www.ahbl.ca
Open in
urlscan Pro
192.124.249.115
Public Scan
URL:
https://www.ahbl.ca/commercial-subleasing-concerns/
Submission: On March 08 via manual from CA — Scanned from CA
Submission: On March 08 via manual from CA — Scanned from CA
Form analysis 4 forms found in the DOM
GET https://www.ahbl.ca/
<form method="get" id="top-search" action="https://www.ahbl.ca/">
<label for="s" class="assistive-text hidetext">Search</label>
<input type="search" class="field" name="s" id="s" placeholder="search">
</form>GET https://www.ahbl.ca/our-people/
<form method="get" class="SearchForm lawyersearch" id="SearchForm" action="https://www.ahbl.ca/our-people/">
<div class="styled-input"><input id="fsquared-input" class="fsquared-autocomplete-input" name="s" placeholder="Find by name" value="" type="text"></div>
<div class="styled-select"><select class="fsquared-position-search" name="fsquared-position-search">
<option value="">Select Role</option>
<option value="partner">Partner</option>
<option value="senior-counsel">Senior Counsel</option>
<option value="associate-counsel">Associate Counsel</option>
<option value="associate">Associate</option>
<option value="research-lawyer">Research Lawyer</option>
<option value="student" data-filter="student">Student</option>
<option value="executive-team" data-filter="executive-team">Executive Team</option>
<option value="paralegal" data-filter="paralegal">Paralegal</option>
<option value="management" data-filter="management">Management</option>
</select></div>
<div class="styled-select"><select class="fsquared-practicearea-search" name="fsquared-practicearea-search">
<option value="">Select Practice Area</option>
<optgroup label="Personal Law">
<option value="2037">Administrative Law</option>
<option value="4188">Appellate Advisory</option>
<option value="4183">Aviation</option>
<option value="2123">Cannabis</option>
<option value="2126">Defamation + Publication Risk Management</option>
<option value="2141">Employment</option>
<option value="2129">Family</option>
<option value="3155">Human Rights</option>
<option value="2135">Information + Privacy</option>
<option value="2138">Intellectual Property + Technology</option>
<option value="4177">Residential Tenancy</option>
<option value="3660">Strata Property</option>
<option value="2147">Wills, Estates + Trusts</option>
</optgroup>
<optgroup label="Business Law">
<option value="2150">Administrative Law</option>
<option value="4186">Appellate Advisory</option>
<option value="4181">Aviation</option>
<option value="2153">Banking + Lending</option>
<option value="3026">Business Disputes</option>
<option value="2159">Cannabis</option>
<option value="2156">Charities + Non Profit</option>
<option value="2162">Construction + Engineering</option>
<option value="2165">Corporate / Commercial</option>
<option value="3009">Corporate Finance + Securities</option>
<option value="5639">Cyber Breach Response + Defense</option>
<option value="4194">Defamation + Publication Risk Management</option>
<option value="3210">Employment Law</option>
<option value="2168">Environmental</option>
<option value="2171">Franchise</option>
<option value="2174">Health</option>
<option value="2180">Information + Privacy</option>
<option value="2183">Insolvency + Restructuring</option>
<option value="2186">Intellectual Property + Technology</option>
<option value="2189">Labour Relations</option>
<option value="2192">Maritime</option>
<option value="2195">Mergers + Acquisitions</option>
<option value="2198">Real Estate</option>
<option value="2201">Strata Property</option>
<option value="3204">Succession Planning</option>
<option value="3213">Workers Compensation</option>
</optgroup>
<optgroup label="Insurance Law">
<option value="2207">Appellate Advisory</option>
<option value="361">Aviation</option>
<option value="2217">Cannabis</option>
<option value="2275">Class Actions</option>
<option value="2220">Construction + Engineering</option>
<option value="363">Coverage Disputes</option>
<option value="5639">Cyber Breach Response + Defense</option>
<option value="2223">Defamation + Publication Risk Management</option>
<option value="2250">Directors + Officers</option>
<option value="2235">Employment Practices</option>
<option value="2226">Environmental</option>
<option value="2229">Health</option>
<option value="3247">Human Rights</option>
