Approximately 7 percent of Cambridge’s 20 million-square-foot lab market was available for sublease at the end of 2024, according to a recent report by CBRE. iStock photo

One of the most heavily negotiated lease clauses, and one often utilized by tenants, is the assignment and sublet (A&S) clause. It is critical for both landlords and tenants to establish clear parameters regarding assignments and sublets to prevent disputes under the lease.

The A&S clause becomes especially relevant when a tenant is selling their business or downsizing operations and needs to lease all or part of their premises. Diminished demand for office space in the hybrid work era has prompted many companies to offer excess space with remaining lease terms. In Boston, over 3.8 million square feet of office space is available for sublease, according to a report issued Jan. 13 by brokerage CBRE.

A well-drafted A&S provision will address several key elements: Logistics, recapture, rental rate, affiliates and mergers, financials, subordination, adjustments, guarantee and a licensing alternative.

Logistics: The Fine Print That Makes Deals Fly

A well-crafted A&S clause will clearly define the steps a tenant must follow when seeking to assign or sublet the premises, along with the standards to be applied. This typically includes submitting a written request to the landlord, accompanied by the identity of the proposed assignee/sublessee, their financials, and a copy of the proposed sublease/assignment.

A tenant is generally prohibited from subleasing or assigning space if in default or in the final year of the lease term. A set timeframe is usually allotted for the landlord to make a decision on the proposed sublet or assignment. The clause should specify whether the landlord’s decision is at their sole discretion or must be reasonable. If approval from the landlord’s lender is required, this should also be included.

Landlords also frequently seek to include recapture language in the A&S clause, allowing them to terminate the lease and reclaim the space if a tenant requests to sublet or assign it.

This is especially advantageous for the landlord if the rent is below market value, if there is an adjacent tenant interested in additional space, or if there is significant demand for space in the building.

Some landlords also insert provisions preventing tenants from subletting or assigning space to other tenants within the same building, as well as reserving the right to negotiate directly with the proposed subtenant or assignee.

Rental Rate: Keeping the Playing Field Level

To prevent undercutting, landlords often include a provision that prohibits tenants from offering sublet or assigned space at a lower rate than the landlord’s vacant space. This helps landlords avoid competition with their own tenants.

Often, the A&S clause requires profits to be split between the landlord and tenant or retained entirely by the landlord. It is recommended that landlords share profits to incentivize tenants to sublet at higher rates.

Tenants often seek the right to transfer their lease to an affiliate through sublet or assignment without penalty. Landlords typically agree but may require the tenant to provide prior written notice and meet specific conditions, such as aligning with the IRS definition of an affiliated group. Franchisees often involve franchisors, who may reserve the right to step into the lease, so franchise agreements should also be addressed within the A&S clause.

Brian Cafferty

Financials: The Ultimate Tenant Credit Check

Landlords usually require that the assignee’s financial strength be a condition for approval.

If the proposed assignee does not have a net worth equal to or greater than the tenant at the time of the transfer, the landlord may reject the assignment. Financial documentation, such as certified balance sheets and profit/loss statements, are often required to support a tenant’s assignment request.

The sublease or assignment must also typically be subordinate to the primary lease, ensuring that it adheres to all terms, conditions and covenants established in the original lease.

Assignments must also address key financial considerations, such as whether the assignee assumes responsibility for the security deposit and how any year-end adjustments (e.g., surplus or shortfalls) will be handled in net leases.

In most cases, tenants remain obligated under the lease even after an assignment, and they are required to guarantee the performance of the assignee.

For professional tenants, there may be an alternative to traditional A&S arrangements: licensing. Some leases allow tenants to license space to professionals in the same field (e.g., doctors, lawyers, physical therapists). However, landlords may wish to impose limits on the percentage of space that can be licensed, the number of licensees, and signage rights. Furthermore, licensees should maintain the same insurance coverage as the tenant, with the landlord named as an additional insured.

Both landlords and tenants benefit from a well-crafted assignment and sublet clause which provides a clear framework to reduce the risk of disputes. A balanced A&S clause not only supports the tenant’s operational flexibility but also safeguards the landlord’s property interests, fostering a cooperative and mutually beneficial leasing relationship.

Brian G. Cafferty is a partner at law firm GoldMark Partners LLP in Needham.