SUBLEASING VERSUS ASSIGNMENT

Experienced commercial leasing lawyer for real property leases and subleases (in Alberta and Ontario, Canada).

Contact Neufeld Legal PC at 403-400-4092 or Chris@NeufeldLegal.com

Although both a sublease and an assignment involve a commercial tenant transferring an interest the real property that they have leased from the landlord to a third party, there are key distinctions as to the extent of the transfer, the relationship between the parties, and the liability of the original tenant, which distinguishes these two processes of transferring an interest in a commercial lease.

I. Sublease

A sublease occurs when the original tenant (the "sublessor") grants a third party (the "subtenant") the right to use all or part of the leased premises for a portion of the original lease term, such that the sublessor essentially acts as a landlord to the subtenant. Key characteristics that distinguish a sublease include:

• Partial transfer of interest: The original tenant retains their primary leasehold interest with the landlord. They are not fully exiting the lease.

• Original tenant remains liable: The original tenant remains directly responsible to the landlord for all obligations under the original lease (e.g., rent payments, property maintenance), even if the subtenant defaults.

• No direct relationship between landlord and subtenant: There is typically no direct contractual relationship (privity of contract or estate) between the landlord and the subtenant. The subtenant's rights are derived from the original tenant's lease, although in most instances the existing tenant must obtain the prior written approval of the landlord to undertake the sublease.

• Shorter term: The term of the sublease must be shorter than the remaining term of the original lease. If the sublease covers the entire remaining term, it might be legally interpreted as an assignment.

• Flexibility: Subleasing offers flexibility for tenants who need to temporarily vacate the space, reduce their footprint, or generate income from unused space without fully breaking their lease.

II. Assignment

An assignment of a commercial real estate lease occurs when the original tenant (the "assignor") transfers their entire leasehold interest, including all rights and obligations, to a new tenant (the "assignee"). Key characteristics that distinguish an assignment include:

• Full transfer of interest: The assignor hands over their entire position as a tenant to the assignee for the remainder of the lease term.

• New direct relationship: A direct contractual relationship is typically established between the landlord and the assignee. The assignee steps into the shoes of the original tenant and becomes directly responsible to the landlord for all lease obligations.

• Original tenant's liability (depends on agreement): While the assignee assumes primary liability, the original tenant (assignor) may still remain secondarily liable to the landlord if the assignee defaults, unless the landlord expressly releases the original tenant from their obligations. A full release, known as a novation, completely severs the original tenant's liability.

• Transfer of all rights: The assignee takes on all the rights, responsibilities, and conditions outlined in the original lease agreement.

• Landlord consent usually required: Most commercial leases require the landlord's consent for an assignment, and the landlord typically has the right to approve or reject the proposed assignee based on reasonable grounds (e.g., financial stability, business type).

For knowledgeable and experienced legal representation in commercial leasing matters, whether that entails lease review, drafting, negotiation and enforcement, contact commercial leasing lawyer Christopher Neufeld at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.

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