Commercial real estate clients frequently ask how an assignment of a lease differs from a sublease. The difference is primarily a legal one, although each achieves a similar practical result.
Assignment. An assignment of a real estate lease is a complete transfer of the right to be the tenant under the lease. The third-party assignee becomes the “tenant” under the lease, taking over all of the leased premises, and is substituted for the old tenant. The new commerial real estate tenant pays the rent required under the lease directly to the landlord and is treated as the tenant under the lease for all purposes. However, the catch is that the assignor tenant, unless released from liability by the landlord, remains liable for the obligations under the lease if the new tenant defaults. The old tenant can be sued by the landlord for back rent and other obligations imposed by the lease if the new tenant fails to pay or perform as required by the lease. Given that a commercial real estate tenant who assigns a lease remains liable for the default of the new tenant, tenants should try to negotiate an automatic release provision. Unfortunately, many landlords are unwilling to make this concession. An alternative strategy is to ask the landlord for a release if the proposed new tenant is of similar financial strength and creditworthiness.
Sublease. A sublease is a new lease agreement between the real estate tenant as sublessor and a third party as sublessee for all or a portion of the leased premises. The original commercial real estate lease between the tenant and the landlord remains in place, unaffected by the sublease. This means that the tenant remains liable for monthly rent under the original lease, while collecting rent from the subtenant under the sublease, which may be more, less or the same as the rent due under the main lease.
A sublease can be for less than all of the leased premises, while an assignment that transfers the entire lease must be for all of the premises. A sublease is a more involved transaction, as it requires a full sublease document between the commercial tenant as sublessor and the sublessee.
Reasonable Consent. The landlord must be reasonable in consenting to the proposed assignment or sublease. Under Florida law a landlord cannot be unreasonable or arbitrary in withholding consent to an assignment or sublease. Nonetheless, it is still better to state in the text of the lease that the landlord will be reasonable.
In drafting an assignment or sublease clause, the tenant’s goal is flexibility. Being able to assign or sublet excess space with minimal interference from the landlord and minimal liability in the event the new tenant defaults can be a tremendous benefit to the tenant as the business climate changes from year to year.
When you need assistance with your commercial lease in Tampa, FL and surrounding areas contact Pam Pester, Owner and President of Mobiliti CRE. Mobiliti CRE is an independently owned commercial real estate company specializing in exclusive tenant and buyer representation.