In the post-covid era, many commercial tenants have excess office space as a result of flexible or remote work arrangements.
Often a commercial tenant’s first thought in this situation is to sublease its premises. However, some tenants are not aware of the ability to license their space as an alternative to a sublease. In this client alert we address a few of the differences between a license and a sublease and when one may be more advantageous than the other.
A sublease is preferable when a tenant seeks to dispose of the entirety of its premises. Prior to subletting, a tenant should review its existing lease as many terms of a sublease are governed by the master lease. Key terms to consider include provisions relating to rent, associated fees, landlord’s approval rights, and time permitted for the landlord to approve a subtenant. There may also be restrictions as qualifications of a subtenant. For example, many leases contain provisions outlining eligibility and requiring submission to the landlord of detailed financials and other documentations in respect of a proposed sublease. Subleases can also be time-consuming and create additional costs to tenants.
Alternatively, a commercial tenant may explore a simpler license agreement. A license is best used for short periods of a time and when sharing office space. A license may, in certain circumstances, not even require the approval of a landlord if the lease anticipated such an arrangement. Other benefits of a license agreement may include additional control and flexibility for the licensor as well as the ability to terminate on shorter notice.
The foregoing is not intended to be comprehensive nor constitute legal advice. If you would like to discuss your specific circumstances or would like information, feel free to contact us at (212) 625-8505.