Get Option to Terminate Lease If Affiliate Severs Ties with Tenant

You may have to give in if a strong tenant demands the lease right to assign or sublet to its affiliate—that is, a company the tenant controls or that controls the tenant—without your consent. The tenant probably will argue that an assignment or a sublet to its affiliate is no big deal. It’s just a change in form, not substance, because they’re related companies.

But a tenant could break its ties to the affiliate after the affiliate becomes an assignee or subtenant. For example, the tenant may sell its interest in the affiliate to another company. Once the ties are severed, you’re in a different situation from what you expected—with an assignee or subtenant that has no connection to your tenant.

If you’d known the affiliation would end, you would have handled the assignment or sublet differently. For instance, you would have checked the background and financial condition of the proposed assignee or subtenant before deciding whether to consent to the assignment or sublet. What can you do to plug this loophole?

End Assignment/Sublet

Get the option to terminate the lease if the assignee’s affiliation with the tenant ends. And get the option to cancel a sublet if the subtenant’s affiliation with the tenant ends. Note that these remedies aren’t automatic. You must choose whether to exercise them. Obviously, if the assignee or subtenant is desirable even after its affiliation with the tenant ends, you’ll probably choose not to exercise them.

But you’ll want to give serious thought to exercising these options if you believe that you’ve been duped by the tenant or if the assignee or subtenant isn’t desirable. For instance, you may suspect that the tenant pulled a fast one by selling off an unprofitable affiliate immediately after it signed the assignment agreement or sublease.

Add Lease Language

To get the option to terminate the lease if the tenant’s affiliation with an assignee ends, add the following to your lease’s assignment and subletting clause, where it discusses transfers to assignees:

Model Lease Language

If at any time after the effective date of an assignment to an Affiliate of Tenant, the assignee ceases to be an Affiliate of Tenant, then Landlord shall, at Landlord’s option, have the right to terminate this Lease.

To get the option to cancel a sublet if the tenant’s affiliation with the subtenant ends during the sublet, add the following to your lease’s assignment and subletting clause, where it discusses transfers to subtenants:

Model Lease Language

If at any time after the effective date of a subletting to an Affiliate of Tenant, the subtenant ceases to be an Affiliate of Tenant, then Landlord shall, at Landlord’s option, have the right to void such sublease.