a subtenant’s rights pursuant to a sublease are entirely dependent upon the existence of the master lease for the space. the subtenant should also review the master lease in order to review the restrictions on use of the premises in order to ensure that the subtenant’s proposed use of the sublet space is not in conflict with the master lease. next, it is important for the subtenant to review the terms of the master lease in order to determine whether or not it would be fair to the subtenant to incorporate the terms by reference into the sublease. if the subtenant is subleasing space which has not been substantially completed by the landlord, or is given a portion of the tenant improvement allowance that is provided to the sublandlord by the landlord under the master lease for completion of the subtenant’s improvements, it is important for the subtenant to obtain estoppel certificates or other statements affirming the current status of construction and describing the conditions that will be imposed on the subtenant’s use of the tenant improvement allowance for completion of the subtenant’s tenant improvements.
if the tenant is entitled to a reduction in rent under the master lease due to the failure of such services or utilities, then the subtenant should receive a similar reduction under the sublease to the extent that the sublet space is affected by such an interruption. also, the failure of the services or utilities to be provided due to a default by the sublandlord under the master lease should be a default under the sublease and the sublandlord should be liable for such failure. the sublease should contain a covenant of the sublandlord not to terminate the master lease pursuant to a separate agreement between the sublandlord and the landlord. if the subtenant is unsuccessful in obtaining the right to exercise such right, the sublease should at least require that the sublandlord will not itself exercise any option to extend the master lease if the subtenant is then negotiating a direct lease with the landlord at the end of the term of the sublease. if the master lease provides that the landlord is entitled to construction management fees in connection with any alterations to the premises, such fees should not be incorporated by reference into the sublease (construction management fees should not be paid by the subtenant to the sublandlord).
ralph lauren, meanwhile, was struggling due to the pandemic, and would have a chunk of its rent paid off. but the deal hasn’t worked out quite as either hoped — and shows some of the challenges inherent in retail subleasing, which experts believe could become more popular as tenants struggle to make rent and landlords look for options. retail subleases aren’t quite there yet, but lawyers and brokers who work with retailers have seen an increase in deals being made. landlords are going to get frustrated worrying about whether they’re going into default on their loans,” said attorney laura brandt, who brands herself as the retail lawyer. who the hell knows where i’m going to be in another 10 months, let alone 10 years?’” said brandon singer, ceo of brokerage retail by mona, which has orchestrated subleases for companies like boohoo, showfields and happy returns.
landlords may also become more willing to accommodate subleases in the face of plunging rents and rising retail vacancies. “landlords have the ability to be more flexible than a tenant who is looking to sublease their space,” said jp sutro, the executive managing director of lee & associates’ new york city office. and there are downsides to retail subleases — namely, a landlord getting involved and potentially scuttling the deal, which is what happened with mango and ralph lauren. these properties are their business. so they need to make sure that they’re getting the right kind of tenant that’s going to stay in business and continue to pay rent.” though chmielecki declined to comment on any specific cases, he added that “landlords, rightfully so, view their retail as the front door to the building.” “for better or for worse, the landlords are much more selective over who’s right next to their lobby than who’s on the 14th floor of their building,” he said.
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