29.2 A. Can The Tenant Sublease?

• Jurisdiction: New York

A. Can the Tenant Sublease?

To save time and to decide if the subleasing exercise is pointless, the subtenant’s attorney should, in fact, look first at the subletting provisions of the direct lease to determine whether the provisions permit the contemplated subleasing transaction; whether the sublease requires the landlord’s consent; the time within which the landlord must respond to a request; and whether the landlord can frustrate the transaction by “recapturing” the space (either by terminating the lease as to the space proposed to be sublet or by subleasing it back from tenant).⁸⁷⁰ A sophisticated direct lease in a competitive market place generally prohibits subletting without the landlord’s consent in virtually all instances except subleases to related and successor entities. It is helpful to the potential subtenant if the direct lease expressly allows the periodic use of the space by auditors, contractors and other persons having a business relationship with tenant, and excludes these types of temporary occupants from the subletting conditions of the direct lease, including the need to obtain the landlord’s consent.⁸⁷¹ The direct lease also may contain provisions that allow the landlord to recapture the space to be sublet by granting the landlord the right either to enter into the sublease as a subtenant, eliminate the sublease space from the leased premises, terminate the lease as to the space the sublease covers, or even terminate the entire lease.

Many leases provide that if the landlord does not exercise the right of recapture, the landlord will not unreasonably withhold or delay consent to the sublease if the potential sublandlord and subtenant meet certain criteria and conditions. If the landlord has a recapture right, the potential subtenant should try to find out as early as possible whether the landlord has any intention of recapturing or if the landlord has previously waived recapture rights. If the subtenant’s counsel cannot determine whether the landlord will exercise recapture rights, counsel should advise the subtenant of the risks in proceeding, including the potential time delays that the process may entail. Absent such a warning, the potential subtenant may expect to close the sublease transaction quickly; will spend money on attorneys, architects, and other professionals; and may pass up opportunities to lease alternative premises that do not pose the same risk of losing the transaction. If the landlord does decide to recapture, or otherwise blocks the sublease transaction, the subtenant will lose the advantage of...