Commercial Lease Assignments and Subleases in a Volatile Market: Key Considerations, Potential Pitfalls

Description

In a volatile post-pandemic commercial real estate market, counsel to parties negotiating long-term commercial leases should pay close attention to the assignment and subleasing clauses in the master lease in case the tenant's business needs change--where they may no longer need the amount of space they've leased or may not be able to afford to pay for the space--while still tied to the lease. Subleasing or assigning a lease may provide the best options for both the landlord and tenant.

Counsel and their clients run into trouble when they rely on boilerplate language for subleasing or assignment clauses in the master lease that governs the parties' future rights to do either. Therefore, counsel for all parties should understand the key differences between subleasing and assignment, as well as drafting considerations and legal pitfalls, so they can best protect their clients' future interests.

When later making the decision whether to sublease or assign a commercial lease, landlords, tenants, subtenants, and/or assignees, governed by the parameters of the master lease, must analyze the advantages and risks of both options while understanding there are implications for all parties involved under tax and bankruptcy codes, contract law, landlord-tenant law, and financial reporting requirements.

Listen as our panel discusses key considerations for landlords and tenants when drafting subleasing and assignment clauses in the master lease, especially given the current market. The panel will also review the benefits and risks of commercial lease assignments and subleases and provide additional drafting strategies for subleases and/or assignment agreements.