Tips and Ideas for the Sublandlord

Since 2001, a number of office tenants downsized and sublet excess facilities, thus becoming a sublandlord/sublessor. Many of these firms may have had some previous experience with the duties, obligations and business nuances that accompany this role, while for others this has been a first-time experience. However, it has been my experience that even the veteran sublandlord sometimes has staff unfamiliar with these new responsibilities, or in concentrating on their normal course of business occasionally allow a sublandlord task slip through the cracks, to their unknowingly economic disadvantage.

Collecting Rent
Make sure you collect the appropriate rent from your subtenant on the day it is due. Act as if you are a professional Landlord and have set policies in place should 3-day notices or other legal action be required. Enlist the real estate broker’s assistance if they helped you procure a subtenant who is delinquent in paying their rent. Consider hiring a real estate specialist attorney versus your in-house counsel, who may be too busy with normal corporate duties, or less familiar with this section of the law.

Other Payments
Make sure you are collecting all monies due pursuant to your sublease agreement, including parking charges, after-hours HVAC, special janitorial charges and other miscellaneous costs, all of which should be clearly stated in your invoice from your Landlord and which usually can then be charged to your subtenant.

Operating Expenses
Most office subleases allow the sublandlord to be reimbursed by the subtenant for the prorated share of operating expense increases over a set base year, and I have seen a number of instances where this reimbursement right is forgotten resulting in lost monies rightfully due. This is also important after the subtenant term expires, as often your bill does not get sent to you until early the following year, at which time you usually will still have the right to collect from your subtenant.

Tenant Improvements
Most subleases require the approval of both the Landlord as well as the sublandlord for tenant improvement work done during the sublease term. Make sure this is followed, perhaps by occasionally checking with your subtenant and reminding them (as well as a written note) as unauthorized work done by the subtenant might be a cost to you to remove, should the Landlord require this. Yes, you probably have recourse to your subtenant but this could get more complicated.

Holdover
Make sure your subtenant vacates or does a direct lease on a timely manner or you may be exposed to holdover charges pursuant to your master lease.

Security Deposit
If you have a security deposit with the Landlord, make sure it is returned at the end of your term, and if you are holding one for your subtenant, make sure your physical inspection after the subtenant vacates does not necessitate a deposit forfeiture to repair or restore the premises.

I am not an attorney so these thoughts should in no way be construed as legal advice, and I always recommend you obtain professional counsel should this be required. Also, as I tell all my sublandlords/sublessor, please don’t hesitate to call your original broker should you need their assistance during the term and please feel free to contact me, Jeffrey Weil, at 925.279.5590.

Jeff Weil