I found your article last week on leasing office space very insightful. Are there other methods of setting up office premises that are available to start-ups? Leasing or purchasing may be too expensive for start-ups that want physical premises.
--Ken
Dear Ken, thank you for your inquiry. As you have pointed out the main types of setting up physical premises include purchase and leasing.
This may be beyond the reach of some start-ups. The good news is that there are many other innovative ways through which a start-up can acquire office space without breaking the bank.
The first method is through sub-leasing. This is where you sub-lease a portion of office premises from a tenant. Ken, you might need just a room or two as your office space and instead of taking up an entire office space, you can take up just a small portion.
The difference between this and an ordinary lease is that with a sublease, you will be entering into an arrangement with a tenant. This means that the person leasing you the space is not the owner of the building but a tenant.
The parties in a sublease are the head lessor who is also the owner of the building, and the lessee, who is a tenant of the bigger premises.
You would be known as the sub-lessee as you are sub-letting space from a lessee/tenant. The head lease is the lease provided between the head lessor and the lessee renting to him the bigger portion of the premises.
The agreement between you and the lessee is known as a sub-lease agreement. And it requires a lot of due diligence on your part.
Before you commence, you should first request a copy of the head lease to ascertain that indeed the lessee has permission from the owner of the building/head lessor to enter into sub-lease agreements.
In some cases, the head lease bans such arrangements completely and doing so would be illegal. In other cases, the head lessor may permit it but only with written consent from him.
You also need to check out the ownership details of the building through a land search. This is to make sure that the head lessor is in fact the owner of the building.
In a sub-lease agreement, you need to involve the head lessor as his main role is to give consent or a go-ahead to the lessee to sub-let the premises to you.
The head lease is what determines your arrangement with the lessee. Clauses to look out for include permitted use of the premises and the terms of the lease.
The user clause is important to align your intended use with the lease. For example, if the permitted user is residential, then it may be risky to set up an office space.
You will need to clearly identify the space you are taking within the larger space and if possible, request for a drawing of the space to be annexed to your sub-lease agreement.
Remember that you cannot sub-let the office space for a longer period than the head lease. It is therefore important to understand that your term of lease and occupancy of the physical premises is largely dependent on the lessee’s permitted occupancy.
This is perhaps what makes sub-leases uncertain and unpredictable.
They operate just as normal leases the only difference being that you pay much less rent.
Ms Mputhia is the founder of C Mputhia Advocates | [email protected]
