Using Subleases, Assignments in Commercial Rental Property

April 12, 2013

A wide range of reasons exist why a commercial tenant might want to locate another entity to take over some or all of its space prior to the conclusion of their lease. Perhaps the tenant needs to move to a larger space, needs a smaller space, is closing or needs to relocate to another city or state. Because New Jersey law imposes relatively few obligations with regard to how it deals with a tenant seeks to assign or sublet, ensuring the placement of the necessary protective terms in the lease is a must for commercial landlords.

The ability of a tenant to assign or sublease a property they rent is, as with most matters of commercial real estate, one subject to the terms of the lease agreement. The parties may agree that the tenant may sublet or assign, or may agree that such activity is forbidden. If the lease is silent regarding language barring or restricting subleases or assignments, then the tenant is free to sublet or assign any part or all of its interest under the lease.

For those commercial leases that, either expressly or by implication, permit subleases or assignments, nearly all require express landlord approval. If, however, the parties’ lease lacks such a provision, then the tenant is legally free to sublet or assign to whomever the tenant wants. While tenants, almost as a matter of routine, accept a lease term requiring their securing of approval of their landlords in order to assign or sublet, many neglect to negotiate for a companion term requiring the landlord to behave reasonably in its decisions to withhold or grant consent. Cases, like East Penn Sanitation, Inc. v. Grinnell Haulers, Inc., make clear that New Jersey law imposes no duty to act reasonably in granting or rejecting a sublease or assignment request, absent a contractual obligation to do so.

Legally, the landlord may withhold consent for any reason, even completely arbitrary ones, unless the parties negotiate otherwise and reduce such an agreement to writing within the lease document.

Tenants and landlords should also keep in mind the differing obligations involved between subletting and assigning a property. In an assignment, the tenant transfers all of their rights under the lease. The assigning tenant, however, remains liable to the landlord for any terms broken within the lease. The landlord may enforce its rights under the lease against either the tenant or the assignee. A sublease, on the other hand, represents a completely separate arrangement between the tenant and the sublessee. The tenant may sublease all or a part of the space, and may do so under the same or wholly different terms than those in its lease agreement with the landlord. The landlord has recourse only against the tenant in a sublease situation.

Negotiating and drafting lease agreements, especially when the agreements may involve subleases or assignments, involves keen attention to detail to ensure that the rights and obligations of each party are in writing and clearly stated. To ensure that the lease agreement you are considering adequately protects your rights and meets your business needs, contact the real estate attorneys at Samuel C. Berger, P.C. Our New Jersey real estate attorneys can provide you with sage advice regarding your commercial lease agreement. Contact us online or call (201) 587-1500 or (212) 380-8117.

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