As summer fades away and we start to experience the cool nights of Autumn, I am reflecting on the many changes I have witnessed in my practice over the past 12 months – which is a predominantly leasing centric property practice.
I could write countless articles on all the issues that emerged during 2020 and which are still being felt today – whether it be the rollercoaster that was FIRB changes, the hours spent in negotiations and mediations about rental relief and the big demand for big box industrial sheds. However, today I would like to reflect on the big push in organisations rationalising their tenancy footprints, which has seen a big drive for subleasing and licensing.
I have seen my practice on average once a week receive new instructions for clients seeking to rearrange their office or warehouse needs by offering part or all of their footprint to another party, through a sublease or licence. For those of you who are uninitiated, a sublease is where you offer to someone else part or all of your occupancy, but you are still bound under your lease arrangements. A licence is similar to a sublease but confers less legal rights on the subtenant in theory.
Subleasing and licencing is seen as a quick and easy way to offload your space – usually the landlord likes this better than an assignment because the original tenant is still on the hook under the lease but there is the comfort of a third party coming in to contribute to whole or part of the rent payable under the original lease. There are still hurdles which need to be overcome – your landlord will need to consent to any sublease or licence and may have their own requirements as part of that consent such as documentation to sign, fees to pay, specific insurance requirements etc. Therefore, you must give yourself sufficient lead time to enable all the requirements for consent to be fulfilled.
If you are subleasing or licencing you need to have a look at your original lease to make sure there are no restrictions that prevent you from entering into such arrangements and you need to consider what terms of your original lease you want to pass on to the subtenant and if there are any special conditions which are unique to the transaction which need to be documents. For example, if you are only subletting part of the space you need to consider whether there will be any shared spaces and to what extent you would pass onto your tenant any repairs and make good obligations.
This trend of subleasing and licencing is very apparent in CBD environments and so if you are a business that is trying to navigate through the working from home and hangover from COVID-19, in which you now need to reconsider your footprint please reach out to appropriate professionals for advice.
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