Dear Alex:
I own a nail salon in a small retail shopping center.
Last year, we planned to expand our operation by opening a retail boutique in the space next door to our nail salon. We signed a lease for the space next door, but our plans didn’t work out and now the additional space is vacant.
We want to sublease that space to a masseuse, but our landlord won’t approve of the sublease. Can the landlord do that?
Many small businesses change their growth plans over time, and it is common for businesses to extend their overhead costs in anticipation of growth.
It is also common for plans to change. Many times, a business will never experience the growth that they anticipate, and will have to reduce overhead expenses to remain viable.
It is understandable that your nail salon would have difficulty supporting a vacant retail space next door, and it is reasonable that you would want to reduce your expenses by subleasing that space to another tenant.
Almost all modern commercial leases contain provisions regarding the tenant’s rights or restrictions on subleasing. If the lease permits subleasing at all, it is usually only permitted with the landlord’s prior consent, which may be withheld in the landlord’s discretion.
Many times, a tenant who wishes to sublease their space will propose a potential sub-tenant to the landlord, and become upset when the landlord rejects that sub-tenant.
However, your landlord must consider many factors when approving a potential sub-tenant. You as the original tenant will become the “sub-landlord,” so you should also consider these factors, because your business will most likely have to guarantee the performance of the new sub-tenant under the sublease.
If the sub-tenant fails to pay the rent, you may be liable to pay for their default.
The potential sub-tenant must satisfy the landlord’s credit requirements.
A small business without much capital and without a long history of successful operations may be too risky of a tenant in the landlord’s opinion; in addition to the possibility of the tenant’s failure to pay the rent on time, the eviction process is time consuming and costly.
Those expenses are concerns of the landlord, and as the potential sub-landlord, they should be concerns of your business as well.
Tenant mix is also a significant concern of landlords, particularly in retail centers. The landlord may have granted exclusivity to other tenants on certain business types.
You wouldn’t want the landlord to allow another nail salon to move in next door, and other tenants may not want competing uses in the center either. Additionally, certain use types may be less desirable for family-oriented shopping centers.
For example, a landlord would probably not want a tobacco store to open next door to an ice cream parlor and toy store. Massage providers are a use type that landlords are historically cautious of permitting.
For all of those reasons and others, your proposed sublessee may not be a good fit for the space, and depending upon your lease terms, it is likely within the landlord’s discretion to reject the proposed sublessee.
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