SUBLEASING: THE LEASE REFLECTED

By Patrick G. Moran

I. INTRODUCTION

“O, how full of briers is this working-day world!"i

Prepared in haste using hand-me-down documents, the typical sublease

creates many unrecognized dangers for both the prime tenant and the subtenant.

Prime tenants looking for a quick end to high rent bills are rarely interested in

analyzing sublease issues. Subtenants lured by the deep discounts from direct

lease rentals ignore issues which can later arise to destroy the benefit of their

“bargain”. Attentive lawyers can protect these highly motivated parties by

identifying and addressing the risks of subleasing.

Sublease provisions that create these risks will be reviewed and simple

solutions suggested. Many of these issues -- and their solutions -- are evident

once one takes the time to think about them. This paper will encourage you to do

just that. These risks will be further illustrated through a discussion of two

sublease questions that are common today. How do you deal with a subtenant in

the restructuring of a prime lease? What can a landlord and subtenant do when

the prime tenant defaults?

II. THE DRAFTING APPROACH

A. Incorporation

Lawyers tend to oversimplify subleases. Many subleases describe

the sublet premises, the rent and the term and then simply incorporate by

reference all of the other terms of the prime lease, changing the word “landlord”

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to “sublandlord” and the word “tenant” to “subtenant”.ii There are several

motivations for this simplified approach. By definition the sublease is a

smaller/shorter/less costly transaction than the prime lease. The prime tenant

believes that incorporation-by-reference, with the tenant taking the role of the

landlord, must be in its favor since landlords are always overprotected in lease

documents.

However, there is a more precise reason for the

incorporation-by-reference approach. The prime tenant should have a healthy

fear that it will end up in default under the prime lease for some act or omission of

its subtenant. If the prime tenant is receiving from the subtenant exactly the same

performance that it must in turn render to the landlord under the prime lease,

pursuant to exactly the same words, how can there be a problem? This justifies

the word-for-word transfer to the subtenant of the exact obligations of the prime

tenant with respect to the sublet space.

B. Tri-Party Relationship

While the “looking glass” approach works on a superficial level, it

ignores the fundamental difference between leases and subleases. A sublease

deals with a tri-party relationship, a lease only with a bilateral one.

Like any document, a lease is drafted and negotiated from implicit

assumptions about the two parties’ abilities. The landlord, as a fee owner, has

greater rights and control (both legal and practical) over the ownership and

operation of a leased space than a tenant can ever have. Also, these rights will

remain unified in a single entity. These assumptions permit the landlord to make

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certain agreements, such as the provision of services and the maintenance and

restoration of the building, that a tenant is not properly situated to imitate. If the

prime tenant blindly assumes all of its landlord’s obligations vis-a-vis its

subtenant, it will be unable to deliver if its landlord does not perform.

The prime tenant’s objective in subleasing its space is to recoup a

portion of the cost of carrying vacant space -- in short, to reduce its liability.

However, there is more to a sublease than a simple stream of monthly payments

from the subtenant. The sublease creates the potential for new and increased

liabilities. The prime tenant must anticipate the consequences of both a defaulting

subtenant and a defaulting landlord. The addition of a new party to the

landlord/tenant relationship requires the tenant to serve as a buffer between two

parties. Since the tenant cannot control these parties’ actions it must protect itself

from these new possible liabilities.

A prime tenant forces a subtenant to assume the same obligations

with respect to the sublet space that the prime tenant has under the prime lease.

This ignores the assumption in the prime lease that these obligations will be

performed by a single party on a unified basis. The prime lease was not drafted to

permit the tenant to share its obligations with a subtenant -- a “partner” who can

default in those obligations and for whom it will be responsible. If the tenant

wants to be prepared for the three-cornered relationship that the sublease

establishes it must analyze and address joint decisionmaking in the sublease.iii

C. Prime Lease

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Typically, a prime lease has no extensive provisions for the

changes that subletting will bring to the landlord/tenant relationship. The landlord

is content with the usual weapons of “self protection” in an assignment and

subleasing clause -- control over the identity of the subtenant as well as extra

options and benefits, like recapture and profitsharing. It is unusual for a prime

lease to deal with the post-sublease relationship other than restating the prime

tenant’s continuing liability and requiring the landlord’s consent to any further

subletting. Even if a tenant would seek protections in the prime lease, landlords

are reluctant to make concessions to facilitate subleasing, due to their belief that a

tenant eager to reduce its monthly loss on vacant space will be a tough

competitor. Tenants, being optimistic business people, do not expect to have

excess space and are not interested in fighting for permissive subleasing clauses in

their prime leases.

