Risky (sub)lease contract

On 26/10/2018 by admin in Uncategorized @en

Our job is sometimes to crush somebody’s dreams. And we charge for this.

Some time ago we analysed a case for one of our clients (for obvious reasons, details of the story are limited).

The client’s team rose in numbers so the client decided to find bigger office. The company found a location that would be a dream come true.

Layout of the office fit the nature of the business. The building was in a popular neighbourhood, full of cafes and bars. The place was perfect – both for employer branding reasons and its usability.

So to make the dream come true all they had to do was sign the lease agreement and invest several hundred thousand PLN in the fit out.

Client gave us this case, hoping that we will quickly help to deal with the formalities and check legal aspects of the investment, helping with communication with the owner.

However, the situation was hardly ideal. As is common, the lease would be actually a sublease signed with a company operating the building that leased it from the actual owner. There was no contact with the owner, the sublease would only be for 2 years and there was no guarantee of the lease being extended. What is more, the draft of agreement specified that our client would not be reimbursed for any expenses related to the premises.

According to the law, if the lease is terminated, then also any sublease agreements expire.

So, in the end, the situation was that the client would invest several thousand PLN into premises, that there was no guarantee that they will be able stay in for longer than 2 years and with no chance of getting the money back in case they move out.

No surprise, we recommended not to sign the contract as the legal risk was too high.

The client regretted that we could not do more about it, believing that maybe putting more pressure on the operator or trying harder to contact the owner directly would result in some better outcome. The management of the client wandered why there are more and more fooderies appearing in the same building if the lease is so risky.

Still, the agreement has not been signed in the end.

Around 6 weeks later a news came out that the company owing the building decided to change it into a hotel and that the lease will not be extended to any current tenants.

So, in the end, while our client has not fulfilled their dream to move to the location, they also have not wasted several thousand PLN on investing into the premises from which they would have to move out soon.

As business lawyers, we quite often analyse lease agreements. Even if contract is drafted by a corporation managing a giant office building, there is usually possbility to negotiate some changes. Even if it is not the case, it is important to point out the biggest risks for the tenant. And the basic thing is checking whether the agreement would be even signed with the owner of the venue, and if not, what happens if the owner decides that they want to completely change the way the property is used.