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Hot Topics - Sublets -
More times than not - When a company signs a lease with a landlord for a traditional
office space - there is often a clause in the lease "Permitted Uses"
The lease typically has a section that sets forth the permitted uses of the
leased space - A narrow permitted use clause (99.9% of NYC office leases) can
often serve as a restriction on your ability to assign or sublet the space.
There will always be companies that will flant there legal obligations and do
as they please and sublet you an illegal space. Be aware that you and your sublet
lessor may be able to discieve the landlord who is rarely there but fooling
the lobby attendant, super, maintance personal and building manger is a whole
new ball game. You may say what a second i been to my lawyers office to many
times and noticed that they have many different lawyers there and alot of them
share offices space with independant lawyers. And in fact you have a good arguement
there - but the lease is actually drawn up differently - laywers being that
they review leases for clients everyday include a Permitted Use Clause that
states -- "Tenant is permitted to use the premises for any legal purpose
or business" --
If you do find a company that is willing to sublet space a space to you, do
not take the owners word for it, remeber these are desparate people who need
you to keep there company solvent - tell the lessor you would like to see a
copy of the lease - particuluary the Permitted Uses Section - look for "Tenant
is permitted to use the premises for any legal purpose or business". The
lessor should have this document in his top desk drawer - not the complete lease
which is 100"s of pages long - just this section because surely he has
done his due delegience and researched this for himself.
Another point here on legality - when you agree to take a sublet that is less
than say "proper" lets recap the type of person that now has you and
all your office belongs under his thumb - the person is in a very though poistion
he/she are seeing there company slide down a percarios slope - the only reason
they have extra space is because there company is in decline - and it has gotten
to the point where they will allow an outsider into there world, to freely move
about, share there equipment, use there resources etc..... Oh No tough times
there --- but the lessor does have something to be happy about, if things turn
around and the business gets back on its feet, he has no problem with that because
he can toss you out of his space with not even so much as breaking a sweat,
remeber your in a illegal sublet to begin with. The terms of an illegal sublet
can never be enforced i.e. speak to his/her assistant in something other than
a friendly tone, accidently use someones favorite coffee mug, business turns
around -- you can be denied access to your sublet, do not bother calling the
cops to retrive your belongs,
1. your company is not on the lease (your sub-lessor will have you immediatly
arrested by the same policemen you brought for tresspassing)
2. like i stated before it is illegal in the 1st place - no entry, you will
have the policeman's sympathy he will try and make you feel better by telling
you of the guy last week who was locked out of his 5 private office and bullpen
that he had to explain to him in no certain terms that "sorry buddy but
thats the law"
Next on this topic is what i like to call "Costar Eyes Only" this
means that someone has called me after finding a sublet oppurtunity to gloat
about how wrong I was. This person has defined practical logic and scored a
perfect deal, the lease permits a favorable "Permitted Uses" clause,
the price is right, everyone whom he has meet that work at the lessor company
is great, one of the lessor employess lives in his/her building and to top it
off the two business even complament one another good times good times.
I always congradulate them on there good fortune, and ask if there are other
offices availble because then i can market those locations and help the lessor
out, my clients and myself. No one ever forgets the broker that got them great
space at a great price. Were talking lifetime client here.
Then I get to the worst part of this exchange, the part that never makes me
happy - I ask what the address is. The client of this new found gem is always
reloctant to reveal this information - and then i tell him this -- I want to
type in the address to Costar (the commercial real estate equivant to a multiple
listing service) this is a paid for service that is not open to the public,
it expensive and exclusive just how they want it to be. After typing in the
address I often find out to everyones dissappointment that - the entire office
is availbe for sublet, not only the sublets office but the lessors office as
well.
Your new buddy is not telling you the truth while instucting his tenant broker
to find a smaller space that better reflects his current fiscal restraints as
well as trying to dump (sublet) his current space by advertising it to all the
commercial real estate brokers in the city he has forgotten to tell you this
small but important piece of information to you. A larger company will come
along and want the entire space - being that is it a sublet you being in it
will be more of a disruption then a finicial bonus. The average cost for a company
to relocate is $5 to $7 a foot on top of rent and if the space is in really
good shape and requires minimal build out / alterations - say a remarkable low
ball of $10 per foot (nyc adverage $50/per foot) - your small contribuation
for that really great windowed office is all put another reason why you will
not be there when the new guys arrive.
OK - the lessor was able to negoiate or he had a really good tenant representive
Jonthan Anapol at the start of
his lease some favorabe terms with the landlord
Assignment and Subletting
The assignment and subletting clause of the lease is a very important provision.
In most cases if granted to the lessor it will state that the tenant may "not
assign or sublet" the lease without the landlord's consent, with said consent
to be granted or withheld in the landlord's sole discreation.
This is where this gets problematic --- the remeber the average time it takes
a company to locate and occupy office space in new york city is 9 Months - (2
months to find it, a month to negotiate, 2 months to sign the lease,
a month for your architect to design the build out and 3 months for construction)
--- so a full 1/3 of the 9 months your are basically waiting for the landlord
to say Yes or No ---
Most lessors are just happy enough to get this clause in there lease but fail
to "look behind the curtain". What should of been placed in the lease
is another clause an ammendment that states "An assignment or sublease
requires the landlord's consent, but that the consent cannot be unreasonably
withheld or delayed". A landlord rarely gives a lessor the right to assign
or sublese without some kind of approval procedure. Meaning that in order
to get the premission to have the lessor legally sublet some or part of his
office space means he has to get the approval of the landlord. talk about time
If a lessor gets this far in realtion to subleting his space to you - leads
to what we call the landlords "Recapture Right"
This states that the landlord will retain the right to recapture the space for
his own use or re-leasing. In additional there will be a industry acceptalbe
split of any profites made on the sublet. This also brings a new player to the
table, the landlords real estate broker. Upon giving notice that a tenant would
like permission to sublet, the landlord automatically goes in a state of protect
my investment. He worries that he will face a tenant that will be unable to
pay his rent. He contacts his trusted building broker to start marketing his
potential problem to a client where he will not have such problems with. The
landlord is concerned but will certainly not panick - after all the tenant is
still responsible for the full amount of rent to be paid each month and on top
of that can collect the 50% that is due to him of the profit generated by your
presence. The landlord can care less if you have a windowed office or not, will
not discount the loss factor that all the hallways and closets cause (usable
space) and probaly end up with the majoirty of that rent - more like 75% considering
loss factor is 25% in New York City.
So lets take this just take this a little further (this is a old 90's dot com
trick that landlords grew wise to)
There is almost always a clause that was included in the orginal lease agreement
-
This clause usally states that A change in more than 50% of the lessor companies
ownernship will be considered an assigment that is prohibited w/o the landlord's
express approval. A prohibited assignment can result in the landlord terminating
a favorable lease. Meaning 2 things - If the lessor