bind Tenant B not only to the sublease agreement but also to most of the terms of the master lease. In addition to the possibility of making an attractive deal for Tenant B, Tenant A may be willing to leave behind office furniture, phone equipment and other items for Tenant B to use. As always in my blog, make sure both parties to a sublease understand all of the terms and conditions of both agreements and seek legal counsel for advice. If you have more questions about leasing, you can contact the Tucson Lease Pro at www.tucsoncommercial.com.
Tags: master lease, sublease, Subleasing, Tucson Commercial Real Estate
