leasing commissions (landlord may require these be reasonable and at market)
design fees and tenant improvement costs incurred by tenant in preparing the space for the transferee
advertising and marketing costs
economic concessions provided by tenant in connection with the transfer (e.g., free rent, planning allowance, lease takeover payments, moving expenses, etc.)
certain “vacancy costs,” meaning the rent and other amounts paid by tenant during the time that the space is vacant
See the optional text in Exhibit E for an example of how to write these carve-outs. The above items are often negotiated between the parties, with landlords reluctant to agree to credit back more than leasing commissions and tenant improvement costs. A careful landlord will not allow the tenant to deduct these out of the first “excess rent” payments, but rather will require that tenant amortize these costs and recover them over the term of the sublease.
Another way for the landlord to get the benefit of increased rents in an up market is through a recapture clause. A sample recapture clause is attached as Exhibit F. This clause allows the landlord the right to recapture the space if tenant asks to assign or sublet. Once it recaptures the space, the landlord can re-let it at the higher market price. This risk may worry the tenant, who for example may value the right to sublet for a short term with respect to space that it expects to need in the future, without the risk of losing the space to the landlord. As a compromise, the tenant may ask for the right to withdraw its request to sublet or assign should landlord exercise its recapture right, or may ask that the recapture right only apply to subleases/assignments over a certain square footage or lasting a certain number of years.
6.2Down Markets. If market rents go down, the landlord may want to be sure that a tenant won’t offer its space for sublease or assignment at a rate lower than landlord’s asking price. If the tenant can undercut landlord’s asking rents, the tenant might be more likely to land the scarce tenant in a down market. See Exhibit G for a sample clause along these lines. Tenants really hate this one. After all, this could completely do away with its right to sublet the space for less than its own rent as a last ditch attempt to cut costs or save a business. Tenants frequently have to offer sublease space at a discount to the original rental rate because of the risks that subtenants face (e.g., difficulty in obtaining services from the landlord and the risk of a termination of the sublease if the lease terminates) . As a compromise, the landlord may agree to only enforce this clause it the building is over a certain percentage vacant (e.g. 10%).
The landlord may also protect its ability to obtain tenants for other spaces by prohibiting the tenant from subletting or assigning to other tenants in the building or to prospective tenants with whom landlord has been negotiating. The landlord may also require that tenant use landlord or landlord’s broker to locate a subtenant or assignee.