CRE glossary
Sublease
A sublease is a lease between an existing tenant (the sublessor) and a new occupant (the sublessee) for some or all of the original premises, while the original lease remains in force between landlord and original tenant. The sublessor stays primarily liable to the landlord for rent and lease compliance; the sublessee pays the sublessor and lives under the original lease's terms.
Subleases are most common when companies downsize, relocate, or get acquired and consolidate offices. The sublessor takes a financial loss (sublease rent is typically 60–85% of original rent) in exchange for offloading the space and recovering some of the cost. Sublessees get below-market rent in exchange for a shorter remaining term and the layered legal complexity.
Subleases require landlord consent, the original lease almost always says so. Landlords have legitimate concerns: is the sublessee creditworthy? Will they damage the space? Does the sublessee compete with another tenant? Tenant-friendly leases have a 'reasonable consent' standard so the landlord can't unreasonably withhold approval; landlord-friendly leases let the landlord approve at sole discretion (which means almost certainly no).
Recapture rights are the other big sublease issue. Many leases let the landlord 'recapture' the space if the tenant proposes a sublease, meaning the landlord can terminate the original lease and re-lease at full market rent rather than allowing the sublease. Tenants should negotiate to limit recapture (e.g., only if the proposed sublease is for the full premises, not partial; or only if the sublease term is less than X years).
Example
- Original tenant lease
- $80/SF, 5 years remaining
- Sublease offered
- $58/SF, 3 years
- Original tenant absorbs (loss)
- $22/SF × 3 years = significant write-off
- Sublessee gets
- Below-market rent for shorter term
- Landlord consent required
- Standard reasonable approval
Broker perspective
Subleases are 30% of office leasing volume in soft markets. The economics work for sophisticated tenants (rent below market, shorter commitment, less negotiation), but the layered legal stack is painful. As a tenant-rep on a sublease, your job is reading the original lease as carefully as the sublease, every restriction (use, signage, hours, parking) carries through. Confirm the sublessor isn't passing on hidden defaults.
Frequently asked
People also ask
Do I need landlord approval to sublease?
Yes, almost always. Original lease will spell out the consent requirements. Tenant-friendly leases use 'reasonable consent' standard; landlord-friendly leases use 'sole discretion.'
Is sublease rent always below market?
Almost always, 60–85% of original is typical. The discount compensates the sublessee for the shorter term and layered legal stack.
What happens if the original tenant defaults?
Depends on the sublease and the landlord. Some landlords offer 'direct lease' provisions that let the sublessee continue directly with the landlord at the sublease terms. Negotiate this.
Can I sublease less than my full premises?
Usually yes, subject to landlord consent. Partial subleases are more common than full premises subleases.
Related terms
Assignment
Tenant transfers the lease in full to a new party, most common during M&A, sale of business, or corporate restructuring.
Letter of intent (LOI)
A non-binding outline of the major business terms, rent, term, TI, options, that becomes the basis for the binding lease.
Estoppel certificate
A signed statement from the tenant confirming the lease terms, used by the landlord during sale or refinance.
Good guy guaranty
A limited personal guaranty that protects the landlord against unpaid rent only if the tenant doesn't surrender the space cleanly.
See sublease extracted from a real lease.
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