Beware of restrictive sublease provisions in office leases

It’s not surprising that property owners do not like subleases, because they do not want to lose any control over their building, but I encountered something new this week when reviewing the sublease provisions for a proposed office lease. Most sublease provisions in an office lease read: “After receipt of Tenant's Sublease Proposal Notice, Landlord shall also have the right, in its sole and absolute discretion, to elect: (a) to consent to the proposed sublease or assignment, or (b) to reject the proposed sublease or assignment…”

 However, some Landlords will make it appear that they are receptive to a tenant sublease or assignment but with caveats: “Landlord's consent [to a proposed sublease] shall not be unreasonably withheld and shall be based upon the creditworthiness of, financial condition of, lawful intended use of the Demised Premises of, image of, compatibility with other tenants of, and other factors relating to, the prospective subtenant; otherwise, Landlord may withhold consent in its sole discretion. Landlord shall have the right to prohibit subletting to any governmental entity, agency or other governmental type, political organization or to any person or entity engaged in the medical, dental or related profession or businesses.”

 The Lease I reviewed this week had this further prohibition: “Without limiting the other instances in which it may be reasonable for Landlord to withhold its consent to an assignment or subletting, Landlord and Tenant acknowledge that it will be reasonable for Landlord to withhold its consent in any of the following instances: (a) the proposed assignee or subtenant is a person with whom Landlord is actively negotiating to lease space in the Building; (b) the proposed assignee or subtenant is a tenant in the Building or in another building managed by XYZ Management, Inc. in the Complex of buildings of which the Building is a part, …”

This provision makes absolute sense from the Landlords perspective. They don’t want tenants being poached by one of their other existing tenants, because it creates a vacancy in the building, the Sublandlord will get the rent money and now the Landlord has to pay a brokerage commission to lease the vacant space.  From the tenant’s perspective, it’s just one more hurdle to overcome when dealing with its Landlord. From the attorneys perspective why bother with a sublease provision at all.  If you are negotiating a commercial lease, make sure you have an experienced lawyer and commercial real estate broker on your side helping with the negotiations and  remember it’s all about the “Tubmans”..