Tenant Leasing Illustrated
June 2013
Issue #17



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Madison Park
Hello,

Even when a landlord conceptually agrees to a sublease, the consent form used by the landlord can require a quid pro quo for such approval which may have never been contemplated under the lease.

In today's newsletter, we suggest five things to keep in mind when negotiating a landlord's consent to your sublease.

Sincerely,
Alan
Alan Katz
Mintz & Gold LLP 

 

Reservations About Landlord Consents

 

I was in pretty good shape for Mother's Day this year. I had ordered flowers for my wife and my mother. I had my wife's present picked out well in advance. But in the craziness of the week, I only called a few days in advance (as opposed to last November) to make reservations for a Mother's Day dinner.

After the persons taking reservations at eight straight restaurants snickered at the thought, I finally reached a good local spot that would give us a reservation if I agreed to come at an odd time, pay exorbitant prices and blacktop the chef's driveway the next weekend.

No matter when you call for a reservation, Mother's Day is a clear case where the restaurants have you where they want you.

Not surprisingly, it hit me that tenants, whether acting as sublandlords or subtenants, can feel the same way when faced with the need for their landlord's consent to a sublease. The landlord has you where they want you.

Although each lease may have different standards and prerequisites for third-party subletting, almost every lease requires at some level the consent of the landlord. At that point, the landlord becomes the ma"tre d' of your transaction, knowing that too much delay can cause the sublease deal to blow up, and sometimes the landlord will take advantage.

Most landlords have their own standard form of consent. You might think this would be a simple document ("Landlord hereby consents ..."), but landlords have lawyers too so these "standard" forms often go on for many pages.

These consent documents must be carefully read and negotiated since many landlords attempt to add new restrictions or conditions to the lease and sublease in order to grant its consent.

Even if such restrictions and conditions are not reflected in the lease or sublease, both sublandlords and subtenants may feel that they have no option other than to agree in order to get their sublease approved.

Worse yet, if the consent is not carefully reviewed, these restrictions and conditions can sneak up on an unsuspecting sublandlord or subtenant.

Whether you are a sublandlord or a subtenant on a sublease, keep the following in mind when negotiating a landlord's consent to sublease:
  • First, do no harm. The old Hippocratic principle from my days playing a doctor on TV. You have already negotiated the terms of your sublease. The basic terms should not be modified by the consent.

    A good example of the "do no harm" concept is that some consents require that the subtenant be obligated to return the space in the condition required under the lease, even if the sublease provides that the subtenant is only responsible to return the space in the condition required under the sublease (i.e., the subtenant is only responsible for restoration of alterations made by the subtenant). You should strongly resist this change in your sublease terms, although we have found that some landlords will not budge on this issue, in which case if you are the subtenant you will need to arrange for indemnification or other security from the sublandlord.
  • Allow for assignment of the sublandlord's rights. Ideally, the consent should specifically provide that the sublandlord can assign to the subtenant all of its rights under the lease against the landlord. The landlord is likely to object to this general provision except in larger leases, in which case you will need to address specific issues as provided in the bullet point below.
  • Use the consent process to address important issues requiring the landlord's approval and make the resolution of these issues contingencies under your sublease. There are certain issues that are crucial to the subtenant's occupancy but which cannot be finalized without the landlord's approval. Two frequent examples are approval of your initial tenant improvements and confirmation that you have the right to assign or sublet in connection with a merger or sale of your business or to a related entity (such right to assign or sublet, even if granted to the tenant/sublandlord, does not always work its way down to the subtenant). If you are a subtenant (or a sublandlord trying to make your subtenant comfortable), have the sublease provide that as a condition precedent to the sublease, the landlord's consent must address these issues.
  • Attach a sublease consent form as an exhibit to your lease. A pre-negotiated form agreed upon at the time the lease is being negotiated (when you will have the most leverage) will help avoid the problem of an over-inclusive landlord down the road.
  • Dirty tricks department. Although this concern fits more under the general notion of a landlord's consent, rather than the landlord's consent document itself, it is worth noting that some landlords will tell you (in so many words) that, no matter what the lease says, some concession (often cash) will be required in order for the consent process to run smoothly. Other landlords will have an objection, perhaps even an otherwise plausible objection, to the subtenant (e.g., its type of use), even though the lease does not provide the landlord with a right to unreasonably object.

    It would help to condition the effectiveness of the sublease upon obtaining a consent from the landlord that does not increase the obligations of the sublandlord or the subtenant. But this only provides you with an ability to walk away, not the ability to close the deal without landlord's approval.

    We have had clients who have been happy to pay for a quick and painless approval process and others who have litigated until an acceptable resolution was agreed upon with the landlord. A more complete discussion of the nature of such negotiations and litigation is best left for a future newsletter, but these differing approaches to resolution are something to bear in mind.
There is the old joke of a police recruit who was asked on his exam what he would do if he had to arrest his own mother. He answered "call for backup". The same applies when it comes to Mother's Day dinner, you do what has to be done. A good lesson for landlord sublease consents.

Recent Transaction

 

Mintz & Gold recently represented Summit Financial Printing with respect to its lease at 216 East 45th Street. Summit Financial Printing, LLC is a new Financial Printer created by industry experts to satisfy the need for a production partner with the knowledge, accuracy and trust required by the financial services professionals serving the IPO, High Yield and Mergers & Acquisitions marketplace. Summit is thrilled with its new state-of-the art facility and looks forward to having clients enjoy the space while receiving the best service and value available in the industry.

About Us

 

Mintz & Gold prides itself on providing the highest quality legal representation often associated with large law firms with the attention and reasonable costs of a smaller law firm.  Mintz & Gold's Real Estate Department has a national practice specializing in a broad range of commercial real estate law, with a particular focus on commercial leasing. We have extensive experience with respect to office, retail and shopping center leasing, and have represented major Manhattan landlords, national and multinational institutional tenants and national retail chains. Most of our attorneys practiced for many years at large institutional law firms before joining Mintz & Gold.

For more information regarding Mintz & Gold's real estate practice, click here.

For a list of representative transactions of Mintz & Gold's real estate group, click here.

For Mintz & Gold's website, click here.

Contact:
Alan Katz
katz@mintzandgold.com
Telephone: (212) 696-4848
Fax: (212) 696-1231



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This newsletter has been prepared for general information purposes only, and is provided with the understanding and subject to the user's agreement that it does not constitute the rendering of legal advice or other professional advice by Mintz & Gold LLP, and does not create any attorney-client or other special relationship. The content of this newsletter may be considered advertising under the ethical rules of certain jurisdictions and prior results do not guarantee a similar outcome. You should not rely upon this newsletter without seeking legal advice from an attorney licensed in the relevant jurisdiction(s). THE CONTENT OF THIS NEWSLETTER IS PROVIDED AS-IS WITH NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. Additionally, the information contained in this newsletter does not constitute tax advice. Any discussion of tax matters contained in this newsletter is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any transaction or matter.

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