Whether you are a for-profit company, a non-profit group, religious organization or another kind of business, the coronavirus pandemic may have you wondering how you’re going to handle a space and a lease that just doesn’t fit anymore.
Before you reach out to your landlord, there are several things a business owner or manager can do to prepare for what may be a tough conversation, said Zana Tomich, a Detroit-based business attorney who advises companies, financial institutions, restaurants and other businesses on issues around real estate and leases.
Tomich, a founding partner of Dalton & Tomich PLC, said these tenant-landlord discussions can be done professionally and with consideration for the concerns of both sides. But coming into a talk about subleasing or changing a lease needs to happen with careful preparation as you look to review your contract with the landlord.
“You need to make an appeal personally,” Tomich said. “Get on the phone and let them know what your financial situation is and how this is impacting you. … Share your current economic circumstance. What percentage of work have you lost? If you had a hardship, why was it something where you cannot sustain (this lease) going forward.
“See if you can work out an alternative,” Tomich said. “The landlord doesn’t want to lose you. Long term, they want to have you as a tenant and someone in the space. It’s in their best interest to see that your business survives.”
For example, Tomich said in a lot of leases, particularly long-term leases, there are provisions where the landlord is allowed to move you to a smaller or different space. You also can ask if you can have your space downsized or extend a lease, adding some time on at the end.
“Different arrangements can be made if the parties involved are interested in being reasonable,” Tomich said. “These conversations don’t have to be antagonistic.”
Here are some additional considerations to think about if your business needs to make some changes in its lease agreement or space going forward in 2021:
Permission to sublet in your lease. You may recall looking at your lease when you executed years ago, but do not recall the terms and conditions therein. Before advertising the subletting of your space, check the lease to make sure that you can sublet the space. Many property owners include lease provisions that preclude your subletting without their approval. And further, they may demand a percentage of the lease payment to be paid to them. Make sure that you have the ability to sublet your space, and if so, if the owner is entitled to any compensation for the same.
Zoning approval for the sublet. While your particular use may have been permitted when you leased your space, the zoning code of your city may have changed and your use is no longer permitted. While you have a prior nonconforming use to stay in your space, you likely are not able to expand the use by allowing a subtenant in the building. Make sure that the subtenant’s use of the space is permitted in your building.
Compliance with building and fire codes. Make sure that the local parking code, and building and fire codes, allow for your subtenant to use the space. Most office spaces have restricted amounts of available on-site parking for tenants to use. If your subtenant has more employees than spaces, you may have an issue. Likewise, building and fire codes speak to the occupancy of the building. If your subtenant plans on doing something that requires building code upgrades for fire safety, you will need to make sure that there is compliance from the tenant.
Names of All Tenants and Occupant. Every adult who is part of the sublease should be named as either a tenant or occupant on the lease or rental agreement. Each tenant is legally responsible for paying the full amount of rent and occupants are required to follow all of the terms of the lease or rental agreement.
Description of Rental Property. Clearly describe the space that is to be sublet, including, the specific rooms, spaces, storage areas or parking spots that are included. Similarly, specify areas that the tenants are not allowed to access.
Term of the Tenancy. Rental agreements create short-term (usually month-to-month) tenancies that renew automatically until the landlord or tenants terminate. Leases, on the other hand, create tenancies that terminate after a specific term (usually a year). Whichever you use, be specific: note the start date, the tenancy length, and (if creating a lease) the expiration date.
Rental Price. Don’t just write in the amount of rent—spell out when (typically, the first of the month) and how it’s to be paid. Same goes with security deposits and fees. Be very clear about the dollar amount of the security deposit, where you’ll hold the security deposit, how you might use the deposit and any nonrefundable fee.