Q: I am a licensed real estate salesperson and I am representing a commercial tenant who is leasing out an entire floor of an office building. Initially, the tenant is not going to need all of the leased space and would like to rent out the unused portion. Should the tenant sublease the unused space or should the tenant grant a license for the unused portion?
A: Generally, a tenant in this situation should license the extra space rather than subleasing it. Although the terms "license" and "sublease (or sublet)" are often used interchangeably, they are distinct legal concepts.
A sublease grants a sub-tenant the right to exclusively occupy a tenant’s leased property. On the other hand, a license merely grants an individual or entity permission to use the property for a specific purpose. Depending on the specific terms of the particular agreement, subleases are generally both transferable and irrevocable while licenses are generally non-transferable and revocable.
The key concept in distinguishing a sublease from a license is that, as mentioned above, in a sublease the tenant’s right to exclusive possession is generally transferred to the sub-tenant (i.e. the sub-tenant occupies the space without the tenant being present). On the other hand, with a license, the tenant retains his or her right to use the property along with the licensee.
Thus, in the situation where a tenant would like to remain in possession of the tenant’s space while granting someone else the right to utilize a portion of such space, a license is likely the more appropriate choice. Alternatively, if the tenant were to carve out a portion of the premises and treat the area as separate office space, the tenant should consider a sublease.
Important Tip: Whether a tenant must ask for the landlord’s permission to license or sublease the space depends on the content of the particular lease. The parties should each have an attorney review the lease and sublease to determine the rights and obligations of the parties.
The Legal Line Question by:
Neil B. Garfinkel
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP