LEASE AGREEMENT REFERENCE GUIDE 1630: DRAFTING STRATEGIES FOR THE "SWEETHEART" SUBLEASE $49.95
Drafting Strategies for the “Sweetheart” Sublease
This LARG looks at the “sweetheart” sublease. Such devices are sometimes used by large corporate tenants to provide space to outplaced employees, contract personnel and other corporate captives. The first article looks at these cushy arrangements, and why they can have problems qualifying for non-disturbance protections from the landlord. The Lease Clause Critique in this LARG features numerous provisions from a sweetheart sublease including comment.
Housing Outplacements, Contract Personnel & Captives
The Wall Street Journal’s 1998 reports of the merger between Exxon and Mobil confirm that corporate boards still find mergers all but irresistible. That oil company merger could turn out to be one of the very largest in history, eclipsing even the gargantuan marriage of Citicorp and Travelers.
That merger is certain to provoke massive further downsizing and elimination of duplicate managerial and administrative staff from both companies. Truly redundant corporate citizens will be terminated with severance packages, and the leased space they used to occupy will become vacant. This reduction will no doubt begin as soon as the deal clears antitrust review and the merger is completed. If you don’t think heads will roll, consider Deutsche Bank’s planned acquisition of Bankers Trust, the eighth largest bank in the US. Deutsche Bank said it will eliminate about 2,750 jobs in New York alone, and around the same amount in London. And that was a far smaller deal than the big oil merger.
But if past mergers are any indication, there will also be an ongoing headcount reduction program which will begin in earnest after the initial round of personnel cuts is complete. Employees and small departments that survived the first round of cuts will be “outplaced” to achieve further headcount reductions. Some of these people will remain indefinitely as consultants to the company. Others may perform formerly corporate functions as independent contractors or vendors. That might include engineering, legal, real estate, administrative, or customer service assignments. And why not? They have years of training, and they know how do things in the corporate structure. Assuming they are not so embittered by outplacement to function productively, they are infinitely more valuable than third party vendors who don’t know the company landscape.
Enter the Sweetheart Sublease
Some of these newly minted “independent contractors” can no doubt telecommute, and just show up for meetings at corporate facilities when needed. But others will need to remain on-site in the company headquarters because of the nature of their work.
Why not sublease them some surplus space on an as-is, short term basis in the corporate headquarters? That sops up excess space, but it also gives such “independent contractors” (assuming they can satisfy the IRS test for that status) an inexpensive and convenient new home.
And sweetheart subleases are not just for outplaced employees. They can be a sensible option to provide space to any vendor doing work that requires lots of interaction with corporate employees. That can include just about any kind of contract personnel engaged in a large “temporary” project, e.g., software programmers, internet commerce consultants, litigation and discovery document personnel, as well as garden variety management consultants.
Other candidates for a sweetheart sublease deal include: