Office Sublets
Open Menu

Questions & Answers about NYC Office Leasing

May 5, 2023

What is a sublease?

A sublease is a legal document that permits a tenant (e.g. lessee), who currently leases office space directly from a landlord (e.g. lessor), to enter into a separate agreement with another company (e.g. subtenant/sublessee) to occupy the tenant's office space. The lessee, therefore, not only remains the lessee, but also becomes the sublessor/sublandlord, as they are not only leasing the property, but also subleasing it simultaneously. For example, if a company leases an office space directly from a landlord, the lessor, and subsequently outgrows the office, then the company can sublease their existing office space to another company, the subtenant, and enter into a new lease for a larger office space, thereby hedging their real estate exposure.

Who pays the real estate fee?

In commercial office leasing in Manhattan, the real estate commission is almost always paid by the landlord. The commission details are predetermined by a listing agreement between the landlord and their broker, based on the broker's rates. However, there is often another real estate broker involved, a tenant representative. If a tenant representative brings a prospective tenant to the landlord's space and a lease is ultimately signed, then a portion of the landlord's broker's commission is split with the tenant representative. In layman's terms, if you are a company in search of office space in Manhattan you most-likely will not pay the real estate fee, the landlord will.

However, in the case of office sublets, the commission is not paid by the landlord. In most cases the current tenant who wishes to sublease their space - known as the 'sub-landlord' - pays the real estate fee to the broker with whom they enter into a listing agreement. As before, if a tenant representative brings a 'sub-tenant' to the 'sub-landlord's' space and a lease is ultimately signed, then a portion of the sub-landlord's broker's commission is paid to the broker representing the sub-tenant ...confused yet?

What are the basic steps to leasing office space?

To help answer this question we have created a chart that will walk you through the process: Step-By-Step Office Leasing Process.

What is a Good-Guy Guarantee? And will I have to sign one?

When signing a commercial lease for office space in Manhattan, an officer of your company will likely be required to sign a Good-Guy Guarantee (GGG). A GGG is a limited personal guarantee. If the company defaults on rent payments, the officer agrees to vacate the space and be personally liable for all rent until the space is surrendered to the landlord. The officer is released from personal liability once the keys are returned to the landlord, and all back rent is paid.

There is typically a notice period for exercising the GGG. For example, the tenant may be required to notify the landlord of their intent to exercise the GGG 3 or 4 months in advance of moving out. During this time, the tenant and guarantor are responsible for all rent payments. 

The GGG is a legal document prepared by an attorney, so it may vary slightly from lease to lease. It is important to read the GGG carefully before signing it to understand your obligations and responsibilities.

Learn more about the Good-Guy-Guarantee

What is a 'Loss Factor'?

In New York City, commercial landlords use "rentable" square footage to measure office space. The rentable square footage not only includes the area within the office space but also includes a proportionate share of the building's common areas, such as hallways, lobbies, restrooms, and elevator vestibules.

Usable square footage is simply the measurable amount of space within the walls of the office. The difference between rentable and usable square footage is called a loss factor.

Learn more about Loss Factor

How do I compute the 'Loss Factor'?

Rentable Area minus Usable Area divided by Rentable Area: (5,000-3,500) = 1,500/5,000 = 30%

What is an escalation?

Escalations are annual rent increases added to the base rent. The percentage of the escalation is negotiated with the landlord but is typically around 3% per year.

Fixed annual rental rates are rare and typically only occur in short-term leases. Note that escalations are compounded every year, regardless of any additional bumps in rent price.

Who pays the real estate taxes?

In most office leases, the landlord pays the taxes. However, the tenant is responsible for their proportionate share of the annual tax increases.

For example, if a tenant occupies 20% of a building and the tax bill increases from $50,000 to $55,000, the increase is $5000. Since the tenant occupies 20% of the building, the tenant would pay an additional $1000 per year.

What's the difference between "direct" and "sublet" office space?

When a company signs a lease for "direct space," they enter into an agreement with the landlord's company. The majority of office leases in NYC are direct leases, meaning, signed directly with the landlord of the building. However, what happens if your company outgrows the office space and needs to move? You guessed it! - you sublease the space to another tenant.

Before signing a direct lease, make sure your lease gives you the right to sublease. Most do, as it's considered a standard lease provision. Unlike a direct lease, the two parties who sign the sublease agreement are the existing tenant and the new tenant, i.e., the subtenant.

In most cases, the landlord must give written consent and approval for the new subtenant prior to the execution of a sublease agreement. Another caveat is the landlord could have the right to recapture the office space and lease it to a tenant of their choosing, usually at a higher price.

How is electrical usage calculated?

There are 3 common ways a company can be charged for electrical usage in NYC. Which way yours will be charged will depend on the specific building. The most cost-effective is “direct" electric. Like your home, this means that you have your own electric meter, and ConEdison mails you a bill for your usage.

The second way is referred to as “sub-metered” electric, which often means two different things. Say there are 4 similar-sized companies occupying 1 floor of a building, and there is 1 electric meter for the entire floor. Each tenant would be responsible for 25% of the total electric bill. The landlord often will adjust the percentage depending on your company’s electric usage. The second and more common scenario is that you could have an individual meter for your office space that branches from a master electric meter in the building. Note: the landlord usually charges an administrative fee to cover costs associated with billing and collection for sub-metered electricity.

The third common way electricity is charged in NYC is per square foot, known as a flat rate or rent inclusion. The cost is typically between $3 and $3.50 per square foot per year. To calculate the monthly bill, multiply your square footage by the cost and divide by 12.

What is a flexible office provider?

A flexible office provider is a company in the business of renting turn-key offices with more flexible lease terms than direct leases. Sometimes referred to as business centers or executive office suites, these offices have shared access to conference rooms, kitchens, reception services, and IT. Renting an office at a flexible office provider is ideal for companies that require a term shorter than 12 months.