Commercial Leases: Assignment vs. Sublet
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Assigning a Commercial Lease
Assignment takes place when one party of the lease transfers all the interest and obligations of the lease to a third party. Typically, a tenant will assign his interest in the lease to another tenant. It is also possible for a landlord to assign his interest in the lease to another landlord.
Many commercial leases will include restrictions on the ability to assign. Most consumer protections laws that apply to residential leases do not apply commercial leases, subsequent modifications and assignments. However, depending on the state law, restrictions on assignment of commercial leases may be valid if such restrictions are "reasonable."
Subletting a Commercial Lease
When subletting, the original tenant (the sublessor) is still obligated to the landlord for the terms of the lease. In legal jargon, the sublessor maintains privity of estate and privity of contract with the landlord. The sublessee, however, is only liable to the original tenant and not to the landlord.
What Are Some Advantages of Commercial Subleases?
Here are several reasons why a commercial lease may be a good option to look into:
- Rates for commercial subleases, especially short-term ones, may be less than lease rates.
- Commercial lease often has a flat rental payment structure with no unusual surprises.
- In a commercial sublease, the sublessee usually has limited obligations to repair and maintain common areas.
- A sublease may put the sublessee in an advantageous position when it comes to negotiating a new lease with the landlord directly (i.e., when the main lease ends).
- Commercial subleases are usually not as complex as commercial leases.
What Are Some Disadvantages of Commercial Subleases?
The following disadvantages may be associated with commercial leases:
- If the sublessor defaults by failing to pay rent to the landlord, the sublease may be negatively affected.
- Detrimental provisions from the main lease may negatively affect the sublessee by passing on certain costs.
- Delays in repairs are possible because such repairs may be the landlord’s ultimate responsibility, but the sublessee still has to proceed through his sublessor.
Seeking Legal Advice
Commercial lease agreements can be very complex. You should consider contacting a qualified real estate lawyer to help you understand your options for assigning or subletting a lease.
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Last Modified: 04-02-2014 03:39 PM PDT
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