<option value="2279">Information + Privacy</option>
<option value="2273">Life + Disability</option>
<option value="2238">Local Government</option>
<option value="2241">Maritime</option>
<option value="2283">Occupiers Liability</option>
<option value="2285">Personal Injury</option>
<option value="2252">Professional Liability</option>
<option value="2245">Strata Property</option>
</optgroup>
</select></div>
<div class="styled-select"><select class="fsquared-industry-search" name="fsquared-industry-search">
<option value="">Select Industry</option>
<option value="2291">Accounting</option>
<option value="2296">Banking + Finance</option>
<option value="2298">Cannabis</option>
<option value="2300">Charities + Non-Profit</option>
<option value="2302">Construction</option>
<option value="2304">Education</option>
<option value="2306">Environmental</option>
<option value="2310">Franchise</option>
<option value="2312">Health Care</option>
<option value="2314">Hospitality</option>
<option value="2318">Life Sciences</option>
<option value="2320">Local Government</option>
<option value="5871">Police Law + Liability</option>
<option value="2328">Property Management</option>
<option value="2330">Real Estate</option>
<option value="2332">Retail + Wholesale</option>
<option value="2336">Technology</option>
<option value="6336">Transportation + Logistics</option>
</select></div>
<div class="styled-select"><select class="fsquared-lawschool-search" name="fsquared-lawschool-search">
<option value="">Select Law School</option>
<option value="dalhousie-university">Dalhousie University</option>
<option value="california-western-school-of-law">California Western School of Law</option>
<option value="queens-university">Queens University</option>
<option value="thompson-rivers-university">Thompson Rivers University</option>
<option value="university-of-alberta">University of Alberta</option>
<option value="university-of-british-columbia">University of British Columbia</option>
<option value="university-of-calgary">University of Calgary</option>
<option value="university-of-victoria">University of Victoria</option>
<option value="university-of-toronto">University of Toronto</option>
<option value="university-of-western-ontario">University of Western Ontario</option>
<option value="university-of-ottawa">University of Ottawa</option>
<option value="university-of-windsor">University of Windsor</option>
<option value="osgoode-hall-law-school">Osgoode Hall Law School</option>
<option value="university-of-saskatchewan-">University of Saskatchewan </option>
<option value="university-of-manitoba">University of Manitoba</option>
<option value="university-of-new-brunswick-">University of New Brunswick </option>
<option value="university-of-technology-sydney">University of Technology Sydney</option>
<option value="university-of-kent-law-school">University of Kent Law School</option>
<option value="university-of-auckland">University of Auckland</option>
<option value="universit-de-montral">Université de Montréal</option>
</select></div>
<div class="styled-select"><select class="fsquared-location-search" name="fsquared-location-search">
<option value="">Select Location</option>
<option value="vancouver">Vancouver</option>
<option value="toronto">Toronto</option>
</select></div><a href="#" class="resetlink">Reset All</a><input type="hidden" value="1" name="iso-search"><input value="SEARCH" type="submit">
</form>GET /
<form method="get" id="search form" action="/">
<div>
<input type="search" value="" name="s" id="s" placeholder="Search Business Law">
<input type="hidden" value="25" name="cat" id="scat">
<input type="submit" id="search_submit" name="Search" value="Search ">
</div>
</form>GET https://www.ahbl.ca/
<form role="search" method="get" class="shiftnav-searchform" action="https://www.ahbl.ca/">
<input type="text" placeholder="Search..." value="" name="s" class="shiftnav-search-input">
<input type="submit" class="shiftnav-search-submit" value="">
</form>Text Content
Before you go Subscribe to get the latest updatesSUBSCRIBE
Skip to content
Alexander Holburn Beaudin + Lang LLP
Search
FacebookTwitterLinkedIn
Pay Online
Menu
* Our Services
* *
* * Alexander Holburn is a leading full-service, Vancouver-based Canadian law
firm providing a wide range of litigation, dispute resolution, and
business law services.