D. Landlord’s Consent

Some subleasing issues ultimately may be addressed at the time of

subletting in the landlord’s form of sublease consent.iv However, these again are

typically protections for the landlord against any misinterpretation of its consent.

The consent will confirm the tenant’s continuing responsibility under the prime

lease notwithstanding the consent to the sublease and will reaffirm that landlord’s

consent is still be required for future actions under the sublease, such as further

subletting or alterations to the sublet premises.

E. The Sublease’s Goal

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Thus, the prime tenant and subtenant cannot rely on the prime

lease or the landlord’s consent to define their relationship. In drafting the

sublease, the parties must address the limitations and restrictions that prevent

them from playing the roles of landlord and tenant to the hilt. The sublease

should only bind the prime tenant to undertake what it can realistically do under

the prime lease. The subtenant must demand its assurances and protections in the

sublease since it will not get much comfort by taking the tenant’s role under the

prime lease. Failure to look beyond incorporation-by-reference will result in

unexpected and unintended results when any of the three parties subsequently fail

to perform.

III. FALSE IMAGES: SPECIAL ISSUES IN DRAFTING THE SUBLEASE

A. Over-Incorporation: “Thanks for the Clause”.

Common mistakes made in incorporation-by-reference drafting are

the adoption of prime lease clauses which have been modified in favor of the

tenant and the failure to resurrect clauses which were favorable for the landlord

and were deleted entirely from the prime lease. All these negotiated benefits will

be automatically transferred to the subtenant in the sublease. For example, the

landlord may have agreed to waive its usual clause requiring a security deposit

because of the prime tenant’s strong credit. Unless this is added back to the

sublease, the prime tenant will be offering the same arrangement to the subtenant

when it mirrors the sections of the prime lease.

A dangerous situation arises when the length of cure periods for

defaults are simply mirrored in the sublease. If the subtenant has exactly the same

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cure period as the prime tenant, the prime tenant is virtually guaranteed to end up

in default. The tenant will need some period after receipt of the landlord’s notice

of default to give a corresponding notice to the subtenant and start the subtenant’s

cure period. Even if the notice is given simultaneously, should the subtenant fail

to cure, the prime tenant will have no extra time to step in and cure the problem

itself. Of course, late performance is often accepted by landlords but the prime

tenant is exposed to the theoretical loss of its full leasehold estate on account of

its subtenant’s delay.v

Remedies clauses contain other risks. A cure right or offset right

given to the prime tenant might not be appropriate for a small subtenant. As

mentioned above, the prime tenant’s cure periods can be rendered useless if the

subtenant has exactly the same cure period. Holdover clauses are especially

dangerous since a holding over by a partial subtenant may trigger a much larger

liability for the prime tenant than the subtenant suffers under its sublease. Most

holding over clauses state that the tenant will pay some increased percentage of its

rent during a holdover. This is inadequate where the holding over by the

subtenant causes a holdover by the tenant under the prime lease. Holding over is

typically an all or nothing affair. The landlord will be collecting holdover rent

from the prime tenant based on the full premises subject to the prime lease rather

than just the portion that has been retained by the subtenant.vi

Another typical holdover clause gives the landlord a right to deem

the holdover to be a one year renewal. Thus, the prime tenant’s obligations for

the whole space may be triggered by a partial subtenant’s failure to move out on

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time. The prime tenant should consider additional remedies beyond the landlord’s

rights under the prime lease when the sublease ends simultaneously with the

prime lease. These could include specific indemnities against the prime tenant’s

liability to the landlord, together with substantial security deposit or perhaps a

guaranty by the subtenant’s parent or principals.

