29.18 6. Incorporation By Reference

• Jurisdiction: New York

6. Incorporation by Reference

After the parties have considered the substantive issues discussed above, they still must decide exactly how much of the direct lease they should incorporate by reference into the sublease.⁹⁰² The terms of any direct lease usually fall into one of the following four categories: (1) terms that require modification before incorporation by reference into the sublease; (2) terms that the sublease normally should incorporate by reference; (3) general terms that the sublease can incorporate without change and (4) terms that almost certainly will not apply to the sublease and should be expressly excluded.

In its simplest form, a sublease provides for incorporation by reference of all terms of the direct lease with a notation that “landlord” refers to “sublandlord” and “tenant” refers to “subtenant.” This approach, however, may be overly simplistic.⁹⁰³ Other terms in the direct lease may be incorporated, but with changes to fit the specific business deal. For example, the sublease should provide its own definitions for “premises,” “fixed rent,” “additional rent,” and “commencement date.”

One standard lease clause that a subtenant will certainly not want to incorporate by reference is a provision that limits the landlord’s liability to the interest in the building or the premises. Given that sublandlords often lose money on subleases (and therefore its value may be zero), a subtenant should know that the general credit of the sublandlord backs the sublandlord’s obligation to preserve the direct lease. If the sublandlord’s liability is limited to the interest in the building (i.e., the direct lease), the subtenant may have no claim against the sublandlord if the sublandlord decides to abandon its entire position. Non-recourse clauses may make sense in some real estate transactions, but not generally in subleases.

The following list summarizes many terms of a direct lease that a sublease often will incorporate by reference. Following each term is a quick summary, if relevant, of the position a subtenant may take regarding each of the terms and any limitations or modifications that may be desirable when the sublease incorporates a term by reference. These annotations reflect a subtenant’s idealized view of the world. The subtenant may ask for these changes, but may not be able to obtain all or any of them.

Issue	Subtenant’s Position
Abatements	Pass through to the subtenant.
Alterations and; Approvals of Alterations	...