Tenant Leasing Illustrated
February 2017
Issue #61
Hello,

In most instances, leases require landlord approval of tenant proposed subleases. Even if the landlord chooses not to exercise recapture rights, approves the subtenant and reviews and approves the sublease document, the landlord, tenant (i.e., sublandlord) and subtenant will need to enter into the landlord's formal written consent to sublease document.

In today's issue, we focus on eight issues to cover in such written consent to sublease.

Sincerely,
Alan
Alan Katz
Mintz & Gold LLP

Rogue Subleases and Landlord Consents
Sadly, there has been a disturbance in the Force.

No, I am not talking about politics or even that Russell Westbrook is not an NBA all-star starter.

Last month, Princess Leia of Star Wars fame (aka, Carrie Fisher) passed away.

She died the day after I saw her 30-year-old likeness cameo in the new Star Wars movie, Rogue One, the first film in the Star Wars "Anthology" series (i.e., Disney's way to string out more hit movies from the original Lucas Films saga).

Rogue One takes place between the third and fourth installments, telling the story of the rebel theft of the plans for the Death Star.

The movie answers the age-old question: why can't anybody build a self-respecting Death Star without one tiny flaw that blows the whole thing up and which every rebel seems to know about (see episodes four and seven)?

The answer here is that Galen Erso, an Empire scientist with rebel sympathies, builds into the plans a way to defeat the weapon, and his daughter Jyn avenges her father by helping steal the plans.

My favorite new character is Chirrut "mwe, a blind monk with a stylistic martial arts repertoire (played by Donnie Yen, a Hong Kong actor) who seems to talk more about the Force than actually be able to use it (all talk, little follow up - is this guy a lawyer?). Chirrut gains strength and confidence from constantly repeating "I am one with the Force; the Force is with me."

I am often heard to mutter "I am one with the Lease, the Lease is with me", especially when representing a sublandlord or subtenant hoping to obtain the landlord's consent to a sublease.

We have talked in past newsletters about what to include in a lease regarding such landlord's consent.

Today we will discuss the consent document itself.

Oddly enough, most landlords do not send their new subtenants a personal note saying "welcome to the building, cannot wait to meet you".

Landlords instead provide a formal written consent and require that their tenant and new subtenant also be a party to such document.

That is because, although the landlord's approval is in there somewhere, most of the document is designed to protect the landlord.

This is understandable. The landlord did not ask for this subtenant, likely derives little or no benefit from the subtenant and wants to have no privity between itself and the subtenant.

The landlord will consent per the prime lease requirements, but is not prepared to do much else.

As a result, a long time ago, in a sublease negotiation far, far away, sublandlords and subtenants learned to cover the following eight issues in their landlord's consent:
  • Provide for consent. Perhaps obvious, but your landlord should clearly and unconditionally consent to the sublease.
  • Limit unwanted amendments. Your landlord should not be using the consent as a vehicle to amend the terms of the prime lease. Be sure to read the consent carefully to confirm that the terms and conditions in addition to your landlord's approval are limited to reasonable protections of the landlord and confirmation of the parties' rights and responsibilities going forward. For example, it is reasonable for your landlord to clarify that its consent to the sublease will not be deemed a consent to a future sublease, but it is not reasonable to preclude or limit your existing rights under the prime lease to sublease in the future.
  • Address subtenant concerns. Often, the subtenant will have needs that are not addressed by the sublease or prime lease (in fact, many subtenants will even condition the sublease upon obtaining not only the landlord's consent, but consent covering specific issues). The consent can be used to resolve concerns such as those stated below.
    • Flexibility on "corporate transactions". As we have discussed in past newsletters, tenants must have the flexibility to pursue legitimate business transactions (e.g., mergers, sales, etc.) without such transactions being deemed assignments which require landlord consent. The same is true for subtenants, yet many prime leases, even if they provide the necessary flexibility for the tenant's corporate transactions, do not pass these rights on to a subtenant.
    • Overtime services. Subtenants may want to streamline the process to obtain overtime services by allowing requests for such services to be made directly to the landlord, rather than first requesting through the sublandlord. Sublandlords should insist upon being informed concurrently as and when such charges are incurred (some may even want to limit the amounts that can be incurred without their authorization).
    • Approval of alterations. A subtenant may require landlord's pre-approval (even if only on a conceptual basis) if it intends to make substantial or otherwise critical alterations as part of its initial occupancy.
  • Focus on subordination. Consents generally confirm the sublease's subordination to the prime lease and include a landlord option to have the subtenant attorn (i.e., recognize landlord as its direct landlord) if the prime lease terminates. The attornment language usually limits the landlord's responsibilities going forward and these limitations should be negotiated as with any other subordination provision (for example, even if your landlord will not be responsible for the sublandlord's prior defaults, it should be responsible for defaults of a continuing nature that can be cured by performing a service or making a repair).
  • Confirm direct payments. Your landlord may require that upon notice the subtenant make payments of rent directly to the landlord. As a sublandord, you will want to limit this right to instances of your default after expiration of notice and cure periods. As a subtenant, you will want the sublandlord to specifically authorize this payment.
  • Cover payment of fees. Nothing is free; even Hans Solo charged Luke and Obi Wan for their junket to Alderaan. Most leases provide for a fee or reimbursement of costs to the landlord and, although generally paid by the sublandlord, this should be confirmed in the consent.
  • Beware estoppel language. Many consents include language similar to that of an estoppel certificate (e.g., confirming that there have been no defaults by the landlord under the prime lease). As with any estoppel, this language will be binding against future claims so must be carefully reviewed and the underlying facts confirmed.
  • "Gorilla subtenant" requests. Subtenants taking a large amount of space and/or having a great deal of leverage may make demands that go beyond the typical consent requests. If you are a subtenant in this position (or a sublandlord courting a subtenant in this position), you should be aware of these possibilities, which include (a) non-disturbance protection from your landlord, (b) estoppel representations from your landlord as to the lease being in full force and effect with no defaults by sublandlord, and (c) a tri-party agreement among landlord, sublandlord and subtenant regarding services and repairs.
"Do or do not. There is no try." Easy for Yoda to say, but he never had to face a commercial landlord (I understand Jedi knights worked out of government offices). But remember that you are one with the Force; the Force is with you, and that mantra, along with the eight suggestions above, can help your Consent to sublease stay clear of the dark side.

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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.

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

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