Chris Carmen / May 31, 2022
I believe the increase in demand for sublease office space is occurring while many companies are sorting out the post-COVID office market. Although many companies have adopted hybrid work models allowing for employees to work remotely or at the companies’ offices, most are going with their best guess of what that hybrid model is today and modifying their new work models as needed. Sublease office space allows companies to lease office space, but with more flexibility, particularly length of lease term. Rather than committing to long-term leases of five years or longer, companies can take space for shorter terms to allow for their post-COVID work models to evolve to what may become or more permanent model for employees to work from home and the office. Further, sublease space is often leased at a below market rental rate when compared to similar space in the market, or for that matter, in the same building.
There is a downside to subleasing office space. Companies often have to sublease the space on an “As-is” basis, meaning there will be little or no changes to the layout of the space from the prior tenant. When compared to leasing space directly from landlords that are all to happy to make a sizable investment in modify the space to the tenant’s specification, this can often leave the tenant and its employees feeling like it is living in somebody else’s home. Also, tenants must live by the terms negotiated by the prior tenant (sub-landlord), which may be good if the tenant had good real estate and legal advice when it negotiated its lease. Unfortunately, that’s not always the case.
Another potential pitfall of subleasing is that your firm, as the subtenant, is only as good as the prior tenant, the sub-landlord. If the prior tenant is having financial issues and cannot pay the rent, in spite of collecting the sublease rent, it may default on the lease and the subtenant may find itself indirectly in default and subject to all of the primary landlord’s default provisions, including eviction from the office space.
Still, the advantage gained through a sublease can often outweigh the potential pitfalls. But make sure you get good advice from a Tenant Representative real estate broker and seek your legal counsel to make sure you’re protected as much as possible prior to signing up a sublease.
I recently ran across an article on GlobeStreet.com that echoes the same sentiment as I’ve expressed above.
*Image by Nattanan Kanchanaprat from Pixabay.
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