* * Personal
* Administrative Law
* Appellate Advisory
* Aviation
* Cannabis
* Defamation + Publication Risk Management
* Employment
* Family
* Human Rights
* Information + Privacy
* Intellectual Property + Technology
* Residential Tenancy
* Strata Property
* Wills, Estates + Trusts
* Business
* Administrative Law
* Appellate Advisory
* Aviation
* Banking + Lending
* Business Disputes
* Cannabis
* Charities + Non Profit
* Construction + Engineering
* Corporate / Commercial
* Corporate Finance + Securities
* Cyber Breach Response + Defense
* Defamation + Publication Risk Management
* Employment Law
* Environmental
* Franchise
* Health
* Information + Privacy
* Insolvency + Restructuring
* Intellectual Property + Technology
* Labour Relations
* Maritime
* Mergers + Acquisitions
* Real Estate
* Strata Property
* Succession Planning
* Workers Compensation
* Insurance
* Appellate Advisory
* Aviation
* Cannabis
* Class Actions
* Construction + Engineering
* Coverage Disputes
* Cyber Breach Response + Defense
* Defamation + Publication Risk Management
* Directors + Officers
* Employment Practices
* Environmental
* Health
* Human Rights
* Information + Privacy
* Life + Disability
* Local Government
* Maritime
* Occupiers Liability
* Personal Injury
* Professional Liability
* Strata Property
* Industries
* Accounting
* Banking + Finance
* Cannabis
* Charities + Non-Profit
* Construction
* Education
* Environmental
* Franchise
* Health Care
* Hospitality
* Life Sciences
* Local Government
* Police Law + Liability
* Property Management
* Real Estate
* Retail + Wholesale
* Technology
* Transportation + Logistics
* Our People
* *
Our strength is our people – the lawyers whose diverse range of talent
and expertise allows us to continuously deliver to our clients the
top-notch legal advice for which we are renowned.
* * SEARCH
Select RolePartnerSenior CounselAssociate CounselAssociateResearch
LawyerStudentExecutive TeamParalegalManagement
Select Practice AreaAdministrative LawAppellate
AdvisoryAviationCannabisDefamation + Publication Risk
ManagementEmploymentFamilyHuman RightsInformation + PrivacyIntellectual
Property + TechnologyResidential TenancyStrata PropertyWills, Estates +
TrustsAdministrative LawAppellate AdvisoryAviationBanking +
LendingBusiness DisputesCannabisCharities + Non ProfitConstruction +
EngineeringCorporate / CommercialCorporate Finance + SecuritiesCyber
Breach Response + DefenseDefamation + Publication Risk
ManagementEmployment LawEnvironmentalFranchiseHealthInformation +
PrivacyInsolvency + RestructuringIntellectual Property + TechnologyLabour
RelationsMaritimeMergers + AcquisitionsReal EstateStrata
PropertySuccession PlanningWorkers CompensationAppellate
AdvisoryAviationCannabisClass ActionsConstruction + EngineeringCoverage
DisputesCyber Breach Response + DefenseDefamation + Publication Risk
ManagementDirectors + OfficersEmployment
PracticesEnvironmentalHealthHuman RightsInformation + PrivacyLife +
DisabilityLocal GovernmentMaritimeOccupiers LiabilityPersonal
InjuryProfessional LiabilityStrata Property
Select IndustryAccountingBanking + FinanceCannabisCharities +
Non-ProfitConstructionEducationEnvironmentalFranchiseHealth
CareHospitalityLife SciencesLocal GovernmentPolice Law +
LiabilityProperty ManagementReal EstateRetail +
WholesaleTechnologyTransportation + Logistics
Select Law SchoolDalhousie UniversityCalifornia Western School of
LawQueens UniversityThompson Rivers UniversityUniversity of
AlbertaUniversity of British ColumbiaUniversity of CalgaryUniversity of
VictoriaUniversity of TorontoUniversity of Western OntarioUniversity of
OttawaUniversity of WindsorOsgoode Hall Law SchoolUniversity of
Saskatchewan University of ManitobaUniversity of New Brunswick University
of Technology SydneyUniversity of Kent Law SchoolUniversity of
AucklandUniversité de Montréal
Select LocationVancouverToronto
Reset All
* * Lawyers
* Paralegals
* Management
* Executive Team
* Blogs + Events
* * OUR BLOGS
* * LATEST BLOGS
* * UPCOMING EVENTS
* * Aviation
* Business
* Construction + Engineering
* Defamation + Publication Risk Management
* Insurance
* Labour + Employment
* Housing
* Police Legal Updates
* Wills + Estates
*
* Timing is Everything: Airline Not Liable to Passengers Who Filed Late
Baggage ComplaintMarch 8, 2022
* Defer or Deter: Sentencing Police Officers for Criminal Negligence
Causing Bodily HarmMarch 7, 2022
* Mining Inspector Not Required to Consider Climate Change in Granting
Permit for Rock QuarryMarch 7, 2022
* View All
*
* No upcoming events.
