Get Right to Collect Rent Directly from Subtenant If Tenant Defaults

Common scenario: One of your tenants subleases its space to a subtenant. The subtenant upholds its end of the deal by paying rent to the tenant on time. But the tenant doesn’t pay the rent it owes to you. 

Under a standard Consent to Sublease agreement, you’ll have only one possible course of action: Sue the tenant for the unpaid rent. You’ll also be stuck with that option month after month, forcing you to waste your money, time, and energy filing lawsuits to collect rent that should be paid to you directly. And there’s no guarantee that the deadbeat tenant will even have the money to pay the judgment even if you win in court. 

Get Right to Bypass Defaulting Tenant

The good news is that there’s a way to avoid being locked into this situation of having to litigate for your rent each month. Simply bypass the defaulting tenant and get the rent directly from the subtenant. You can establish your right to do this by including a clause in the Consent to Sublease that you, the tenant, and subtenant all must sign to execute the sublease arrangement. 

How to Draft Clause

Like the Model Clause below, your Consent to Sublease clause should contain three key provisions:

Landlord right to get rent from subtenant. First, specify that if the tenant commits a lease violation, you have the right to elect to receive the rent directly from the subtenant from then on [Clause, par. a]. 

Tenant to get credit. Next, state that the tenant will get a corresponding credit for the amount of rent that the subtenant pays on its behalf [Clause, par. b]. 

Landlord doesn’t assume tenant’s duties to subtenant. Collecting rent directly from a subtenant carries a potential legal risk—namely, that a court will find you responsible for providing the subtenant services you normally provide only to tenants and for which the tenant would be responsible under the sublease, such as heat, electricity, and parking. The clause protects you from this risk by expressly stating that accepting rent from the subtenant doesn’t mean that you’re assuming any of the tenant’s sublease duties, obligations, or liabilities to the subtenant [Clause, par. c]. 

Negotiating the Clause

The Sublease Consent clause is legally sound, but will it fly? Yes, says the New York City commercial landlord attorney who drafted and has used the provision on numerous occasions. “Asking a tenant to comply with these provisions is perfectly reasonable,” he believes, especially given that the landlord is acting in the tenant’s interests by accepting the sublease. However, don’t be surprised if a tenant seeks to negotiate the clause. Potential tenant demands/proposals to be ready for: 

• Limiting the clause to apply only to violations involving failure to pay rent, operating expenses, or other money owed; 
• Allowing the landlord to demand the rent from the subtenant only after the end of a specific notice period or cure period; and/or
• Requiring the landlord to stop dealing with the subtenant if the tenant cures the default (a reasonable demand that you can counter by specifying that the tenant must remain in good standing for six months after curing the default before you suspend direct dealings with the subtenant).

Subtenants may also weigh in. One common subtenant demand is language requiring the tenant to credit rent paid by the subtenant to the landlord against the sublease rent due. This should be acceptable to the landlord since the issue mainly affects the relationship between the tenant and subtenant.