Last week, we began a discussion about a particular dilemma that arises out of “subletting.” [You can see that blog posting by clicking: HERE.] Basically, a subtenant has no greater rights against the actual landlord than does its sublandlord. Absent an agreement with the “real” landlord, if the underlying lease is terminated, the sublease is “over.” What kind of subtenant would invest in the subleased space or (especially in a retail project) spend time and effort to build location-specific good will if the vitality of its sublease depends on the health of its sublandlord? In a lot of cases, the reason a tenant seeks a subtenant in the first place is because the tenant can’t “handle” the space. There is a solution, and it is called a “recognition agreement.” Last week, we presented the “problem” in some detail. Today, we’ll explore various approaches to a solution. As we disclosed last week, today’s blog is heavily based on an article we wrote more than 10 years ago. So, to the few readers who find today’s posting vaguely familiar, we apologize. [Read more…]
To Recognize Or Not To Recognize? That Is The Question (Part 2)
To Recognize Or Not To Recognize? That Is The Question (Part 1)
One important exit strategy for a large space tenant seeking to shed itself of leased space is to have the option of assigning its lease or of subletting all or part of its premises. Generally, a tenant who no longer needs its space will prefer assignment if it can be simultaneously relieved of its lease obligations or if the prospective assignee is adjudged to be rock solid. Otherwise, subletting is preferred because the departing tenant, stuck with continuing contingent liability, can retain control of its space. However, to get rid of the old tenant as an intermediary between it and the landlord, an incoming tenant would prefer to take an assignment of the existing tenant’s leasehold interest. Sometimes, such as when the incoming tenant’s rent is substantially lower than the rent payable under the lease, a lease assignment just won’t work. Thus, where assignment of the lease is not workable or where less than all of the leased space is to be transferred, subleasing is the preferred choice. [Read more…]
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