* View all
* About Us
* * Alexander Holburn is a leading full-service, Vancouver-based Canadian law
firm providing a wide range of litigation, dispute resolution, and
business law services to clients throughout Canada and abroad.
We have a proud 50 year history, with 85+ lawyers providing thoughtful,
practical legal advice to governments and municipalities, regional,
national and international companies, and individuals in virtually all
areas of law.
* * FIRM NEWS
* International Women’s Day 2022March 8, 2022
* Thirteen Alexander Holburn Lawyers recognized in 2022 Canadian Legal
Lexpert® DirectoryFebruary 25, 2022
* Jennifer Huneault quoted in Canadian Underwriter Article “What we know
about suspending insurance under The Emergencies Act”February 17, 2022
* View All
* * About Us
* International Networks
* Community Involvement
* Programs + Education
* Women’s Forum
* Diversity + Inclusion
* Students
* *
* * Alexander Holburn has made fostering legal talent a priority. We look for
talented, entrepreneurial students to join our firm for articling and
summering positions.
* * Practice + Culture
* *
* Is Alexander Holburn the right firm for you? Learn more about our
culture, practice, and programs.
Learn More
* * Fast Facts
* Firm Tours + Events
* Scholarships
* Programs + Applying
* *
* Learn about our articling and summer student programs and the
application process.
Learn More
* * Articling Program
* Applying For Articling
* Summer Student Program
* Applying For Summer Student Program
* How We Hire
* Student Recruitment Committee
* Student Life
* *
* * Explore the Seven Stages of Law Student Life, from choosing where to
article to starting a legal career.
Learn More
* Student Bios
* Adam Bruschetta
* Alireza Alimadad
* Allison Macdonald
* Anja Nel
* Christy Tang
* Clinton Tang
* Cory Song
* Cyanne Nisbett
* Frances Miltimore
* Jason Ronsley
* Jessica Park
* Jon Peters
* Marie Ong
* Marshall Mackoff
* Megan Wong
* Nicholas Rosati
* Nicholas Russell
* Paul Jon
* Tenley Pearce
* Questions + Contacts
* Have a Question? We are here to help.
* *
* CHRISTINE M. YORK
Partner, DIrector of Associate + Student Programs
EMAIL cyork@ahbl.ca
TEL 604 484 1735
FAX 604 484 9735
Vancouver
* *
* ASHLEY SMITH
Coordinator of Associate + Student Programs
EMAIL asmith@ahbl.ca
TEL 604 628 2755
FAX 604 628 3255
Vancouver
* More
* *
A reputation for excellence. A culture of respect. A team dedicated to
providing outstanding legal service.
* * CAREERS
* Lawyers
* Staff
* * CONTACT US
VANCOUVER
Email info@ahbl.ca
Tel 604 484 1700
TORONTO
Email info@ahbl.ca
Tel 416 639 9060
* Full Contact Info
BUSINESS LAW
Print
Home > Blogs > Business Law > Commercial Subleasing Concerns
Print
COMMERCIAL SUBLEASING CONCERNS
Patrick Cleary
June 12, 2012January 17, 2019
In this article, we discuss (1) a subtenant’s concerns when completing leasehold
improvements on subleased premises; and (2) other pertinent issues subtenants
should be aware of when entering into a sublease situation.