In a partial sublease one of the other clauses that a prime tenant

should seek to preserve, or reinsert, is the right to relocate the subtenant. This

right, which appears in most forms, gives the landlord right to clear smaller

tenants out of the way for a large deal, but is often stricken from leases for a full

floor or more. The large prime tenant has a similar need for flexibility, not just

for a subtenant which wants to take a large contiguous portion of the prime

tenant’s space but also for possible expansion or relocation of different

departments of the prime tenant’s business that need to be contiguous. The

relocation clause may also facilitate a subsequent downsizing of the prime

tenant’s space. The landlord may be willing (or at least prepared) to take back

those portions of the prime tenant’s space which are contiguous to other building

tenants. Often this will be the space that has been sublet. The ability to relocate

the subtenant that is in the way will then increase the prime tenant’s bargaining

position.

The preceding examples deal primarily with form lease provisions.

Every lease also has specifically negotiated clauses that are intended solely to

benefit the prime tenant and should not be incorporated into a sublease. These

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should be identified carefully to prevent an inadvertent grant of rights that the

prime tenant either has not exercised or does not want to share.

In partial subleases, clauses granting parking spaces, storage space

and other special facilities or services for the prime tenant must be excluded and

addressed separately. Incorporating these clauses by reference will have the

effect of passing through 100% of the benefit of the clause to the partial

subtenant, which does not occupy 100% of the space.

Other clauses such as tenant improvement allowances,

reimbursement for moving costs, and lease assumption provisions which are

related to the prime tenant’s initial occupancy and should be carved out. Rights to

expand, rights of first offer and renewal rights should not be inadvertently

included. Granting these rights to a subtenant exposes the prime tenant to

substantial future liability unless the interrelationship between the prime tenant’s

rights and the subtenant’s rights are addressed clearly. As discussed below, there

has been a considerable amount of litigation by subtenants seeking the right to

exercise certain rights of the prime tenant under the prime lease, particularly

renewal rights. To minimize such claims, specifically negate any interest of the

subtenant in these rights and carefully draft and analyze any such rights that you

intend to create.

B. Landlord’s Services

With respect to the provision of services to the sublet space the

prime tenant should simply pass through the responsibilities that the landlord has

undertaken in the prime lease. This does not mean that the prime tenant should

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simply assume those responsibilities. The prime tenant is totally dependent on the

landlord’s performance and does not have any way to perform independently if

the landlord fails to provide the agreed services. As a result, the sublease should

provide that the prime tenant is responsible only to use reasonable efforts to

enforce the landlord’s obligations under the prime lease with respect to services.vii

Even this clause can produce controversy. How far must the prime

tenant pursue a service complaint? Must the prime tenant withhold rent? File a

complaint seeking damages? What if the prime tenant has other issues to

negotiate with the landlord and does not want to get into a large dispute over a

minor issue? These issues are not typically addressed in subleases but they

illustrate another element of uncertainty in the subtenant’s position versus that of

a direct tenant and highlight the ramifications of a tri-party relationship. The

prime tenant and the subtenant cannot carry out the bargain made in their sublease

without the landlord’s performance. They are, for all practical purposes, de facto

partners without any real partnership agreement in a unitary relationship with the

landlord.

The prime lease will undoubtedly have a clause obligating the

prime tenant to maintain the leased premises. This clause is appropriately passed

on to the subtenant with respect to the subleased premises by incorporating it in

the sublease. However, any provisions obligating the landlord to repair and

maintain the building’s common areas and systems are not something that the

prime tenant wants to assume. As a result, these landlord obligations should be

treated in the same fashion as the provision of services generally -- the prime

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tenant should use its reasonable efforts to cause the landlord to perform the

necessary repairs and maintenance.viii

Most form leases have a clause that precludes the prime tenant

from making claims for any interruption of services. In its simple, unnegotiated

form this clause could simply be incorporated by reference so that the subtenant

similarly waives its claims. However, the prime tenant will often obtain relief

from this clause in the form of a rent abatement beginning after a specified period

of untenantability arising from an interruption of services. This situation should

be dealt with differently.

