Negotiate Eight Conditions for Sublease Without Consent

Subleases can be more complicated than they seem. It’s not just a matter of allowing a tenant to give its space either temporarily or until the end of its lease to a replacement tenant. To protect themselves, owners should carefully draft sublease provisions.

One of the things that can go awry is the type of sublet tenant the current tenant wishes to replace itself with. This is a huge concern for shopping center owners who must worry about changing the synergy or violating other tenants’ exclusives. But office tenant sublease provisions should also get attention during negotiations. The ability to consent to subleases is key.

Office tenants that want the option of subletting unused individual offices in, or portions of, the office suite they rent often try to negotiate professional affiliate sublease clauses. Be prepared for a prospective tenant to suggest such a clause, which would give it the right to sublet to other professional tenants of the same or a similar type, or to professionals that it uses to run its business, without your consent.

Professional affiliate subleases are especially advantageous to owners where it’s hard to attract tenants if there isn’t flexibility for them to bring in extra revenue for any unused space. But it’s very important to limit a professional affiliate sublease clause to protect yourself from problems that could arise if tenants are given too much leeway in subletting without your consent.

Understand Professional Affiliate Subleases

The right to sublease to professional affiliates is especially important to certain types of office tenants. It’s very often negotiated by law firm tenants that want to sublet one or more of the individual offices within their office suite to other attorneys from time to time—without having to get permission from the building owner every time. Professional affiliate subleases also are commonly requested by medical or dental practice tenants where the subtenants may not be affiliated at all with the tenants, but still are of a professional type.

You should draft a professional affiliate sublease clause in response to this very frequent request from office tenants. However, it must include limitations that address problems that might arise from allowing a tenant to sublet to professional affiliates. Because you would be letting the tenant sublet some of its space to professional affiliates without its consent with this clause, it should be carefully drafted with the eight conditions in our Model Lease Clause: Limit Professional Affiliate Sublease Clauses.

Condition #1: Specify Type of Affiliate, Number of Subleases, Percentage of Space

Make sure to use words in the professional affiliate sublease clause that reference and describe the type of professional affiliate that the clause pertains to, to limit it to professional affiliate types that you’re willing to permit [Clause, intro.]. These will typically not just be a law firm, group of lawyers, medical or dental practice, or accounting firm; it’s common to be asked to include a business that has suppliers, subcontractors, or some type of business people in its space who are closely affiliated with the services being provided by the tenant itself.

Remember that you should be wary of permitting other types of subtenants without your consent. Professional affiliate sublease clauses aren’t intended to be a carte blanche consent to any and all subleases. The definition of the professional affiliate is very important here. You would define on a tenant-by-tenant basis who the professional affiliates could be. If the tenant is a licensed accountant or a doctor and generally reputable, you ordinarily wouldn’t have any problem with the type of professional affiliates she would sublet to being in your building.

A professional affiliate sublease clause should include provisions limiting the number of offices within a tenant’s office suite that may be sublet. This prevents the tenant from subletting a majority of its offices under several different, individual subleases, essentially turning a particular suite into a shared office arrangement. Different, unrelated uses of the office make it more of a shared space-type office building that most owners don’t want. So limit the number of subleases that the tenant may have at any point in time either in number or by the percentage area of the premises itself that can be sublet at any time [Clause, par. 1].

For example, a law firm subletting to outside attorneys may be allowed to do individual office subleases as long as there are no more than a certain number, or they collectively don’t comprise more than a certain number of square feet. Many owners feel comfortable giving tenants a professional affiliate sublease right as long as they can put reasonable restraints on it.

Condition #2: Demand Notice to Deal with Issues

Although the tenant won’t need to ask for your consent to sublease to a professional affiliate, you’ll still want notice so that you can make preparations if necessary, such as for whatever signage changes you’ve agreed to, or to determine that the proper insurance is in place, among other administrative tasks.

Set a reasonable but adequate time period. For example, ask that the tenant give you not less than 30 days’ prior written notice of each professional affiliate sublease [Clause, par. 2]. 

Condition #3: Protect Yourself with Insurance Requirements

As with any business leasing space from you, professional affiliates shouldn’t open you up to liability. You can demand that the tenant leasing to a professional affiliate ensures that the business is covered by insurance. Rather than have the professional affiliate get its own insurance, require the tenant to cover it by asking it to have certificates of insurance evidencing that the professional affiliate is covered under the tenant’s commercial general liability insurance required under the insurance provision in the tenant’s lease. You can also offer the option that, alternatively, the professional affiliate can provide certificates of insurance proving that it already has commercial general liability insurance coverage required under the tenant’s insurance provision in the lease. Specify that, in this case, you and the building manager are named as additional insureds [Clause, par. 3(b)].

