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Subleases: The Good, The Bad And The Ugly

Ever wonder how to get more for your real estate dollars than you ever thought possible? Consider a sublease, but understand the good, the bad, the ugly, and how to protect your company.
 

 

The Good

Subleases can be a great way to secure space at a base rent well below market, even providing better or more space than you imagined. Additionally, some subleases also include the existing furniture and phones for an attractive turnkey office solution.
 

The Bad

Beware of the hidden costs that can easily offset any savings of a sublease, such as:

  • Tenant Improvements – Subleases typically don’t include a tenant improvement allowance. Therefore, understand how much it will cost to reconfigure the space to suit your needs;
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  • Lease Term – The below market rent will last only as long as the sublease term and if you desire to stay thereafter, expect to pay significantly more for a lease directly with the landlord;
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  • Occupancy Costs – To assure there aren’t any unwanted surprises, you will need to understand all references to the Master Lease (lease between the landlord and sublessor) as it relates to the rent and additional costs for which your company will be responsible.

 

The Ugly

The sublease will be subject to the terms and conditions of the Master Lease. As such, know that if the sublessor defaults and has its lease terminated, your rights to the sublease premises will be terminated. To avoid this ugly predicament, don’t enter into a sublease if you are concerned about the financial stability of the sublessor. Instead, know that there is often a way to secure the same space at a discounted rental rate that eliminates the risk of sublessor default. Contact me for details on how to protect your company.

 

Any information herein is from sources deemed reliable, but no warranty, expressed or implied, is made.