My Company Wants to Go 100% Virtual. What Are My Options?

As more and more companies realize they are paying for office space that is going unused because employees continue to work from home, downsizing or eliminating the office will become more prominent. Can the company wait out a few remaining months on the lease term? Or are there 7 years left on the lease term? For the latter, a sublease, assignment or lease buyout may be the solution but, first, consult your lease to see if these are an option. If they are, how do they compare?

A sublease generally means that the tenant finds a subtenant to sublease the space. The tenant still pays the landlord and the subtenant pays the tenant. Usually, the subtenant agrees to lease through the end of the tenant's term. Oftentimes, the subtenant is paying a discounted rate compared with what the tenant is paying, meaning the tenant is deriving a loss. The tenant is also responsible for paying brokerage commissions on the sublease. Oftentimes, the tenant will find that moving their furniture is more expensive than its worth, so the tenant includes the furniture in the sublease. If the subtenant can no longer pay rent for the sublease, the responsibility to pay lies with the tenant. Only when the lease term expires is the tenant "free."
An assignment generally means that the tenant finds an assignee who accepts the terms of the tenant's lease. Unlike a sublease, the lease is assigned to the assignee and the assignee pays rent directly to the landlord and the tenant is no longer the middleman. Oftentimes, the assignment document states the tenant remains on the hook for the lease if the assignee can no longer pay.
A lease buyout generally means that the tenant negotiates a price to pay the landlord in exchange for terminating the lease term early. This can be a big number. The tenant could have negotiated an early termination right at the time of the lease negotiation or could approach the landlord at any time to propose a buyout. The latter will be increasingly challenging for office scenarios as office landlords struggle fill their buildings; if the tenant does not have this right in their lease, the landlord can simply say, "no." If, for example, the lease is in a highly desirable building that the landlord can re-lease at a higher rate or the landlord has the opportunity to sell the building vacant for redevelopment, an early termination can be a win for everyone.

In most cases, the landlord's blessing to sublease, assign or terminate early is required. As such, the process will take time and the outcome can be uncertain. Contact REC for introductions to real estate attorneys and sublease brokers whom we have vetted who can be a resource for your sublease, assignment and early termination goals.

A sublease generally means that the tenant finds a subtenant to sublease the space. The tenant still pays the landlord and the subtenant pays the tenant. Usually, the subtenant agrees to lease through the end of the tenant's term. Oftentimes, the subtenant is paying a discounted rate compared with what the tenant is paying, meaning the tenant is deriving a loss. The tenant is also responsible for paying brokerage commissions on the sublease. Oftentimes, the tenant will find that moving their furniture is more expensive than its worth, so the tenant includes the furniture in the sublease. If the subtenant can no longer pay rent for the sublease, the responsibility to pay lies with the tenant. Only when the lease term expires is the tenant "free."
An assignment generally means that the tenant finds an assignee who accepts the terms of the tenant's lease. Unlike a sublease, the lease is assigned to the assignee and the assignee pays rent directly to the landlord and the tenant is no longer the middleman. Oftentimes, the assignment document states the tenant remains on the hook for the lease if the assignee can no longer pay.
A lease buyout generally means that the tenant negotiates a price to pay the landlord in exchange for terminating the lease term early. This can be a big number. The tenant could have negotiated an early termination right at the time of the lease negotiation or could approach the landlord at any time to propose a buyout. The latter will be increasingly challenging for office scenarios as office landlords struggle fill their buildings; if the tenant does not have this right in their lease, the landlord can simply say, "no." If, for example, the lease is in a highly desirable building that the landlord can re-lease at a higher rate or the landlord has the opportunity to sell the building vacant for redevelopment, an early termination can be a win for everyone.