Commercial real estate tenants have a number of options during their tenancy. With offices closing due to the effects of COVID-19, commercial tenants can begin to explore various leasing clauses that they have. Subleasing and Assignment are two different processes that tenants can take advantage of to suit their specific business needs.
Assignment
An assignment is the transfer of the commercial tenant’s entire responsibilities in a lease. When a corporate tenant assigns its lease, the assignee takes over the tenant’s responsibilities under the lease and communicates directly with the landlord.
When a tenant decides to assign a lease, all his rights and responsibilities in the original lease agreement are released to the third-party assignee. Hence, the original tenant (the "assignor") will have to leave the unit and allow the new tenant to take over all of the leased building.
It is important to check the clauses in the original lease agreement before committing an assignment arrangement. In some leases, the original tenant will remain responsible for the terms of the lease, especially if the new tenant defaults on the lease agreement or causes damage to the property. You may want to check your lease agreement for the option to pursue a permanent assignment so you won't be responsible for expenses or damages.
Sublease
When a corporate tenant subleases an office, the tenant is transferring all or a portion of the premises for less than the entire term of the lease. Subletting is when a corporate tenant gives another tenant the right to occupy a portion of the entire rental unit for a specific period.
Corporate tenants often sublease when market rents have fallen and parties needing space typically sublease to get space already built-out at a much lower rate than they could as a direct tenant.
Do Both Options Need a Landlord’s Consent?
Both subletting and assigning a commercial lease require the permission of the landlord or a representing agent; this is often expressly indicated in the lease agreement itself. Although most state laws prohibit landlords from withholding consent unreasonably. If the landlord objects to the sublet or assignment, then they must do so on reasonable grounds.
In the case of assignment, a vetting procedure which usually includes credit checks may be completed before formalizing the arrangement with the associated documentation.
Is Subletting or Assignment Right For My Company?
Whether to sublet your commercial property or assign a commercial lease depends entirely on your business situation. By subletting unused space, tenants can recover vital running costs and even improve the viability of their own business. Also, the original tenant remains the tenant and is responsible for all clauses in the original lease.
Assigning your commercial lease to a third party is a good option if you want to terminate your tenancy before the end of your agreement and vacate the premises completely. This is often a good idea if you are planning to sell or relocate your business. With an assignment, you will be absolved of all responsibilities as the original tenant from the date of assignment.
Here are a few other articles to check out:
8 Working From Home Tips You Should Know
4 Site Selection Tips When Looking for Office Space
5 Tips When Moving Your Office From Big Cities to the Suburbs
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