Get Right to Sublet or Assignment Profit

It’s common for a lease to give an owner a share of any profit a tenant makes if it sublets or assigns its lease. But if you don’t specify this in your lease with the tenant you’ll miss out on this opportunity. And even if you do specify this in the lease, you still need to stay on top of the situation. Just because a tenant is required to share a profit doesn’t mean it will come forward and volunteer to do so. Ensure that you get your share of the profit by carefully drafting your lease and keeping tabs on whether the tenant is profiting from its sublet or assignment.

Find Out About Profit

Most leases require a tenant to get the owner’s consent to any sublet or assignment. And during the consent process, the tenant should give you documentation about the proposed subtenant or assignee and its financial arrangement. Scrutinize that information very carefully—it could tell you whether the tenant will profit from the proposed sublet or assignment.

In particular, carefully read the sublease or assignment agreement, and if the assignment is part of the sale of the tenant’s business or assets, look over the purchase or sale agreement. You’ll want to compare the rent the proposed subtenant or assignee will pay with the tenant’s rent under its lease with you. If the subtenant’s or assignee’s rent is higher than the tenant’s, then the tenant is profiting from the sublet or assignment and you should collect your share of that profit.

But rent may not be the only "consideration"—that is, payment or compensation—the tenant is getting from the sublet or assignment. In fact, the tenant may specifically structure the sublet or assignment to conceal any profit it will make from the deal. For example, a subtenant, in addition to paying the rent spelled out in the sublease, paid the tenant a lump sum that wasn’t mentioned in the sublease. So you may have to specifically ask if the subtenant or assignee is paying the tenant any consideration in addition to rent.

Get Share You’re Owed

When you consent to a tenant’s sublet or assignment, you, the tenant, and the subtenant or assignee will typically sign a written consent agreement. To ensure that you get your share of the tenant’s profit from a sublet or assignment, do the following in the agreement:

Refer to lease’s profit-sharing clause. It’s a good idea to refer to the profit-sharing clause in the tenant’s lease in your written consent. Doing so will remind the tenant of its obligation under its lease to share its profit with you. And the tenant won’t be able to argue that you released it from this obligation when you consented to the assignment. Ask your attorney about using this type of language:

Model Language

If Tenant is entitled to any amounts or other consideration from [Subtenant/Assignee] with respect to the [Subtenant/Assignee] in excess of those amounts required to be paid under the Lease, such excess shall be subject to the terms of Clause [insert # of assignment/sublet profit-sharing clause] of the Lease.

Require warranty as to accuracy of information on financial arrangement. Require the tenant and the subtenant or assignee to warrant that the information provided about their financial arrangement is accurate and complete. And make a violation of this warranty a violation of the tenant’s lease. Then, if you find out that the tenant and subtenant or assignee concealed an additional payment, you have the option of terminating the tenant’s lease.

Model Language

Tenant and [Subtenant/Assignee] hereby represent and warrant that attached hereto is a true, accurate, and complete copy of the [Subtenant/Assignee Agreement], that there is no oral or other written understanding between the Tenant and [Subtenant/Assignee] with respect thereto, and that the amounts referenced in the [Subtenant/Assignee Agreement] constitute all of the consideration for such [Subtenant/Assignee Agreement] paid by the [Subtenant/Assignee] to the Tenant. A violation of this warranty is a violation of the Lease.