In partial subleases, abatement of rent is an area in which it is

preferable to leave control of obtaining relief to the prime tenant and simply

provide that any benefit so obtained by the prime tenant will be shared with the

subtenant. The other approach, simply mirroring the clause and giving the

subtenant an independent abatement right against the prime tenant, can lead to

situations in which the prime tenant does not receive an abatement but is obliged

to provide an abatement in favor of the subtenant.

Here is another situation in which the differences between the

landlord’s and tenant’s position produce different results. The prime tenant does

not carry rent loss insurance while the landlord typically does. This provides an

alternate source for the landlord to recoup the rent payments lost when the

interruption is due to fire or casualty. Since the prime tenant has no similar

protection and is not likely to cause the interruption itself, it is fair to ask the

subtenant to settle for relief only when the prime tenant actually receives it. At

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most the prime tenant should covenant, as with the provision of services

generally, to use all reasonable efforts to enforce the landlord’s obligations to

provide such an abatement.

C. Alterations and Repairs

An office landlord always reserves extensive approval rights over

alterations based on its concerns over the residual value (or demolition cost) of

the demised premises and the potential impact of alterations on the building’s

structure, common areas and systems. Literally incorporating this clause results

in the subtenant needing consent from only the prime tenant. The prime tenant

thus becomes a go-between for what can be difficult and acrimonious decisions.

The subtenant may well feel that certain alterations are reasonable and necessary

to its use of the sublet space while the landlord categorically refuses to approve

them.

A better approach to this clause is to provide in the sublease that

the subtenant must obtain the consent of both the prime tenant and the landlord.

This approach -- expanding the definition of “landlord” to include both the prime

tenant and the true landlord -- works in a number of other provisions, including

the indemnities and waivers. The prime tenant will still need to be involved in the

consent request process, but at least it is not incurring potential liability by

parroting the landlord’s position, however unreasonable, and being forced to

withhold its consent because the landlord has refused.

Most subtenants will agree to this approach although some go

further to seek to remove the prime tenant from the approval process entirely. For

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a subtenant which occupies the entire space such an elimination of the prime

tenant’s consent may be feasible. However, in this circumstance care should be

taken that the prime tenant does not end up paying for the alterations to protect

the landlord from liens if the subtenant defaults during construction. The prime

tenant may also pick up expensive removal and restoration obligations arising

from the subtenant’s proposed alterations.

There are other rights reserved to the landlord in an alterations

clause that do need to be picked up in a “mirror” clause. For example, the lease

may require the posting of security for alteration costs or the payment of a

supervision fee to the landlord in connection with alterations. Incorporation of

these sections of the alterations clause will protect the prime tenant if it is required

to provide security or pay a supervision fee by permitting the prime tenant to

collect a similar amount from the subtenant.

From the prime tenant’s viewpoint, simply copying the alterations

and surrender of possession clauses from the prime lease may not go far enough

when the sublease is for the remainder of the prime lease term (or all but the last

day). If the alterations or surrender of possession clauses in the prime lease

require the return of the premises in the same condition as they were at the

“commencement of the Term”, the incorporation of this exact phrase into the

sublease will likely be interpreted as obliging the subtenant only to return

possession as the condition existing at the commencement of the sublease term.

The prime tenant’s liability to remove and restore leasehold improvements made

prior to the sublease term will remain as a contingent liability at the end of the

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prime lease term. This obligation runs directly to the landlord from the prime

tenant and will also include the obligation to remove improvements made by the

subtenant. In this situation, it is far better to specifically obligate the full

subtenant to pay for the cost of any required removal at the end of the term, not

just with respect to any improvements that such subtenant made during its

sublease term.

D. Partial Subleases

As we have seen already, the proper drafting of many of these

issues will vary depending upon the nature of the sublease. A “full sublease”

which demises all of the prime tenant’s space is more amenable to

incorporation-by-reference. A “partial sublease” which demises only a portion of

the prime tenant’s space creates more shared rights and obligations, requiring a

deeper level of analysis of the basic incorporated clauses and the preparation of

more “independent” clauses.

