Direct Lease vs. Sublease of Commercial Office Space

Direct Leasing vs. Subleasing
Business owners who wish to lease commercial office space may either lease space directly from the landlord or sublease space from another tenant.  Decision makers should review the advantages and disadvantages of both options.  The best option depends on the state of the business, market conditions, and lease terms.  Enlist the help of a qualified tenant representation broker to help you make the right decision.

Subleasing
A sublease arrangement is a lease transaction with a current tenant, subject to the approval of the landlord.  Businesses who sublease space typically benefit from below-market rents and lower buildout costs.  Sublease terms can be more flexible than direct lease terms.  Sublease arrangements may run month-to-month, or include special ad-hoc provisions.  However, businesses subleasing space end up having two defacto landlords, the original tenant and the building landlord, with twice as many restrictions.

Direct Leasing
A direct lease is a contract between two parties, the tenant and the landlord.  Direct leases are simpler than sublease arrangements.  With fewer parties involved, there is less chance for confusion of responsibilities or missing payments.  The landlord knows who is paying rent, and knows who to go to when a payment is late. The tenant knows who is responsible for common area maintenance, and knows who to go to when an elevator is broken.  However, professional landlords tend to be less flexible in negotiating direct lease contracts than most tenants are in negotiating sublease contracts.

Troy Golden is President of Golden Group Real Estate. He received his undergraduate degree from Yale University and his MBA in Real Estate from the Wisconsin School of Business. Troy specializes in commercial office brokerage in Chicagoland. Please contact him at troy@goldengroupcre.com or (630) 805-2463.

Reducing Office Space and Overhead Costs

Many business owners lease more office space than they actually use.  Since the Great Recession, businesses have decreased personnel and increased efficiency.  Of the remaining employees, a growing number telecommute to work.  Reducing excess office space will allow your business to cut overhead costs and increase efficiency. 

If you have extra office space in your lease, the first step is to check the lease for a cancellation option. If there is no cancellation option, check with the tenants on either side of your space to see if they need to expand. If so, you might work out a deal you can present to your landlord.  You can also try a blend-and-extend lease whereby you agree to terminate the existing lease and make up a new one for five years with reduced space or reduced price.  Your landlord may value longer term leases for the stability of his mortgage. Consider switching to another space in your current building. Your landlord may have a smaller suite available and look to rent your space at a higher per square foot figure.   

Another option is to list your space for sublease.  You may find a complimentary company that would share business machines and administrative assistance in exchange for renting a block of cubicles and a corner office.  You might be able to put up a wall between half your space and sublease out the other half.  Check your lease to see what restrictions apply to sublease.  You may want to consult with a real estate attorney.  Finding a sublease tenant and negotiating a contract requires time, knowledge, and effort.  A local, experienced, and qualified commercial real estate broker will make the process much smoother. 

Troy Golden is President of Golden Group Real Estate. He received his undergraduate degree from Yale University and his MBA in Real Estate from the Wisconsin School of Business. Troy specializes in commercial office brokerage in Chicagoland. Please contact him at troy@goldengroupcre.com or (630) 805-2463.