Over the past several years as businesses struggle to ride out the tough economic times, they have had no choice but to downsize. Tied to commercial leases for more office or retail space than they need, an assignment of the lease or the subletting of the extra space seems like an attractive way of saving on expenses. In making the decision whether to assign or sublet, the tenant should first carefully examine its lease to determine whether the lease contains any provisions prohibiting or restricting assignment or subleasing. Commercial leases, like any other contracts, are governed by their terms. Therefore, whether a tenant has the right to assign a lease to another party or to sublet the leased premises to another tenant depends on the language of the tenant’s lease with the landlord. If the lease does not contain language prohibiting or restricting the assignment or transfer of a tenant’s interest, a tenant is free to assign or transfer all or part of its interest. A tenant is not required to obtain prior consent of the landlord, unless the lease contains language requiring the tenant to obtain prior consent of the landlord.
In making the decision whether to assign or sublet, the tenant should also understand the legal differences between the two concepts. An assignment of a lease is the transfer by the tenant of all of the tenant’s rights and interest in the lease. In an assignment, although the assignee tenant effectively steps into the shoes of the assigning tenant, the assigning tenant continues to remain liable to the landlord on the lease. With an assignment, if the assignee breaches, the landlord has the right to enforce the terms of the lease against the assigning tenant or the assignee tenant.
A sublease is different from an assignment. A sublease is a separate contract between the transferring tenant and the subtenant. The sublease may transfer all or a part of the leased premises, for all or a part of the lease term, and under terms that are similar or materially different from the lease. As with an assignment, the tenant remains liable to the landlord on the original commercial lease. With a sublet, the landlord does not have a legal right to enforce the terms of the original lease or sublease against the subtenant in the event of breach.
There are many different practical and legal considerations involved in negotiating and documenting the terms of an assignment or sublease including the legal consequences to the tenant under the assignment or sublease if landlord terminates the lease. Therefore, an experienced real estate attorney should be consulted so that the parties understand the consequences of such transactions and their competing interests are protected.
By: Gregg I. Adelman