Moving from Sublease to Direct Lease
By: Washington Realty Group, Inc.
December 2011
Not long after the recession hit in 2008, subleases became a very viable occupancy scenario for commercial office tenants. Companies large and small had to abandon space as the economy tumbled, creating affordable office space opportunities in every major market.
Now a few years later, office tenants may be reaching a point where they want to convert their subleases into direct leases. If this scenario sounds familiar, here are some things for you to consider. (It is assumed that you have already worked with your exclusive tenant representative in surveying the market to ensure that the space is indeed best suited to your company's needs.)
A new lease is exactly that: a new lease. That means your company will be subject to new terms, language and provisions. The lease's content may be similar to what your sublandlord had in place, but it is critical to examine the lease carfully for any surprises.
Treat a new, direct lease as a separate business transaction. This means you should act as you would have if you were relocating from across town. The landlord will certainly do the same. For example, your financials and business practices will be scrutinized to whatever extent the landlord feels will define your solvency. And by all means, you should do the same with the landlord.
Your sublandlord may have signed its lease during a more stable economic period. Since then, landlords have struggled filling their properties and suffered under the weight of growing debt burdens. Take the time to examine the stability of your landlord and have your tenant representative negotiate to have SDNA language (subordination, non-disturbance and attornment) included in the lease, which will protect your occupancy should a bank or new landlord abruptly take over ownership of the property.
Among other things, ensure you can work professionally with your landlord and its representatives on maintenance and accounting issues, whereas previosly you may have dealt directly with your sublandlord.
In summation, treat the process of transitioning from a sublease to a direct lease like you would the origination of a traditional occupancy scenario.
