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Why consider a lease takeover NYC?

April 7, 2020 | by Jo Cipolla
Reviewed by real estate expert Michael Colacino

A commercial lease takeover is a means for a tenant who is unable to finish out their agreed lease term to pass that lease on to another entity that can. The new tenant “takes over” the existing lease and sees it through to the end of the term.

Common lengths for NYC leases

When renting a property in New York City, a renter must sign a lease agreement with the landlord. The lease will have a number of provisions and rules that the tenant must abide by, ranging from maintenance policies to what kinds of modifications you can make to the space. But, in addition to the amount of rent due each month, the most key element of the lease is its length.

Residential lessees in NYC are often offered a choice between signing a one year or two year long term rental agreement. However, for commercial properties, the lease lengths tend to be quite a bit longer, like five or 10 years—or around two or three years for a shorter-term lease.

The advantage of a shorter length lease is that it gives a company more flexibility, which can be especially important if the business is growing or evolving rapidly. Signing a longer lease, on the other hand, can be attractive because it means you have a good space secured and don’t have to worry about the hassle and expenses of moving for a number of years.

Breaking a lease

For many organizations, the idea of being locked into one place for several years is not a big deal – after all, nobody enjoys moving. But maintaining a business is complicated, and real estate in the NYC area (including Manhattan, Brooklyn, Queens, the Bronx, Staten Island, and parts of New Jersey) is expensive. Your company might be growing quickly, necessitating more space sooner than expected – or the company may be reorganizing in unexpected ways (for instance, closing an NYC branch in Manhattan or Brooklyn to focus on a different location).

But what happens if you need to move out of your property before the lease agreement is set to expire and have to break the lease? The terms written in the lease often look rather unforgiving, typically giving the landlord the right to make you keep paying the monthly rent until the agreed-upon termination of the lease, no matter what happens.

In reality, though, landlords tend to be reasonable and willing to work with a tenant on a better solution. Two of the main solutions are either finding another tenant to sublet the rental, or to arrange for a complete lease takeover.

The difference between commercial lease takeovers and sublets

With a sublet (sometimes called a sublease), the original lease holder retains responsibility for the lease, but finds a tenant to occupy the property and pay rent monthly. Depending on the arrangement, the tenant subletting the place may pay the rent to the lease holder or directly to the landlord.

A tenant who is subletting may only be interested in staying for a short period of time – perhaps just a few months – which often means that when they move out, the lease holder will have to locate yet another tenant to move in. This can be especially challenging if the lease holder has relocated and is having to manage the situation from a faraway location.

With a lease takeover, however, the original lease holder finds a tenant who is prepared to fully take over the lease, put it in their name, and see it through until its end of term – at which point, if all goes well, the landlord will likely give the new tenant a renewal lease.

What involvement do landlords have in the lease takeover?

While the involvement of the landlord can vary in a sublet situation, the landlord is very much involved in a lease takeover. Although it is usually the original lease holder who finds a new tenant to assume the responsibilities of the lease, the landlord will likely run a background and/or credit check and do updated paperwork, much as they might with a new lease.

The landlord being involved is a good thing, because everything is transparent and all parties are part of the process. This means that the landlord knows they are getting a tenant they can trust, the new tenant is in a legal and above-board rental situation where they have all due tenant rights, and the original lease holder has the peace of mind that their legal obligations with the lease are being fully transferred to the new tenant.

Saving on costs with an NYC lease takeover

The rental process can be very costly. A commercial lease takeover in NYC can end up being a financial win-win-win for the three parties involved. The current renter avoids having to continue paying rent for a place they aren’t actually occupying. The new tenants don’t have to pay large broker fees, which is sometimes the case when renting property in New York City. And, because the existing renter has to find the new tenant (and there is a good chance that business will want to sign a new lease once the present year is up), the property owner forgoes the expenses that come with finding a new tenant.

Where to find listings for sublets and lease takeovers in NYC

How are lease holders supposed to locate the right tenant to take over when they have to break a lease? These are a few popular methods:

PivotDesk – An online marketplace that connects businesses that are trying to find or advertise shared office space options

Social Media – Post your own listing on your Facebook, Instagram, or other social media accounts that you have an available space. This can be a good way of getting a personal recommendation on a trustworthy tenant. Additionally, Facebook has a Marketplace section specifically for property rentals.

Classified ads – Post a listing in the rental section of the classifieds in your local newspaper.

Professional Network – Reach out personally to your business and professional contacts to see if they are aware of any companies that are seeking commercial space and might be open to a lease takeover opportunity.

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