Issue #1:
What are the concerns regarding a subtenant completing leasehold improvements on
subleased premises?
1. Ownership of the leasehold improvements – The basic common law principle
relating to leasehold improvements is that whatever is fixed to the freehold of
land becomes part of it. Therefore, depending on what improvements are made, the
subtenant may be foregoing ownership of the proposed additions to the land and
building. Fixtures placed on leased land become part of the freehold property of
the landlord. This occurs automatically by operation of law. The parties can,
however, make an agreement regarding the rights in fixtures effective only as
between themselves. Such an agreement will not affect the rights of third
parties.
It may be helpful to add an example to clarify what is a fixture. If a leasehold
improvement can be removed without damaging the structure or violating the terms
of the lease, the tenant or subtenant has the right to remove it when he or she
leaves. For example, the owners of a spa could opt to take their hot tubs,
saunas, and body treatment equipment with them, stripping the space so that it
looks like it did originally. On the other hand, if a tenant or subtenant
installs an air conditioning or heating system on the premises, removing the
system would very likely damage the structure, and so the leasehold improvement
is considered the property of the landlord.
Obviously, then, the concern at this stage is determining the subtenant’s
ability to own the improvements he makes to a premises. Depending on the nature
of the improvements, the subtenant will have to establish up front with the
sub-landlord and the landlord, ownership to any and all improvements.
2. Tax Consequences – Depending on the structure of subleasing concerns the
sublease, the landlord or sub-landlord could offer a subtenant leasehold
improvement allowances. When cash is given to the subtenant to construct
leasehold improvements, the cash received by the subtenant may be deemed to be
income in the year received because it enhances a subtenant’s wealth by enabling
it to acquire or construct suitable facilities. It should be noted that
depending on the structure of subtenant leasehold improvement allowances, cash
received from the landlord could be deemed a loan that is forgivable if the
subtenant satisfies all of its obligations under the sublease. Further, if the
subtenant owns the improvements it must depreciate the improvements constructed.
If there is no subtenant leasehold improvement allowance, but the subtenant is
deemed to be the owner of the leasehold improvements, the subtenant should be
able to deduct the cost and depreciation of leasehold improvements reflecting
the fact that these renovations are necessary for the space to be usable for
specific purposes. Accordingly, appropriate depreciation procedures must be
followed. Please note that the specific tax treatment of leasehold improvements
is beyond the scope of this article and you should seek a chartered accountant’s
opinion on these matters.
3. Right to Monitor the Construction Process – The subtenant should make sure
that it has the right to monitor the construction process, audit costs and make
change orders, if necessary. If the subtenant does not control the leasehold
improvement process, the subtenant should make sure that the rent commencement
date is not a fixed commencement date (thereby assuming the construction risk),
but instead is based on the date the sublet space is substantially completed.
The subtenant might also consider negotiating the right to terminate the
sublease if the sublet space is not substantially completed by a certain date.
4. Early Consent to Alterations – If the subtenant already has plans for the
alterations and intends to improve the sublet space, the subtenant should obtain
approval of those plans from the landlord and the sublandlord at the time the
subtenant enters into the sublease in order to eliminate the risk of later
disapproval by the landlord and or the sublandlord. 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 (i.e., construction management fees should not be
paid by the subtenant to the sublandlord).
5. Restoration – Clarify whether any alterations must be removed at the end of
the subtenant’s sublease term and by whom. Sometimes a sublandlord will require
the subtenant to assume all restoration obligations, even those relating to
improvements installed prior to the sublease term. Preferably, the subtenant
would want to remove only those alterations which he specifically installed and
only if the landlord and the sublandlord informed the subtenant he would be
required to perform such removal prior to the time the alteration was installed.
6. Condition of the Subleased Premises – If there are definitely going to be
improvements made to the premises, there are special issues associated with the
landlord’s control of the leasehold improvements or use of tenant improvement
allowance for the sublet space. If the subtenant is subleasing space which has
not been substantially completed by the landlord, or if he 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.