The partial lease differs more from the prime lease than a full

sublease. Since the prime tenant and the subtenant intend to occupy

simultaneously a single, undivided space, provision must be made for the cost of

creating new doors and demising walls, adding any necessary common corridors

and modifying any common facilities such as restrooms, any internal stairs

between floors, telephone switches, libraries and food service areas.ix These

facilities are an important part of the sublease transaction even though they are

not specifically addressed in the prime lease itself. The lawyer drafting the

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sublease should inquire about these arrangements and make sure they are properly

addressed in the sublease.

Attention must be paid to the manner in which a partial subtenant

and the prime tenant will be sharing the services provided by the landlord. In

many leases today electricity is not included in the base rent, but is instead billed

directly to the leased premises through a separate meter. The prime tenant has the

responsibility to pay the utility company directly for all electricity used in the

premises. In this situation a decision must be made in the sublease. The parties

could agree to install a separate meter for the subleased premises. This may

involve not only the expense of installing a separate meter but also of

reconfiguring the electrical distribution in the leased premises. Alternately, the

prime tenant and the subtenant could agree to share all electricity bills on a pro

rata basis based upon the respective square footage that each occupies. While this

is often done, it should be avoided if the prime tenant and the subtenant have very

different levels of electrical usage.

Sharing the cost of special services, such as after-hours HVAC,

also must be addressed in the sublease. Quite often after-hours service covers a

large zone and cannot be separately requested for just the sublet space or the

space retained by the prime tenant. The landlord will not want to deliver separate

bills for the subtenant and prime tenant. Thus, there is a need for an easily

administered method of allocating and paying these costs. The prime tenant can

simply allocate these charges on a pro rata basis or a log can be kept of which

party ordered the after-hours service.

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E. The Last Day

Another pitfall in drafting a full sublease is the incorporation by

reference of the prime tenant’s full remaining term. A sublease of the entire

leased premises should terminate on the next to last day of the prime lease term.

This one day gap addresses a common law doctrine construing a sublease of the

entire leased premises for the full remaining term of the prime lease as an

assignment of the prime lease itself. Such an assignment would result in

assumption by the subtenant of all of the economic terms of the prime lease and

all accrued liabilities of the prime tenant -- a result to be avoided by the subtenant.

The existence of this gap gives rise to a theoretical problem. Often

the subtenant is planning to, or may already have agreed with the landlord to, stay

in the building on a direct lease basis after the expiration of the prime lease.

Thus, there needs to be some arrangement for occupancy by the subtenant rather

than the prime tenant on the last day of the prime lease term. In cases where the

parties don’t choose to ignore this as a de minimis problem, the prime tenant may

grant a one-day license to the subtenant. While this seems to be a classic example

of form over substance, it achieves the formalistic goal of avoiding a technical

assignment of the prime lease.

F. Insurance, Indemnities and Waivers

While the “mirror” approach renders rough justice on insurance

and indemnity provisions, a little extra drafting may save the prime tenant time

and expense. As in other areas, the prime tenant’s objective is to allocate all the

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risks to the two real parties-in-interest, the subtenant and the landlord, and to

avoid acting as an intermediary for claims.

By requiring the subtenant to carry liability insurance and any

required insurance on furniture, fixtures and equipment in the name of the

landlord as well as the prime tenant, the prime tenant better insulates itself and its

insurers from possible claims. The prime tenant may be able to obtain coverage

for a lower premium or even avoid having to carry insurance on the leased

premises. If the prime lease requires the landlord to carry fire and casualty

insurance on the building, the sublease should not incorporate this provision since

the prime tenant should not assume or guarantee this obligation that is solely the

true landlord’s.

