The 'Landlord Consent To Sublease': Where Landlords And Subtenants Can Get Together

This article reviews some of the principal provisions found in current forms of the Consent and discusses their import to one or more of the parties.

Subtenant Attornment. This provision addresses the situation where the tenant/sublessor defaults under the prime lease or the prime lease is otherwise prematurely terminated or surrendered. In any such event, without this provision, the sublease would normally terminate automatically, leaving the subtenant out in the cold. An attornment provision preserves the sublease: the subtenant accepts the prime landlord as its direct landlord under the terms and conditions of the sublease for the remainder of the sublease term. The attornment provision normally addresses the following matters:

• The terms and conditions of the sublease are to govern the tenancy, except to the extent they increase the landlord's duties, obligations or liabilities beyond those owed to the tenant under the prime lease.
• The landlord's liability under the sublease is limited only to those obligations accruing during the term of the sublease and while the landlord is the owner of the property; the landlord is free of all liabilities and obligations accruing thereafter. The liability of the landlord under the sublease is limited to the landlord's interest in the property.
• The landlord shall not be:
  1. liable to the subtenant for any act, omission or breach of the sublease by the tenant/sublessor;
  2. subject to any offsets or defenses which the subtenant may have against the tenant/sublessor;
  3. bound by any rent or additional rent which the subtenant may have paid in advance to the tenant/sublessor;
  4. bound to honor any rights of the subtenant in any security deposit made with the tenant/sublessor except to the extent the tenant has turned over such security deposit, designated by the tenant as being such, to the landlord. (The Consent form will often also contain: i) a covenant by the tenant/sublessor whereby it agrees, in the event of a termination of the prime lease, immediately to pay or transfer to the landlord any security deposit, rent, or other sums then held by the tenant/sublessor relating to the sublease, and ii) a covenant by the subtenant whereby the subtenant will restore the security deposit to its full amount upon any such attornment if the subtenant is credited with less than the full amount of the security deposit due under the sublease);
  5. obligated to pay for or perform the buildout of the subleased premises; or
  6. bound by any amendment to the sublease not consented to by the landlord.

Landlords prefer that such attornment be at their option and in their sole discretion. However, subtenants investing large amounts in tenant improvements will attempt to make attornment automatic upon a termination of the prime lease so as to protect their investment in their leasehold estate. A modest concession sometimes offered by landlords is an undertaking to attempt in good faith to agree on attornment should the occasion arise. However, it would seem that, as in the case of assignment/subletting clauses, specific objective criteria (such as credit rating, net worth, intended use, etc.) could be set forth which, if met by the subtenant, would require the landlord to accept attornment.

Automatic Termination. This provision states that the sublease automatically terminates upon the expiration or earlier termination of the prime lease. As a matter of real property law, if the prime leasehold estate expires or is terminated, any sub-estate created from the prime leasehold estate simultaneously terminates. Nevertheless, landlords typically include an automatic termination provision in the Consent in order to establish a contractual basis for the termination of the sublease. However, in order to protect its sub-leasehold estate, a subtenant is likely to seek to trump the automatic termination provision by an attornment clause, as discussed above.

Direct Payment of Rent. The sublease and assignment provisions of most prime leases provide that sublease rents belong to the landlord but may be collected and retained by the tenant/sublessor so long as the tenant/sublessor is not in default under the prime lease. If the tenant/sublessor defaults under the prime lease, the subtenant is to be directed to pay rent for the subleased premises directly to the landlord. Landlords often will include a provision in the Consent establishing a contractual obligation for the payment of sublease rents directly to the landlord in the event of a default under the prime lease. This provision is also likely to contain a disclaimer stating that the payment of sublease rent directly to the landlord does not constitute an attornment by the subtenant to the landlord.

Joint and Several Liability for Bills for Services. If the prime lease requires the tenant/sublessor to pay an extra charge for certain additional services (such as after-hours HVAC use, excess utility use and the like) it is likely that the subtenant will incur charges for such additional services serving its subleased premises. Landlords will wish to include a provision in the Consent making the tenant/sublessor and the subtenant jointly and severally liable for the payment of all charges for additional services provided to the subleased premises so that if the tenant/sublessor is in default or absent, the landlord can go directly to the subtenant for these payments.

Indemnification. Another provision usually included in the Consent is a restatement of the tenant indemnification provisions of the prime lease, modified to provide that the indemnity extends to any actions or claims arising from the subtenant's use of the subleased premises, including improper release of hazardous materials. The landlord may also wish to use the Consent to require the subtenant to indemnify the landlord directly for the subtenant's acts and omissions in the subleased premises, again addressing the release of hazardous materials.

