Taking a warehouse sublease

How a sublease works

A sublease has three parties. The head landlord owns the building. The sublandlord is the tenant under the head lease. You, the subtenant, take all or part of the tenant's premises. Your contract is with the tenant, not the owner, unless the consent paperwork creates a direct link.

The tenant usually stays liable under its own lease after subletting. A sublease normally ends before the head lease does; a deal that hands over the whole remaining term can be treated as an assignment instead, where you step into the lease itself. Your lawyer sets the dates.

Who it suits, and who it doesn't

Subleases suit you when the time left on the head lease matches your plan, when the space is already fitted out with offices, racking or power you'd otherwise pay for, and when you need to move quickly. They don't suit you if you need long-term certainty or renewal rights, need to change the space significantly, or can't get comfortable with the sublandlord's finances.

Remaining-term economics

A tenant with surplus space still owes rent on it. Any sublease income reduces that loss, so sublandlords are often motivated. That can mean a sublease rent below their own, some free months, or racking and furniture included.

The trade-offs sit in the term. Remaining terms can be short, and renewal options in the head lease are often personal to the original tenant, so you may have no right to stay. Additional rent usually passes through to you, including your share of the year-end reconciliation, so ask for last year's. If you'd pay more than the head rent, the head lease may give the landlord a share of that profit, which the sublandlord will price in. Compare the total to the end of the term with the monthly cost tool.

The head lease sets your limits

You can't get more rights than the sublandlord has. The head lease controls the permitted use, hours, signage, parking, alterations, hazardous materials, insurance and restoration at the end — and a sublease usually makes you comply with it. Ask to see the head lease. Rent figures may be blacked out, but you need every obligation.

Most commercial leases require the landlord's consent to sublet. The clause often says consent is not to be unreasonably withheld, but leases vary. Some give the landlord a recapture right to take the space back, which could end your deal before it starts. Don't move in or pay more than a deposit until consent is signed. Sublease consent explains the process.

If the sublandlord defaults

This is the risk to price. If the tenant stops paying the head landlord or becomes insolvent, the landlord may be able to end the head lease — and when the head lease ends, a sublease generally ends with it, even if your rent is fully paid. Courts have limited powers to protect subtenants, and that route is slow, costly and uncertain.

Protection comes from the paperwork. In plain language:

• Non-disturbance: the head landlord agrees to let you stay if the head lease ends, as long as you keep performing
• Attornment: you agree to treat the head landlord as your landlord, on the sublease terms, if it takes over
• Notice and cure: you're told if the tenant defaults and may fix it, for example by paying rent directly

Racking, furniture and fit-out left in place

Existing racking, offices and equipment are a big reason to sublease. Confirm who owns each item — the tenant, the landlord or a lender — and whether it comes with the rent, through a bill of sale, or on loan as-is. Racking and high storage are fire-code questions, so ask for permits, engineering or inspection records and load signage.

Then settle, item by item, who removes what at the end. The head lease's restoration obligations fall on the sublandlord, who will try to pass them down to you. Agree that you're responsible only for what you add.

Alberta notes and the paperwork

Alberta's Residential Tenancies Act doesn't govern commercial space; your rights come from the sublease, the head lease and the general law. Your use still has to fit the land use district, and many business types need a municipal business licence in Calgary and Edmonton — the municipality decides. Expect to name both the head landlord and the sublandlord as additional insureds.

The usual paperwork is an offer or term sheet, the sublease itself and the head landlord's consent, often as a three-party agreement. Have a lawyer read all three together. Tenants on the other side can read subleasing your surplus space.

Documents and answers to get before you sublease

• A copy of the head lease, with at least every non-financial term visible
• The exact expiry date of the head lease, and whether any renewal right passes to you
• The head landlord's signed consent, and whether it includes non-disturbance or notice-and-cure terms
• Confirmation that the sublandlord is in good standing, with no default notices outstanding
• How additional rent and the annual reconciliation are shared
• A list of the racking, furniture and equipment included, and who owns each item
• Racking permits, engineering or inspection records if the racking stays
• Who is responsible for restoration at the end, item by item
• The insurance required by both the head landlord and the sublandlord
• Whether your use fits the head lease's use clause and the land use district