10 Things to Remember When Subleasing an Office Site
Published on Saturday, 28 September 2013 03:12:27 Written by Marc
Ever find yourself with leased space that you just do not need, stuck with years left on your lease and the horrible feeling of throwing money out the window every single month. Therefore, you decide to sublease the space and recuperate at least part of this rent you are giving the landlord. This happens more often than we think. There are numerous reasons why companies would need to sublease space. Here are ten things not to forget when subleasing.
- Try to get the landlord to cancel the lease even if you have to leave some money on the table: It is possible that you get lucky and the landlord needs your space for another tenants looking to expand in the same building. By doing a deal directly with the landlord will save on broker fees and avoid the risks involved with subleasing. For example, a sub-landlord could stop paying rent after a few months. So consider paying a penalty, give back the space to the landlord and save time and stress.
- If you have to sign a sublease, arrange so that the sublease ends at the same time as your own lease. For example, if you have 6 years left to your lease, make sure your subtenant takes your space for the full six years. Even if your tenant only wants the space for five years, better to try to have the lease extended for an extra year even if you need to give your subtenant something in return because if you only sublease for five years, when that sublease comes due, you will have zero negotiation power with your subtenant. Suppose you only sublease the site for five of those remaining six years. Once the five years pass and your subtenant wants to renew for the extra year, your subtenant will be able to tell you that he/she is walking away unless you practically give the space away. In addition, your fall back scenario is to try to find another subtenant that will take over your space for one year only. Since we all know the cost to set up offices is high, very few companies will do this unless they manage to strike a deal for a few years with the building’s landlord. However, you will be in a weak position to negotiate. Better to sublease the space for the remaining of the term on your own lease, this will save you a ton of headaches later.
- How much parking spaces are you allocating in your sublease? If you are subleasing your entire space it is an easy question to answer, but what if you have other spaces in the same building and only need to sublease a portion of your total space. Make sure you give back what you can, if you give parking spaces that your colleagues are already using they might not appreciate.
- Restorations and new fit-ups. Does your lease force you to restore things at the end of your lease? Does it force you to leave some things in place? This can influence what in turn you can or cannot allow your subtenant to do or at a minimum, what you need to add to the sublease. For example, if your own lease forces you to remove everything you installed restore the space as it was, you will want to add the same clause to your sublease, in order for your subtenant to remove all the fit-ups he or she does.
- Division of space. If you find yourself with a large space to sublease, will you be able to sublease it as a whole or will you need to divide it in order to sublease it in pieces? Sometimes it may pay to subdivide the space but you will need to verify with local building codes to see if this is possible (often for fire exits). In addition, you will probably need to run this by your landlord for approval. Then you need to do a cost/return analysis to see if it makes sense to spend the money, considering the remaining term on the lease.
- Phone systems. Are you leaving the phone system in place or taking it out? Often times a subtenant will welcome a phone system in place and may even offer some extra money for the usage.
- Furniture. Same as above, are you subleasing the space with or without the furniture? This can sometimes be a plus to the subtenant. Also, do not forget to put a note somewhere in your files so that you or the person that will be in your shoes at the end of the sublease knows who owns the furniture (and the phone system). If you allowed your subtenant to use the existing furniture but did not give them to him/her, then you will need to remove them (or sell them) at the end of your lease.
- Parking spaces unused. In bullet number three, I mentioned to careful about how many parking spaces you include in the sublease. However, in some leases, the landlord grants the tenant with the possibility but not the obligation to lease a number of parking spaces. If your subtenant has no need for all the parking spaces that your lease will allow for, it will be good to notify your landlord and let him know how parking spaces your subtenant may need.
- The payment terms themselves. This is obviously an important element and few would say they would forget about this, but as we know since each lease is unique, you need to make sure that the sublease you want to sign resembles as much as possible your own head lease. If your head lease has an escalation clause for the base rent, you will want to have this clause in the sublease, same thing for everything else that you are paying for in the head lease.
- Lastly, do not forget to get your sublease approved by your landlord. Ideally keep your landlord informed of the progress you are doing with your sublease so that when you get an offer to sublease your space, you can send him or her a copy for revision. If your lease allows you to sublease without informing your landlord you have saved yourself a step, but it is still advisable to inform your landlord of what is going on, your landlord will appreciate this gesture. Bonus tips:
- Before you agree to a sublease, go over the all details once again. Often small details, which no one thinks are important, can suddenly become big issues. For example, if you have an office space which you are subleasing which had exterior signage, subleasing your site does not automatically mean that your subtenant can replace your signage with his or hers, even if you no longer need your own signage on that building. The landlord and city might want to have their own word to say on this. Be careful what you promise your subtenant, often adding a simple sentence like ‘subject to the landlord and city giving permission….’ or something similar can save you some headaches later.
- Unless you sublease on a regular basis and your internal accounting department is familiar with this situation, getting money from a sublease, it is recommended you set things up with your internal accounting department and constantly check to see if the rent is coming in on time. Also, if you receive an annual adjustment from your landlord, make sure you advise your subtenant before simply sending him or her request for payment. If you initially agreed to an all-included monthly amount with your subtenant, you might have to absorb any additional cost your landlord requests from you.
Related Articles:What to do When You Are Stuck with an Unleaseable Building Conducting Risk and Reward Analysis For Subleases How to Save Money When Managing Real Estate Leases. 10 Ideas for Saving Money Part II - 10 Ideas for Saving Money Beware of the Real Cost of Sub Dividing a Site