Sublease Rewards & Sublease Risks

Sublease Rewards & Sublease Risks 

In the New York City office rental market a sublease can offer both rewards and risks to a subtenant (the company that leases and occupies the subleased space). Subleases are offered by sublandlords (the holder of the master lease) to dispose of their surplus office space and mitigate financial obligation. This brief introduction is written from the subtenant’s perspective.

Sublease Rewards

1. Rent is usually below the current market value.

2. Term length is often shorter than that which would be offered by the building owner on a direct lease basis.

3. Office space is usually delivered pre-built and finished. This eliminates the necessity of large capital outlays to renovate the space.

4. Potential inclusion of furniture, phones, network cabling, etc. This yields substantial savings.

5. Potential “turn key” move-in condition saves time.

 

Sublease Risks

1. As a subtenant your lease contract is between you and the sublandlord. Not withstanding, the sublease is subject to the approval of the building owner (known as the Landlord’s Consent, it can take up to 30 days to receive an answer). If the sublandlord defaults on its obligation to pay the rent to the building owner a sublease will usually terminate and the subtenant is evicted. 

2. As a subtenant your Security Deposit is held by the sublandlord. In the event of financial difficulties or a default by the sublandlord, the Security Deposit can be lost.

Reducing Sublease Risks

1. Perform due diligence on the financial condition of the sublandlord and the outlook for its future business.

2. Your real estate attorney should have language added to the Landlord’s Consent document that requires that you are notified of any default by the sublandlord and provided with an opportunity to cure the default.

3, Where a substantial risk is perceived, your real estate attorney should have language added to Sublease document that requires that your Security Deposit is held in escrow. 

Cogent Realty Advisors is a Tenant Representation firm that will navigate the New York City office leasing process on your behalf. Whether you opt for a Direct Lease with a Landlord or a Sublease, our knowledge and experience will protect your interests and yield favorable results. Cogent also maintains a network of reliable real estate attorneys that will conduct a thorough lease review. For information contact Mitch Waldman at (212) 509-4049.