San Diego Commercial Leases: To Assign or Sublease?
If you have commercial space in San Diego, you more than likely have a lease with the property owner. For various reasons — many quite legitimate business reasons — your company may need to be out from under the obligations of the lease. One question that often arises is: Should I assign the lease or find a subtenant and sublease? The following will discuss some of the advantages and disadvantages of both business strategies. With either choice, it will be important to retain an experienced San Diego corporate attorney to review your lease and give advice and counsel.
First, typically your landlord must give consent to either an assignment of the lease or a sublease. Generally speaking, there are two aspects here: your being allowed to assign and/or sublet, and the landlord’s approval of the new tenant/subtenant. To the extent that the landlord prohibits either the assignment or a sublease, then your options become limited. Likewise, if the landlord will only permit one, but not the other, then, again, your options become limited.
Assuming that your lease allows an assignment or a sublease and assuming your landlord is willing to consider either (under the right circumstances), here is a quick summary of advantages and disadvantages:
Retaining Some Interest in the Leasehold — or Not
You must begin by deciding if you want to retain some interest in the leasehold property or not. With an assignment, you give up all of your interest in the property. The assignee takes over all obligations and rights (such as the right to possess and use the property). With a sublease, you can set the term of the sublease for a length of time less than the full lease. When the sub-tenancy ends, then your business steps back into possession. If you want to completely “walk away,” then an assignment is the better option (if available). Note, however, that it is rare that a tenant can “completely” walk away since few landlords are willing to provide a complete release of obligation to the original tenant.
All or Part of the Leasehold?
As noted, if your business wants to retain some interest in the leasehold, a sublease is probably the better option. This is true if, for example, you want to retain a portion of the leasehold. However, depending on the space and the proportion that is retained, an assignment can still be a viable option even if you want to retain some portion. Take this example: You are renting a two-story office building, but you only need one floor. If a suitable tenant can be found and the landlord approves, you could do an assignment for the other floor (or, of course, a sublease).
How About a Serial Assignment-Sublease?
Another option that sometimes serves the needs of all parties is a serial assignment-sublease. Here, you assign the whole lease, but agree in advance that the new tenant will sublease a smaller portion back to your company.
Advantages and Disadvantages
With an assignment, the new tenant begins to deal directly with the landlord (or management agent). Any disputes or legal actions are between the new tenant/assignee. At the end of the lease, the new tenant engages in any negotiations with respect to renewal. All of these advantages are lost with a sublease situation. By contrast, the main advantage of the sublease is that the original tenant retains control of the leasehold. Again, what the various parties to the transaction want and desire determines which path is best.
Call San Diego Corporate Law Today
For more information, call attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” by SuperLawyers.com for four years running. Contact Mr. Leonard by email or by calling (858) 483-9200. Like us on Facebook.