Issue #2:
What are the typical concerns for a subtenant entering into a sublease
situation?
1. Rights of Subtenant – The most basic pitfall involves the legal status of the
subtenant of a sublet space. A subtenant’s rights pursuant to a sublease are
entirely dependent upon the existence of the master lease for the space. A
subtenant, however, is not a party to the master lease—the master lease is the
document between the landlord and the tenant; the sublease is the document
between the tenant (who is the sublandlord in the sublease) and the subtenant.
If the master lease terminates, so does the subtenant’s rights to the sublet
space. Therefore, the subtenant must protect himself against the potential loss
of its sublet space and the associated costs invested in the sublet space.
2. Inheriting the terms of the master lease – Another basic pitfall involves the
problems inherent in a subtenant inheriting the terms of a master lease which
has been negotiated by its sublandlord. Most of the terms of a sublease are
incorporated by reference from the master lease. However, the terms of the
master lease may be entirely inappropriate for the use contemplated by the
subtenant, or they may reflect the balance of negotiating power of the real
estate markets at the time, as opposed to the market of today.
3. Review Master Lease – When deciding whether to sublease space, a subtenant
should first analyze the master lease. It is important for the subtenant to
understand all of the agreements that collectively make up the master lease.
Although most subtenants review the master lease itself, many neglect to review
any amendments to the master lease, estoppel certificates, non-disturbance
agreements, work letter agreements, or relevant conditions, covenants and
restrictions which may augment or amend the terms of the master lease. A full
review of those documents is necessary.
4. Consent – It is essential for the subtenant to determine whether or not the
master lease allows the sublease to occur. The landlord’s consent is almost
always required for an assignment or a sublease. Most leases state that the
landlord’s consent to a sublease is not to be unreasonably withheld. Factors
generally recognized by the courts as reasonable concerns of the landlord
include the net worth and business reputation of the subtenant and the proposed
use of the sublease premises by the subtenant. It should be noted that if the
landlord has financing in place, the bank may also need to consent to the
subtenancy notwithstanding that there is no mention of this in the lease.
5. Recapture Right –
(a) Many leases also provide a so-called recapture right of the landlord,
allowing the landlord to respond to a request for a sublease by instead
terminating the lease with respect to the space proposed to be subleased. If
such a recapture right exists, it is important to determine the time period in
which the landlord may exercise the right, and to refrain from spending any
significant amounts with respect to the sublease until it is certain that the
recapture right will not be exercised.
(b) Please note that many leases are quite vague as to when the landlord must
exercise the recapture right and also when the recapture right terminates. Under
a particular lease, is the recapture right triggered by merely showing the
landlord a letter of intent, financial information regarding the subtenant, or
the actual executed sublease? It is important to check.
6. Financial Information Disclosure – The subtenant should determine what
financial and other information regarding the subtenant is required by the
landlord or the sublandlord in his review of a potential sublease. Are there
confidentiality concerns or other issues of the subtenant which may make it
inappropriate for the subtenant to pursue the transaction? It is also important
to determine if the subtenant is able to comply with any other conditions which
must be fulfilled in order to obtain the consent of the landlord to the
sublease.
7. Terms of Sublease – Once the subtenant has determined that the terms of the
master lease will allow the sublease to occur, and that incorporation of the
terms of the master lease will be acceptable to the subtenant, the terms of the
sublease itself must be negotiated. The following is a list of some of the
issues requiring the attention of the subtenant:
(a) Definition of Sublet Space – Although the portion of the premises subject to
the master lease which is to be subleased as sublet space is often shown on a
floor plan attached to the sublease, it is not uncommon for the parties to fail
to understand fully whether the sublet space includes, or whether the subtenant
at least has nonexclusive use rights to, lobbies, common areas, plazas, patios
and lunchrooms servicing both the premises retained by the sublandlord and the
sublet space. Subtenants will generally want the right to measure the sublet
space after the demising improvements are completed in order to verify that
basic rent and other pro-rata obligations stated in the sublease are correct.
