Put Limits in Professional Affiliate Sublease Clauses

Office tenants that want the option of subletting unused individual offices in, or portions of, the office suite they rent often negotiate professional affiliate sublease clauses. Such a clause gives an office tenant the right to sublet to other professional tenants of the same or a similar type as it, or to professionals that it uses to run its business, without the building owner's consent.

Professional affiliate subleases are not new, but they are especially advantageous to owners in a down economy—when it may be harder to attract tenants if there isn't flexibility for them to bring in extra revenue for any unused space. But it is 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.

Define Type of Professional Affiliate

The right to sublease to professional affiliates is especially important to certain types of office tenants. It is 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 the owner is letting the tenant sublet some of its space to professional affiliates without its consent with this clause, it should be carefully drafted,” says Chicago, Ill., real estate attorney Neil Neumark of Dykema. For eight conditions to include in your professional affiliate sublease clause, see our Model Lease Clause: List Conditions for Professional Affiliate Sublease.

Neumark drafts many leases where the tenant is a law firm, group of lawyers, medical or dental practice, or accounting firm—or even a business that typically 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. He points out that one or more of these types of professionals will be the professional affiliate that you are permitting the tenant to sublet to without your consent. Neumark recommends using 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 are willing to permit [Clause, intro.].

“Professional affiliate sublease clauses are not intended to be a carte blanche consent to any and all subleases,” Neumark says. “The definition of the professional affiliate is very important here,” he emphasizes. “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 he would sublet to being in your building,” Neumark points out.

Control Number of Subleases, Percentage of Space

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,” notes Neumark. He advises owners to 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 do not 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.

Make Exceptions for Business Model Requirements

Professional affiliate sublease clauses are not negotiated only by tenants that want the flexibility of being able to bring in extra revenue or maximize the space that they are 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 is 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 are having trouble filling vacant space.

Practical Pointer: 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 will not 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.

Choose Conditions on Case-by-Case Basis

An owner's limitations in a professional affiliate sublease clause frequently are either negotiated out 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 is not 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]. However, you could modify that provision to give some kind of signage rights, depending upon your tenant and the situation.

Neumark stresses that 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 is a cost associated with changing an older directory by hand, you would want to ensure that the professional affiliate pays for it or not give that right at all. “From a drafting standpoint, it is a good idea to raise the issue by putting it as one of the conditions in the clause,” Neumark concludes.

Practical Pointer: 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.

Clause Can Be Painless Incentive

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.

And most owners are willing to use a professional affiliate sublease clause even in a good economy because it isn't controversial—as long as the conditions in it are satisfied. But in a bad economy when owners are willing to offer and concede more, this clause is even more readily given to tenants that have a real need for this type of flexibility.

Insider Source

Neil Neumark, Esq.: Dykema, 10 S. Wacker Dr., Ste. 2300, Chicago, IL 60606; (312) 627-4600; nneumark@dykema.com; http://www.dykema.com.

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