February 2018

Effective Essentials of Subleasing Commercial Real Estate

Almost all preprinted commercial real estate lease forms in the state of California provide the tenant the ability to sublease the premises with the landlord’s prior written consent. The landlord cannot unreasonably withhold the consent to sublease. However, there are legitimate reasons to withhold consent for example change of use of the premises, financial ability and the tenant’s prior experience in the stated business.

A recommendation for the tenant is to have a meeting with the landlord to notify them of the intention to sublease the property. The landlord may be able to work with the tenant in releasing them from the lease early. Listed below are 3 reasons to meet the landlord:

1. The landlord may have a replacement tenant for the premises.
2. A less expensive financial settlement may be worked out between the parties rather than trying to sublease the premises which could be costly.
3. Provide the Landlord with evidence of decreasing revenues that demonstrate the Tenant’s lack of ability to continue to pay the rent.

The list below should be considered by the tenant if the landlord does not oppose subleasing the premises:

1. The tenant should not ask more than the current rate he is paying to the Landlord. The lease obligation is a liability for the tenant. It may take far longer to sublease at a higher rate which could be a costly mistake. In addition, the rents should be offered at a discount rate from the current rate if the lease time is 3 years or less.
2. The current tenant should thoroughly clean, paint and place new carpet in the premises to make it “move in ready”.
3. Paramount to achieving success is picking the right broker to market the space. In addition, the tenant should consider providing an added leasing bonus to the broker since there is usually more work and less commission earned on a short- term sublease.

The recommendations mentioned above should provide a roadmap for success in subleasing commercial real estate property.

“Lee has a tremendous breadth of knowledge in the real estate field. He assisted me with a case which involved combing through a great deal of information, and he was very thorough in navigating his way through the sea of documents with a good understanding of the facts. He was always mindful of trying to be as efficient as possible by focusing on the most relevant information rather than delving into every single document. I would absolutely work with Lee again in the future.”  
Eugene Kim, Attorney, Stream Kim Hicks Wrage Alfaro, PC