Insurance. The Consent often includes a provision requiring the subtenant to procure and maintain certain specified insurance policies and to name the landlord and its agents as additional insureds under such policies. Any liability policy maintained by the subtenant should insure its indemnity of the landlord by a contractual liability endorsement.

Mutual Waiver and Waiver of Subrogation. The mutual waiver and waiver of subrogation clause in the Consent go arm-in-arm with the insurance provisions discussed above. The mutual waiver provides that the landlord will not be liable to the subtenant, and the subtenant will not be liable to the landlord, for any damage to the other's property covered by their respective required property insurance policies. The mutual waiver of subrogation clause bars each party's insurer from seeking recovery by way of subrogation against the other party for claims paid under such an insurance policy.

Notice. Often the Consent requires that the subtenant send the landlord copies of all default notices sent to the tenant/sublessor under the sublease. A subtenant should also try to require that the landlord send the subtenant copies of all notices of default served upon the tenant/sublessor by the landlord under the prime lease. A mutual notice provision can establish a line of communication between the landlord and the subtenant, allowing each of them to better foresee and avoid potential problems that may be caused by a default by the tenant/sublessor under either the prime lease or the sublease.

In summary, during this period of extensive subleasing activity and into the future, landlords and subtenants should pay careful attention to the 'Landlord Consent to Sublease,' the provisions of which can be as important to them as are the provisions of the sublease.

Myles Hannan is a partner, and Gina A. Leib is an associate, with Linowes and Blocher LLP (http://www.linowes-law.com/), located in Silver Spring, MD.

During the past two years, from Silicon Valley to Northern Virginia, a huge amount of office space has become available for sublease. Coincident with that phenomenon has been the emergence of increasingly comprehensive forms of the 'Landlord Consent to Sublease' (referred to herein as the 'Consent'). That tri-partite document ' among the landlord, the tenant/sublessor and the subtenant ' originally served merely to memorialize the landlord's consent to a sublease and perhaps to reassert the primacy of the prime lease terms over those of the sublease. Now, however, it has become a meeting ground of sorts where prime landlords and subtenants can get together and, with privity of contract, set forth their agreements with respect to a number of matters involved in the landlord/subtenant relationship.

Typically that relationship is uncomfortable at best. The tenant, the only party with whom the landlord has contracted, may well have moved on, leaving the subtenant occupying space in the landlord's building without an agreement with the landlord. This could cause problems for the landlord. For example, if the landlord negligently causes a fire that destroys the subtenant's furniture, furnishings and equipment, the landlord is generally liable to the subtenant for that damage. That is so because any mutual waiver/waiver of subrogation provisions in the prime lease, even if incorporated into the sublease by reference, are effective between the subtenant and its tenant/sublessor, not between the subtenant and the landlord.

Some of the matters treated in the Consent are addressed in the sublease (to which the landlord is not a party), but the landlord may wish to obtain the direct agreement of the subtenant concerning certain matters, eg, compliance with the landlord's rules and regulations. Other matters may be addressed in the prime lease (to which the subtenant is not a party) and, again, the landlord ' and often the subtenant ' will wish to set forth their agreement directly with each other as, for example, regarding attornment.

This article reviews some of the principal provisions found in current forms of the Consent and discusses their import to one or more of the parties.

Subtenant Attornment. This provision addresses the situation where the tenant/sublessor defaults under the prime lease or the prime lease is otherwise prematurely terminated or surrendered. In any such event, without this provision, the sublease would normally terminate automatically, leaving the subtenant out in the cold. An attornment provision preserves the sublease: the subtenant accepts the prime landlord as its direct landlord under the terms and conditions of the sublease for the remainder of the sublease term. The attornment provision normally addresses the following matters:

• The terms and conditions of the sublease are to govern the tenancy, except to the extent they increase the landlord's duties, obligations or liabilities beyond those owed to the tenant under the prime lease.
• The landlord's liability under the sublease is limited only to those obligations accruing during the term of the sublease and while the landlord is the owner of the property; the landlord is free of all liabilities and obligations accruing thereafter. The liability of the landlord under the sublease is limited to the landlord's interest in the property.
• The landlord shall not be:
  1. liable to the subtenant for any act, omission or breach of the sublease by the tenant/sublessor;
  2. subject to any offsets or defenses which the subtenant may have against the tenant/sublessor;
  3. bound by any rent or additional rent which the subtenant may have paid in advance to the tenant/sublessor;
  4. bound to honor any rights of the subtenant in any security deposit made with the tenant/sublessor except to the extent the tenant has turned over such security deposit, designated by the tenant as being such, to the landlord. (The Consent form will often also contain: i) a covenant by the tenant/sublessor whereby it agrees, in the event of a termination of the prime lease, immediately to pay or transfer to the landlord any security deposit, rent, or other sums then held by the tenant/sublessor relating to the sublease, and ii) a covenant by the subtenant whereby the subtenant will restore the security deposit to its full amount upon any such attornment if the subtenant is credited with less than the full amount of the security deposit due under the sublease);
  5. obligated to pay for or perform the buildout of the subleased premises; or
  6. bound by any amendment to the sublease not consented to by the landlord.

