29.0 I. Introduction

• Jurisdiction: New York

I. Introduction

In this chapter, the authors analyze the unique complexities that distinguish sublease transactions from lease assignments. The authors discuss points for consideration when drafting subleases, such as determining and evaluating the “box of rights” created by the landlord and tenant under the lease and for the subtenant when exercising due diligence in the ensuing sublease transaction. Familiarity with sublease transactions is increasingly important, especially in times of economic uncertainty and retrenchment as tenants of all types frequently find themselves with excess space.

Sublease transactions are structured very differently than direct leases. Under a sublease, a tenant transfers only a partial interest in a lease.⁸⁵⁹ For example, the original tenant may retain part of the original demised space, all of the space for some period of time after the sublease term expires, or some of the ancillary rights under the direct lease. These complexities do not exist in a lease assignment, which involves a transfer of the entire lease to another party who steps into the tenant’s shoes and usually assumes all of the responsibilities of the original tenant under the lease.⁸⁶⁰

When most lawyers think about subleasing, they focus primarily on the provisions in a direct lease which may allow, prohibit, or limit subleasing and assignment. Relatively little has been written on how to negotiate, evaluate, and review a sublease transaction from the subtenant’s perspective.⁸⁶¹

A sublease transaction really involves two transactions in one. To a tenant, a direct lease is like a box that the landlord and the tenant have built for the tenant to live in. The landlord allows the tenant to occupy specific space and agrees to provide certain services in exchange for the payment of rent. A sublease transaction involves two boxes: first, the one that the landlord has already built with the tenant, and second, one that the tenant and the subtenant must now build together within the confines of the first.⁸⁶² As noted below, unique issues may be raised if the direct lease covers significant blocks of space and the sublease transaction covers a smaller amount of space (therefore the direct lease being a large box and the subtenant requesting a much smaller box).⁸⁶³

Usually, the parties to a sublease are unable, or the tenant is unwilling, to change the terms of the direct lease. For that reason, many parties consider subleasing to be easier than entering into a new...