Every commercial lease agreement is different. In many commercial leases, the Tenant has the right to “assign” the lease or “sublet” the demised Premises to a third party under certain circumstances with the Landlord’s consent. An assignment or sublet is when a third party steps into the Tenant’s shoes and agrees to assume all of Tenant’s rights and obligations under the lease. In some cases, the criteria for approving the assignee/sublessee may be clearly set forth in the lease. For example, the transferee may need to have a certain number of years of experience in the business and minimum net worth. In other cases, the criteria may be left entirely to Landlord’s discretion.
Common issues that arise in the context of a proposed assignment/sublet are as follows: Will the permitted use change? Is the assignment in connection with the bona fide sale of the business? Is the assignee willing to provide a replacement guaranty? Is the assignee an experienced operator? Will the original Tenant/guarantor remain on the hook if the assignee defaults? Does the Landlord have a contractual right to “recapture” the space if the Landlord does not wish to approve the assignment? Is the transferee paying the transferor “key money” or higher rent and if so, does the Landlord have the contractual right to share in those profits?
Based on the foregoing, there are many legal issues that arise in the context of a proposed assignment or sublet of a commercial lease. In some cases, the lease agreement is clearly drafted and in other cases the lease may be ambiguous.
*Thank you for taking the time to read this article. This article is part of our “Commercial Leasing for Non-Lawyers,” a Blog Series on Commercial Leasing. Other aspects of commercial leasing transactions in New York are discussed in other Parts of this series.
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