Landlords prefer that such attornment be at their option and in their sole discretion. However, subtenants investing large amounts in tenant improvements will attempt to make attornment automatic upon a termination of the prime lease so as to protect their investment in their leasehold estate. A modest concession sometimes offered by landlords is an undertaking to attempt in good faith to agree on attornment should the occasion arise. However, it would seem that, as in the case of assignment/subletting clauses, specific objective criteria (such as credit rating, net worth, intended use, etc.) could be set forth which, if met by the subtenant, would require the landlord to accept attornment.

Automatic Termination. This provision states that the sublease automatically terminates upon the expiration or earlier termination of the prime lease. As a matter of real property law, if the prime leasehold estate expires or is terminated, any sub-estate created from the prime leasehold estate simultaneously terminates. Nevertheless, landlords typically include an automatic termination provision in the Consent in order to establish a contractual basis for the termination of the sublease. However, in order to protect its sub-leasehold estate, a subtenant is likely to seek to trump the automatic termination provision by an attornment clause, as discussed above.

Direct Payment of Rent. The sublease and assignment provisions of most prime leases provide that sublease rents belong to the landlord but may be collected and retained by the tenant/sublessor so long as the tenant/sublessor is not in default under the prime lease. If the tenant/sublessor defaults under the prime lease, the subtenant is to be directed to pay rent for the subleased premises directly to the landlord. Landlords often will include a provision in the Consent establishing a contractual obligation for the payment of sublease rents directly to the landlord in the event of a default under the prime lease. This provision is also likely to contain a disclaimer stating that the payment of sublease rent directly to the landlord does not constitute an attornment by the subtenant to the landlord.

Joint and Several Liability for Bills for Services. If the prime lease requires the tenant/sublessor to pay an extra charge for certain additional services (such as after-hours HVAC use, excess utility use and the like) it is likely that the subtenant will incur charges for such additional services serving its subleased premises. Landlords will wish to include a provision in the Consent making the tenant/sublessor and the subtenant jointly and severally liable for the payment of all charges for additional services provided to the subleased premises so that if the tenant/sublessor is in default or absent, the landlord can go directly to the subtenant for these payments.

Indemnification. Another provision usually included in the Consent is a restatement of the tenant indemnification provisions of the prime lease, modified to provide that the indemnity extends to any actions or claims arising from the subtenant's use of the subleased premises, including improper release of hazardous materials. The landlord may also wish to use the Consent to require the subtenant to indemnify the landlord directly for the subtenant's acts and omissions in the subleased premises, again addressing the release of hazardous materials.

Insurance. The Consent often includes a provision requiring the subtenant to procure and maintain certain specified insurance policies and to name the landlord and its agents as additional insureds under such policies. Any liability policy maintained by the subtenant should insure its indemnity of the landlord by a contractual liability endorsement.

Mutual Waiver and Waiver of Subrogation. The mutual waiver and waiver of subrogation clause in the Consent go arm-in-arm with the insurance provisions discussed above. The mutual waiver provides that the landlord will not be liable to the subtenant, and the subtenant will not be liable to the landlord, for any damage to the other's property covered by their respective required property insurance policies. The mutual waiver of subrogation clause bars each party's insurer from seeking recovery by way of subrogation against the other party for claims paid under such an insurance policy.

Notice. Often the Consent requires that the subtenant send the landlord copies of all default notices sent to the tenant/sublessor under the sublease. A subtenant should also try to require that the landlord send the subtenant copies of all notices of default served upon the tenant/sublessor by the landlord under the prime lease. A mutual notice provision can establish a line of communication between the landlord and the subtenant, allowing each of them to better foresee and avoid potential problems that may be caused by a default by the tenant/sublessor under either the prime lease or the sublease.

In summary, during this period of extensive subleasing activity and into the future, landlords and subtenants should pay careful attention to the 'Landlord Consent to Sublease,' the provisions of which can be as important to them as are the provisions of the sublease.

Myles Hannan is a partner, and Gina A. Leib is an associate, with Linowes and Blocher LLP (http://www.linowes-law.com/), located in Silver Spring, MD.