Don't Agree to Prescreen Subtenant

Q: If a tenant asks the property owner or manager to prescreen a subtenant before the two parties negotiate a sublease, is it okay to do so? Or should the owner wait for a formal request?

A: Owners should never agree to prescreen a proposed subtenant. Instead, they should require the tenant to make a formal request for approval of a sublease and submit a complete sublet approval package that includes a sublease signed by both the tenant and the proposed subtenant, financial statements, references, and any other documentation required under the tenant’s lease.

A tenant may ask the owner to prescreen a proposed subtenant to avoid negotiating a sublease with a subtenant the owner may not approve because of, for example, its proposed use of the tenant’s space or its financial health. But it is not the property owner’s or manager’s responsibility to spend time and money prescreening a proposed subtenant that it may, in fact, ultimately decide not to sublet space to. The owner or manager should only screen proposed subtenants that have shown that they are ready, willing, and able to sublease space in the center or building.

Example: Two New York tenants asked the owner to consent to an assignment of their leases. The tenants sent letters that included new assignment agreements, with little additional information, to the owner’s former address in Brooklyn. Two weeks later, the tenants assigned their leases without having received the owner’s consent. The owner eventually received the tenants’ letters, and requested more information before it would consent to the lease assignments. When the tenants refused, the owner notified them that it hadn’t consented to the assignments and that it was terminating their leases. The tenants sued the owner, arguing that it had unreasonably withheld consent to the assignment.

A New York court ruled that the owner didn’t violate the lease, because the assignment requests “provided virtually no information about the assignments.” Therefore, it was reasonable for the owner to withhold consent until the tenants supplied this information. Without knowing the financial history of the third party, or what the third party intended to do with the property, the owner was entitled to withhold its consent [752 Pacific LLC v. Pacific Carlton Development Corp., March 2007].