29.8 C. Allocation Of Risks And Costs

• Jurisdiction: New York

C. Allocation of Risks and Costs

In allocating risks between the parties, a sublandlord properly will make clear to the subtenant those obligations that by their nature only the landlord can perform.⁸⁸⁷ These obligations include providing building services, making repairs to the common areas and the building structure and systems, or otherwise performing landlord- or owner-specific obligations, including restoring the building and building systems after a casualty or condemnation.⁸⁸⁸ Subleases usually provide that the sublandlord has no responsibility or liability for failing to fulfill these obligations. Except in those instances when the sublandlord’s default caused the landlord’s failure to perform these obligations, this is an appropriate position for a sublandlord to take because the sublandlord is entitled to receive these services or benefits from the landlord and is not in a position to perform the obligations independently. However, because the subtenant is not in privity with the landlord, the sublandlord should agree to either use reasonable efforts to enforce the landlord’s obligations under the direct lease or take such reasonable steps as will enable the subtenant to proceed directly against the landlord if the landlord defaults under the direct lease.⁸⁸⁹ Exhibit B at the end of this chapter provides a model clause requiring the sublandlord to take certain actions against the landlord for the benefit of the subtenant.

The subtenant’s counsel should make sure that the sublandlord remains responsible for any of the sublandlord’s own acts or omissions (not caused by the subtenant’s default) that would allow the landlord to stop performing the landlord’s obligations under the direct lease, thus depriving the subtenant of landlord services. To the extent that the sublandlord was able to negotiate self-help rights in the direct lease, the subtenant will want the sublandlord to agree to exercise those rights on behalf of the subtenant. The sublandlord should be agreeable to such an arrangement unless the sublease covers only part of the premises that the direct lease demises and the sublandlord, in good faith, disagrees with, or could incur liability from, granting the subtenant’s request. Exhibit C at the end of this chapter provides sample language for dealing with some of these issues.

Conversely, the sublandlord typically will pass through to the subtenant any obligations under the direct lease that relate to the subtenant’s use and occupancy of the sublet space. Such obligations often include a pass-through of an appropriate percentage of the real estate tax and operating cost escalations, with a change in applicable base years for the escalations (if that is part of the business deal). The subtenant also will generally agree to bear an appropriate share of other monetary obligations, such as payment for electrical consumption. It is also appropriate where the landlord bills the sublandlord for services requested by subtenant, such as after hours HVAC or for use of the loading dock, that the subtenant pays 100% of such amounts since these relate to services provided directly to the subtenant. In appropriate instances it may be desirable to attempt to have the landlord accept requests...