The subtenant’s indemnities and waivers of claims in a pure

“mirror” sublease will run only to the benefit of the prime tenant. The sublease

should provide that the term “landlord” in these clauses includes both the landlord

and the prime tenant to provide an adequate indemnity and waiver. A prime

tenant which protects both the landlord and the prime tenant in its sublease

indemnities and waivers will simplify its position when a claim is filed. The

subtenant’s counsel (or the subtenant’s insurer’s counsel) will be obligated to

provide the initial defense for the landlord as well as the prime tenant. This

avoids payment for an extra set of attorneys.

The landlord may address indemnity and waiver issues in its form

of sublease consent, which the subtenant will be required to sign and return, by

requiring the subtenant to join in both the indemnities and the waivers contained

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in the prime lease. This is particularly important where the prime lease contains a

waiver of subrogation or other waivers of claims for special damages, such as lost

profits, that a subtenant might assert as a result of some act or neglect of the

landlord or its agents. The prime tenant can avoid last minute problems in

obtaining the landlord’s consent by expanding these waivers and indemnities in

the sublease itself to include the landlord.

G. Fire, Casualty and Condemnation

The risks of a prime tenant/subtenant “partnership” are even more

evident in the fire, casualty and condemnation provisions. Here the prime tenant

may have to make a decision binding on the full premises, and thus on the

subtenant, about the restoration of the premises or the exercise of termination

rights. If the sublease has adopted a parallel version of a prime lease clause

giving the “tenant” a right to terminate, the subtenant may have the right to make

a different decision from the prime tenant’s. That, of course, is unacceptable to

the landlord which will only accept a single decision by the tenant. At best that

leaves a prime tenant which wants to keep the prime lease in place without a

subtenant. At worst that forces a prime tenant which wants to terminate to follow

a subtenant’s decision to stay in occupancy or else suffer damages for wrongfully

terminating the sublease.

A much safer approach is to expressly provide in the sublease that

the prime tenant will make all the decisions regarding termination in these

events.x If the prime lease is terminated by either the landlord or the prime tenant,

the sublease is deemed terminated. This is easily justified. The prime tenant does

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have the primary liability for the lease obligations. It has entered into a sublease

for the express purposes of reducing these obligations and should be able to take

advantage of any opportunity to cut off its liability entirely.

Straight incorporation of this type of clause can also lead to other

unintended interpretations. References may have been made to the landlord’s

obligation to repair and restore the premises. Obviously, the prime tenant does

not want to undertake these obligations. If the lease clause requires the “tenant”

to restore leasehold improvements is that now the subtenant’s obligation, even for

improvements made by the prime tenant prior to the sublease term?

From the subtenant’s point of view, incorporation may also be

inadequate. Because the sublease is for a shorter term than the prime lease and

for a smaller space, the subtenant tends to be less committed to the space and may

want and be entitled to an independent right to terminate. Again, these should be

separately stated and negotiated. Even if the prime lease gives the prime tenant a

right to terminate, the time periods and circumstances permitting termination by

the prime tenant may be very different from the subtenant’s objectives.

H. Keeping the Prime Lease in Place

Obviously, the subtenant must live with whatever termination

options the landlord has reserved in the prime lease -- whether they arise from fire

and casualty, recapture on further subletting or simply an option to terminate the

prime lease early. Incorporation of these clauses might work, even if the

“landlord” is defined as just the prime tenant, rather than both landlord and prime

tenant. The prime tenant will have the parallel right to terminate and, upon

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receiving a termination notice from the landlord, can turn around and send one to

the subtenant. However, there may be cut-off dates for exercising these rights. If

the landlord exercises its termination right at the last possible moment, the prime

tenant may not have time to notify the subtenant. A little drafting can improve

this. The sublease clause can provide that the landlord’s election to terminate the

prime lease simultaneously terminates the sublease without any payment or

liability on the part of the prime tenant.

Such a broad statement that any termination of the prime lease

terminates the sublease will not be acceptable to the subtenant. Clearly, the

subtenant should ask at least for the addition of the phrase “for reasons other than

the prime tenant’s default”. Not only is this type of clause a danger to the

subtenant when the termination arises from a prime tenant default, but it can apply

in other situations, such as a negotiated early termination, which are not intended.