(b) Insurance and Liability Issues – The subtenant should review the insurance
requirements of the master lease to make sure that the subtenant is able to
comply with the requirements to the extent that the requirements are
incorporated by reference into the sublease. It is common for issues to arise
with respect to the type of insurance and endorsements required of the tenant
under the master lease. If the subtenant is taking significantly less space than
is set forth in the master lease, the amount of liability insurance required
under the master lease may be excessive for the purposes of the sublease.
A landlord’s waiver of subrogation (i.e., an agreement from the landlord’s
insurance company not to sue the party causing damage to the insured) and
release of liability, if any, pursuant to the master lease should also apply to
the subtenant. A master lease typically includes a provision in which the
landlord limits its liability under the master lease to its equity interest in
the property, and further states that the landlord is not liable for injury to
the persons or property of the tenant. The landlord also seeks to exclude its
liability for the tenant’s consequential damages. Subtenants should try to
exclude all of these provisions from a sublease, so that the sublandlord would
not enjoy such exclusions, on the basis that they are inapplicable to a
sublandlord/subtenant relationship
(c) Sharing Functions of the Lease –
(i) It is important for the sublandlord and the subtenant to allocate
responsibility with respect to services and utilities that are provided jointly
to both the sublandlord’s premises and the sublet space. Are the utilities that
are provided to the sublet space separately metered? If not, the parties should
determine whether a sub-meter should be installed and, if so, at whose expense.
In the alternative, the parties may determine a manner for the equitable
allocation of the cost of the utilities. To the extent that the sublandlord has
the right as the tenant under the master lease to choose certain utility
providers, the subtenant might consider requiring a say in that choice.
(ii) The sublandlord and the subtenant should also consider how to approach
issues related to the cost of after-hours HVAC or electrical systems. Typically,
the master lease will allow the landlord to charge the tenant an additional
hourly charge for after-hours HVAC or electrical use. In some modern buildings,
such HVAC use may be provided separately to zones within the buildings in order
to limit costs by providing the HVAC to only small portions of a floor (zones)
for which the HVAC is needed. In older buildings, often many floors or the
entire building must be cooled on such an after-hours basis. If the sublandlord
and the subtenant are to share portions of a building in which one or more zones
services both the space to be occupied by the sublandlord and the space to be
occupied by the subtenant, then the sublandlord and the subtenant should discuss
procedures by which each party may request such services and allocate the cost
between themselves to the extent that they jointly benefit from the services.
(d) Possible problems under the Master Lease – As mentioned above, the
subtenant’s right to its sublet space is dependent upon the continued existence
of the master lease. In addition, the subtenant agrees to assume many of the
obligations of the master lease to the extent that the obligations relate to the
sublet space. Therefore, it is important for the subtenant to establish that it
is not entering into a sublease that is subject to a problematic master lease.
It is important to consider whether the subtenant should obtain representations
and/or indemnities from the sublandlord protecting the subtenant from such
problems.
(e) Indemnities – Common representations and/or indemnities to obtain from the
sublandlord are: a) the master lease is the entire agreement between the
parties, and there are no other agreements between the landlord and the
sublandlord; b) there are no existing defaults or sets of circumstances which
would lead to a default under the master lease; c) the premises and the
improvements therein are in compliance with all applicable laws; and d) the
premises, improvements and building systems are in good working order and
condition.
(f) Landlord’s Obligation to Provide Services for a Sublet Space – Typically, a
master lease specifies that the landlord is to provide building services and
utilities to the tenant. These services include plumbing, electricity, water,
janitorial service and maintenance, and repair of common areas. However, because
a subtenant does not have a direct contractual relationship with the landlord,
it has no redress against the landlord for the landlord’s failure to provide
such services or utilities to the subtenant or other occupants of the building.
(g) Pass-through Charges – The subtenant should require that the sublandlord
preserve the sublandlord’s rights as the tenant under the master lease to
dispute pass-through expenses (i.e., triple-net charges and other additional
rent), and that the sublandlord exercise the right to dispute on the subtenant’s
behalf. If the sublandlord is successful in a dispute regarding pass-through
expenses, the subtenant should receive the proportionate share of any credit
received by the sublandlord.
