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As the Economy Stumbles, Subletting Soars by George Grace

As the Economy Stumbles, Subletting Soars

Last year I had the pleasure of representing a foreign client who wanted to find a retail space. One of the storefronts we were considering was adjacent to a large corner unit that was leased to an accessory unit of a world famous brand. Recently, I found out that the tenant, who had only been in the space for less than a year, decided to close the store and sublet the unit for the remainder of the lease—even though the tenant had invested millions of dollars into the construction and design of the space.

As time went on and my client still hadn’t found a suitable storefront, we began to seriously consider the corner unit that was previously occupied. Both my client and I recognized it as a huge opportunity for whichever business secured the sublease.  

This opportunity represented a “sign of the times.” In keeping with my previous article about the stock market’s role as a leading indicator for rents, the market’s drop from 18,500 to under 16,000 within seven months is good news for tenants.

Subletting from a faltering business is obviously a different dynamic from renting directly from a landlord. That is why it is so important for sublessees to ensure their tenancy by getting recognition agreements or nondisturbance agreements from the landlord stating that, in the event the sublessor goes out of business, the landlord will provide continuity and allow the tenant to stay in the space. This applies to office as well as retail and industrial space.

It is not always possible to get a landlord to agree to a nondisturbance agreement, but it is essential as the economy slows down. As I mentioned in a previous article: Never let a crisis go to waste.

 George E. Grace
 Mohr Partners, Inc.
232 Madison Avenue
New York, NY 10016