When it comes to commercial premises for your business, sometimes it makes sense to have more. Leasing more office space than you need allows you to expand your operations and grow your business for the long term - but what do you do the extra space in the interim?
Sublease vs Assignment
The general inflexibility of standard commercial real estate lease agreements means that for much of their initial lifespan, organisations will find that they usually have too much or too little space. During the global financial crisis, many businesses found that they had to scale back on their operations or delay their expansion plans, leaving them with space to spare.
In order to minimise the cost of overheads, many businesses will look into ways to "make use of" the additional space they have. As early termination of a lease incurs exorbitant costs, it makes sense to looking into sub-leasing or assigning your premises.
- Assignment - when a lease is assigned to another organisation, the responsibilities of the original agreement are completely taken over by the assignee. As a result, most lease assignments involve the entire premises, not just a section of the office or one or two floors. Businesses that are looking to move out of their current premises, perhaps to larger office space, will need to assign their lease to another organisation for the duration of the term.
However, once assigned, the original lease holder can still be held responsible for any obligations in the agreement. For the example, if the new assignment goes bankrupt before the lease term is up, the original business may have to find another company to take over the lease.
- Sub-lease - a sub-lease involves drafting up an additional agreement to lease part of the premises, usually a part of a floor from a larger organisation or even just a couple of desks for a sole-trader or a small company looking to rent office space. When deciding on a sub-lease, most businesses will benefit more from a sub-lease if the original lease is for a longer term - you'll be more likely to find an established business that is in good standing to take over part of the space.
When it comes to assignment and sub-leasing, it will usually depend on the specific assignment and sub-lease clauses that have been set out in the original lease, but new negotiations between landlord, tenant and the new business will need to take place. Often landlords and commercial property owners are willing to renegotiate some of the terms if it involves a retaining a tenant for a longer period of time, but this can depend on external factors. For example, if there is vacant commercial property to let in the building, the landlord may be eager to secure the sub-lessee into their own space.
This article is brought to you by Tim Green Commercial. Find your next commercial property for sale or lease at Tim Green Commercial – the experts on finding great office space in Sydney CBD and surrounds.
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