One Tricky Sentence to Add to a Prohibition of Sublease Provision
Almost all commercial leases have a provision that in some form or another prohibits the tenant from subleasing to a third party without the landlord’s prior written consent. But what would happen if the tenant ignored that provision, subleased the property without the landlord’s knowledge, and made money off of the sublease? Would the landlord be entitled to collect that money from the tenant?
Probably not. At least, not without the appropriate provision in the lease. In Gardiner v. Anderson, 2018 UT App 167, 20170551-CA, the landlord and tenant entered into a commercial lease for a warehouse. The tenant agreed to repair the warehouse. Rent would be $600 per month, and would escalate over time to $1,000 per month. The lease had a prohibition on subleasing without the landlord’s consent.
However, from the very beginning of the lease, the tenant agreed orally to sublease to a third party for, get this, a monthly rent of $2,250, with escalations up to $5,000. The landlord did not find out about this until a year and a half later. The tenant had made $53,000 off of the oral sublease. The landlord then sued the tenant for the $53,000, claiming that the tenant unlawfully detained the warehouse, breached the lease, and was unjustly enriched by the sublease. The landlord claimed that he would have agreed to the sublease if the tenant had paid the landlord the difference in rent.
The tenant conceded that he breached the lease by subleasing, but argued that the landlord was not entitled to the profit made by the tenant. The court agreed. It concluded that no provision in the lease allowed the landlord to recover more rent than what the lease provided. The court of appeals agreed as well.
A landlord may prevent a tenant from profiting off of an unauthorized sublease simply by adding some additional language to the lease that requires the tenant to pay the landlord any money the tenant obtains from an unauthorized sublease, assignment, concession, or license, which exceeds the amount the tenant owes the landlord under the lease.
This Quick Tip Article provides general information only and should not be considered legal advice. Please consult a professional regarding your specific situation.