(h) Protecting Subtenant from a Sublandlord’s Default – A subtenant should
obtain a good understanding of the financial strength of any proposed
sublandlord. Does the sublandlord have sufficient financial strength to perform
its obligations under the master lease? Also, the sublandlord should covenant to
promptly provide the subtenant with any notices of defaults and other matters
received by the sublandlord. The sublandlord should also agree not to amend the
master lease in any manner that would adversely affect the subtenant.
(i) Protecting Subtenant Against a Landlord’s Default – Because the subtenant’s
rights to the sublet space are dependent upon the existence of the master lease,
the subtenant also has an interest in making sure that the master lease is not
terminated due to a failure of the landlord (i.e., the owner of the building) to
pay when due any debt encumbering the sublet space. If the landlord fails to pay
such debt, and the lender forecloses as a result, any lease of the property
which was executed after the loan was made may be terminated by law, unless the
tenant in question has received a non-disturbance agreement from that lender,
promising that the lease will survive the foreclosure, so long as the tenant is
not in default under the lease.
Subsequent to a foreclosure, a subtenant’s interest in its sublease will rise or
fall with the status of the master lease. Therefore, a subtenant should make
sure that such a non-disturbance agreement has been granted to the sublandlord.
For more information about this article, please contact Patrick S. Cleary at
604.484.1741.
The content of this article is intended to provide information on Alexander
Holburn Beaudin + Lang LLP, our lawyers, and recent developments in the law.
Items and comments contained in our articles are not intended to be legal
advice. Readers should consult with one of our lawyers before acting on any
information contained in our articles. For more information on the firm or to
comment on this article, please contact Priscilla Wyrzykowski, Manager of
Marketing and Business Development at 604 628 2734 or pwyrzykowski@ahbl.ca.
<< Back to Business Law
SUBSCRIBE TO GET THE LATEST UPDATES
UP NEXT
INTERCREDITOR AGREEMENTS
read more
SUBSCRIBE TO GET THE LATEST UPDATES
Subscribe to RSS Feed
(What is RSS?)
UP NEXT
INTERCREDITOR AGREEMENTS
read more
Alexander Holburn Beaudin + Lang LLP
Your perspective. Our focus.
Alexander Holburn Beaudin + Lang LLP
VANCOUVER
TD Tower
2700 – 700 West Georgia Street
Vancouver, BC V7Y 1B8
Canada
TEL 604 484 1700
FAX 604 484 9700
TOLL FREE 877 688 1351
TORONTO
TD Canada Trust Tower
2700 – 161 Bay Street, PO Box 508
Toronto, ON M5J 2S1
Canada
TEL 416 639 9060
FAX 416 639 9061
TOLL FREE 877 688 1351
SIGN UP
For the latest updates
from Alexander Holburn
SUBSCRIBE
FacebookTwitterLinkedIn
EXPLORE OUR SITE
* Personal
* Business
* Insurance
* Industries
* Our People
* About Us
* Events
* Blogs
* Programs
* Students
ABOUT ALEXANDER HOLBURN
We are a leading full-service Vancouver-based Canadian law firm, providing a
wide range of litigation, dispute resolution and business law services to
clients throughout Canada and abroad. We are committed to forming strategic,
service-oriented relationships with our clients. We proudly maintain a large
firm practice while retaining the close relationships and culture of a smaller
firm.
Privacy Policy | Disclaimer | © 2022 Alexander Holburn Beaudin + Lang LLP
A top Law Firm Website & SEO by fSquared Marketing. Serving the legal industry
since 2012.
✓
Thanks for sharing!
AddToAny
More…
* What We Do
* Personal Law
* Business Law
* Insurance Law
* Industries
* Back
* Our People
* Blogs & Events
* About Us
* About Us
* Community Involvement
* International Networks
* Programs + Education
* Women’s Forum
* Diversity + Inclusion
* Back
* Students
* Practice + Culture
* Programs + Applying
* Student Life
* Student Bios
* Back
* Contact Us
* Careers
* Lawyers
* Staff
* Back
* Pay Online
FacebookTwitterLinkedIn
× Close Panel