The Law of Commercial Subleases

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 The Law of Commercial Subleases

Commercial subleases are entered into by the original tenant and a business that will occupy the property for the remaining portion of the lease period.

In this agreement, the original business renter is called the “sublessor,” while the subsequent tenant is called the “sublessee.” The landlord – the individual who owns the property – is called the “lessor” and the sublessor the “lessee.”

The Right to Sublease

The right of a commercial lessee to sublease is not guaranteed. Nevertheless, the law favors “assignment.” Thus, if the lease is silent on the matter, the right to sublease is commonly assumed.

Most commercial leases grant the lessee the privilege to sublease with the landlord’s written permission. Subleases usually have this same provision, allowing the sublessee to sublease.

Raising the Rent

The original lease may prohibit sublessors from raising the rent to make a profit. Therefore, a sublessor may not raise the rent above what they pay to the landlord or would pay for that subdivision.

Nevertheless, if not expressly provided for in the lease or sublease, there are no limitations on the number of rent increases. In commercial leases, the limit is set by the laws of supply and demand.

Damage During the Sublease Period

Commercial sublessees are usually liable for any damage to the property while in possession. And lessees, in turn, are generally liable for any damage to the landlord. Also, unlike residential lessees, commercial sublessees usually must keep the property in a good and safe condition, including electrical wiring, plumbing, heating, and all other equipment or system installation.

Sublessees are responsible for the terms and conditions spelled out in the sublease. Therefore, sublessees may be excused if the sublease contains unfair, unreasonable, or shocking terms or if the sublessee signed the contract under duress or undue influence. Nevertheless, as the terms of the lease constrain the lessee, the sublessee must abide by the sublease terms.

How Are Commercial Leases Different From Residential Leases?

Although there are many distinctions between a commercial lease agreement and a residential lease agreement, the most glaring dissimilarity is the property’s nature. For example, the terms of a commercial lease agreement are deliberately concentrated on the requirements of operating and maintaining a business on the premises.

In contrast, a residential lease is precisely prepared to ensure that a tenant will live in occupiable conditions and enjoy their time and space while living on that particular property. In other words, residential lease terms are designed for dwelling, whereas commercial lease terms are geared towards the goal of running a thriving business on the property.

What Are the Basics of a Commercial Lease?

The basics of a commercial lease will differ by jurisdiction, the type of commercial lease used in the transaction, and the parties’ specific terms. Regardless, because of commercial lease laws, there are some important elements that every commercial lease agreement must include.

These include:

  • A covenant to pay rent: A commercial lease should state how much rent is, when the rent is due, and whether the business tenant will be subject to rent increases. If there are rent increases, the tenant may want to negotiate a limit on the percentage of them.
  • The lease’s duration: The lease’s duration, or the lease term, must be included in the lease. This provision should state when the lease starts, when it concludes, and whether there are options to renew the lease.
  • The security deposit amount: How much the tenant has to put down for a security deposit, the date of return, and any conditions that need to happen before the tenant gets their security deposit back.
  • The property: Both the type of property being rented and the property’s address should be included in the lease terms.

What Should the Lease Say About the Commercial Property?

As discussed above, all commercial properties must define and identify the commercial property in question. This means that the lease must contain:

  • A straightforward description of the rental property.
  • The address of the property.
  • The dimension or size of the property.
  • Any other items that would make it obvious (e.g., in the event of a dispute) what property the parties are discussing.

The lease should also specify what method the landlord uses to measure the area, what types of rooms are included on the property (e.g., bathroom, kitchen, etc.), whether a parking lot is attached, etc.

In addition, the parties may want to include information about improvements, modifications, or fixtures on the property, such as whether they are permitted, who owns them after the tenant moves or the lease expires, and how one can go about making them (e.g., is the landlord or tenant responsible for costs).

Reasons You May Choose to Sublease Your Commercial Area

Subleasing can be a good alternative for tenants in the following situations:

You Need to Downsize Your Office Space
If you need to downsize but still have terms on your lease, subleasing can be a terrific choice. You can either sublease parts of your space or your whole space when you need to downsize.

Some tenants, in this case, opt to sublease a piece of their present office to avoid the intricacies and costs related to relocating. This can be a relatively easy process if you inhabit separate floors or spaces. You can also decide to sublease only parts of your space.

Nevertheless, suppose your office is one contiguous space. In that circumstance, it’s essential to remember that you may have to pay extra construction expenses to divide the space or be open to sharing your space with another company. Depending on your objectives, it is essential to market your area properly.

On the other hand, if you want to leave the space completely and look for new space or no longer need office space, you might decide to sublease your whole space. This is a useful option if you have a smaller unused space or need substantially different space. This is the most used approach when subleasing.

You Have More Room Than You Require
If you’re a high-growth business, it can be wise to sign a lease for a bigger space, but initially, you may not be using all of that space.

Subleasing your unused space can be a fantastic way to save cash and keep the door open to continue your growth. You can strive to locate a short-term subtenant based on your growth projections, and once you require the space, you can take it back and continue your lease.

This is a useful option for high-growth companies who have found a space that they want to grow into in the long term. This way, your business doesn’t need to locate new space and move every time you grow.

Do I Need a Lawyer for Assistance with Commercial Lease Issues?

Commercial lease issues are governed by a particular and complex area of real estate law.

Often, such issues require the assistance of a lawyer. This is especially true when a commercial tenant needs help because commercial tenants receive almost no legal rights or protections.

Therefore, if you have any questions or concerns regarding commercial leases or are involved in a dispute over a commercial lease, then it may be in your best interest to contact a local real estate lawyer for further guidance.

An experienced real estate lawyer can inform you of your rights and obligations under the commercial lease terms. Your lawyer can also determine whether any lease conditions will work in your favor. In addition, if you are in dispute with your commercial landlord, your lawyer can represent you during negotiations or in court.

Alternatively, if you need assistance with a commercial lease, a real estate lawyer will also be able to help you draft, edit, and review the terms of your lease and make sure that its terms are best suited to the needs of your business.

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