Condition #4: Prohibit Changes to Space

Professional affiliates subleasing space aren’t regular tenants and shouldn’t be able to perform buildouts or make physical changes to the space. They can be very temporary and don’t provide the same type of value to you as a tenant with a lease, so it’s not worth it for you to allow them to modify space on which you’ll later have to spend time or money or both returning to another condition.

So prohibit changes to the space the professional affiliate will be using [Clause, par. 4].

Condition #5: Beware of Changing Uses

Most leases, even for office space, typically include a use clause—that is, a provision that specifies the purpose for which the space may be used. A deviation from this use by the tenant can result in serious consequences, among them a changed feel to the building or, worse, a violation of promises you’ve made to other tenants.

This is no different when a professional affiliate sets up shop. So protect yourself by limiting the professional affiliate to the same uses permitted under the lease and consistent with the tenant’s use of the premises [Clause, par. 5].

Condition #6: Choose Conditions on Case-by-Case Basis

An owner’s limitations in a professional affiliate sublease clause frequently are either negotiated to be broader or modified in some way to give the professional affiliate the rights and flexibility that it needs to run its particular business. For example, signage rights may be an issue if a professional affiliate isn’t permitted to identify itself on a suite entry door or on a building tenant directory without the written consent of the owner [Clause, par. 6]. But you could modify that provision to give some kind of signage rights, depending upon your tenant and the situation.

When leases aren’t conclusive on a point, like signage rights, you should at least raise the issue by putting that limitation in the professional affiliate sublease clause, and then deal with it however the parties may agree upon on a case-by-case basis. For example, it may be easy to include several professional affiliates on an electronic building directory, but if there’s a cost associated with changing an older directory by hand, you’d want to ensure that the professional affiliate pays for it or not give that right at all. Remember to draft this as one of the conditions in the clause.

Keep in mind, however, that you may not want to give signage rights to professional affiliates if they go against your building standard model. Multiple names on suite entry signage may conflict with a sleek design intended to name only building tenants, not provide a list of individual subtenants.

Condition #7: Don’t Let Tenant Off Hook

A professional affiliate sublease benefits the tenant. Even if it helps you in some way, you still should formally in the clause protect yourself from liability. So say that the tenant won’t be released from any liability under the lease because of the professional affiliate sublease [Clause, par. 7].

A professional affiliate sublease shouldn’t cost you anything—regardless of who it helps. Put the onus on the tenant to shoulder any burden from the arrangement.

Condition #8: Sublease Must Mirror Lease

Finally, make sure that each professional affiliate sublease must comport with the terms and provisions of the tenant’s lease [Clause, par. 8]. This maintains your objective of allowing the tenant flexibility that’s desirable without opening yourself up to negative consequences. You’ll avoid use issues and liability, among other damaging situations. 

Business Model Requirements Are Reasonable

Professional affiliate sublease clauses are negotiated not only by tenants that want the flexibility of being able to bring in extra revenue or maximize the space that they’re renting. They also are integral to tenants that need one or more professional business affiliates operating in their space in order to run their business.

Unless there’s a good reason, you probably shouldn’t object to allowing professional affiliate subleases that allow a tenant’s subcontractors and suppliers to share space with it, if its business model requires them—especially if you’re having trouble filling vacant space.

When you permit a tenant to sublet to the individuals or businesses necessary for it to run its business, first try to negotiate for those parties to be co-tenants under the lease so that you can look to them for payment of rent, among other things. However, be aware that this is a request that most tenants won’t consider to be an option. Most suppliers won’t agree to be on a lease, because there is too much liability to assume, so tenants usually insist that their presence in the space be under a sublease.

Clause Can Cast Wider Net for Desirable Tenants

Giving a professional affiliate sublease right is in your best interest because it may attract viable tenants looking for options for the cost and use of their space. Moreover, many tenants insist on it because their current business model already employs an arrangement where they sublet a certain number of offices to like-kind professionals or closely related business affiliates that either they supply or that supply them.

Even if you don’t have issues filling space in your building, using a professional affiliate sublease clause is something to really consider; it isn’t risky—as long as you negotiate and draft the conditions in it to your satisfaction. And it can save you if your financial situation changes or other owners are willing to offer and concede more. A professional affiliate clause that’s readily given to tenants that have a real need for this type of flexibility can also be key for you because it can give you an edge that could come in handy later.