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Handbook-of-Business-Contracts

Handbook-of-Business-Contracts

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Published by ahemadam
Handbook-of-Business-Contracts
Handbook-of-Business-Contracts

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Published by: ahemadam on Apr 20, 2013
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05/25/2013

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In a commercial lease, a landlord or lessor of commercial property leases property to a tenant or lessee
(T1). In a commercial sublease, that tenant becomes a landlord, or lessor, of that property, subleasing
it to a new lessee/ tenant (the subtenant) (T2). Not only is the T1 (now landlord) still legally bound to
all of the terms and conditions of the original lease (referred to as the master lease), but since there is
no relationship between T2 and the original landlord, if T2 doesn’t pay or otherwise breaches the
lease, T1 has the burden of taking action, legal or otherwise against T2, not the landlord. The landlord
only has recourse against T1, not T2.

Why/When should you use it?

To be enforceable, a sublease for more than a year must be in writing. Even if your lease is for
something less than a full year, you should still put it in writing. You should use a Commercial
Sublease whenever you sublease commercial property. A residential sublease would be used where the
property being leased was for residential, as opposed to business purposes.

Who should use it?

JIAN AgreementBuilder® - Handbook of Business Contracts

102

The tenant of commercial property who wants to sublet all or part of its space should use a
Commercial Sublease.

How should you use it?

Negotiate the terms of your lease before you sign it. We suggest that you carefully read the preceding
discussion titled “Structuring Real Estate Transactions.” It provides a lease checklist intended to aid
businesses (as well as individuals) negotiate favorable lease terms.

Important Tips

Most master leases require the landlord’s approval before a tenant is permitted to sublease.
AgreementBuilder’s Sublease includes a separate form for the landlord to complete. Make sure you
either get the landlord’s approval before executing a sublease or make the sublease expressly
conditioned on obtaining the landlord’s approval.

A subtenant shouldn’t just sign a sublease when it is handed to them. Remember, this is the last chance
to negotiate. If possible, try to use AgreementBuilder’s Lease Assignment. If the landlord approves,
this makes T1’s life a lot easier. With an assignment, as opposed to a sublease, T2 is directly
responsible to the original landlord. Although T1 is still liable to the landlord if T2 breaches, the
landlord can still take action against T2 directly, something not doable in a sublease situation. Unless
the landlord cancels the master lease, T1 remains responsible to the landlord until that lease expires.

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