The subtenant must review the prime lease for any early termination rights in

favor of either the landlord or the prime tenant. If these exist, the subtenant

should negotiate protection for itself, either in the form of an early termination fee

or an express covenant by the tenant that it won’t exercise such an early

termination right without the subtenant’s consent.

When termination by the landlord is based upon a default by the

prime tenant, such as non-payment of rent under the prime lease, the subtenant

should not agree to an automatic termination of its sublease. Such a clause

negates any damages that the subtenant could assert against the prime tenant for

its failure to preserve the prime lease. By avoiding this broad termination clause

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and ensuring that the covenant of quiet enjoyment clause contained in the prime

lease is incorporated into the sublease, the subtenant gets basic protection.

For further comfort, the subtenant can ask for covenants and

representations from the prime tenant as to the status of the prime lease at the time

the sublease is executed and the prime tenant’s commitment to continue to pay

rent and perform all obligations that arise thereafter under the prime lease. The

only exception should be performance that relates to the care and preservation of

the sublease premises which is undertaken by the subtenant in the sublease.xi

Note that these covenants include a continuing covenant that the

prime lease will not be amended except by amendments that the subtenant has

reviewed and approved. This goes beyond the common law protection that the

subtenant’s rights under the sublease cannot be charged by subsequent

amendments to the prime lease without the subtenant’s consent.xii The prime

tenant must make sure that these extra rights are not too broadly stated.

A reservation of the prime tenant’s right to amend the prime lease

without the consent of the subtenant can be helpful in a number of contexts.

Amendments affecting other portions of the demised premises under the prime

lease but which do not affect the sublet space should be specifically permitted

without any involvement of the subtenant. Similarly, rights such as restructuring

the prime tenant’s rental payments under the prime lease, extending or shortening

the term or modifying options should not involve the subtenant unless they

directly impact the subtenant’s rights.

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In situations where there is a subtenant for the remaining term,

even if it is for only a portion of the premises, the subtenant is entitled to greater

control. There is no reversionary right in the prime tenant as to that space and the

subtenant may be planning to negotiate directly with the landlord for a new lease

upon the expiration of the prime lease and sublease.

In the event of a default by the prime tenant in these covenants, the

subtenant should reserve the right to undertake performance of the prime tenant’s

obligations under the prime lease, including payment of rent due to the landlord,

and offset those costs against the rent due to the prime tenant under the sublease.

This right is not the full answer where the subtenant occupies only a portion of the

leased premises or pays a much lower rent than the prime tenant, but it at least

provides an avenue for continuation of the subtenant’s occupancy if the landlord

will accept partial performance of the prime lease obligations.

The single largest risk that the subtenant must understand is the

chance that is sublease rights can be extinguished by the landlord if the prime

tenant defaults under the prime lease. Subtenants do not want damage claims

against their sublandlords; they want continued possession at the agreed rental

rate. This is the major legal risk that drives down sublease rental rates and it

should be explicitly discussed by the subtenant’s attorney with his or her client.

This problem can be avoided by obtaining a non-disturbance

agreement from the landlord when the sublease is signed. Unfortunately this is

the unusual case in most subleasing. A non-disturbance agreement from a

landlord in favor of a subtenant is much more difficult to obtain than one from a

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lender in favor of a tenant. The sublease non-disturbance constitutes an

agreement to honor a party’s possessory interest on a different set of economics

than would apply if the prime lease had simply continued. A tenant under a

lender’s non-disturbance agreement continues its possession on the same

economic terms. The only right being waived by the lender is the right to

terminate that economic deal before its stated expiration.

In the sublease non-disturbance agreement the landlord is being

asked to consent to a different (and usually lower) rental rate for the sublet space

after a termination of the prime lease. There is no real motivation for a landlord

to agree to this. As a result, sublease non-disturbance agreements often provide

for an increased rental rate to be payable by the subtenant after the prime lease is

terminated. This will be equal to, or at least closer to, the prime lease rate. The

sublease non-disturbance agreement contains other disincentives to the landlord

that go beyond those found in a lender’s non-disturbance agreement. The

existence of a partial sublease may make the re-letting of the remainder of the

prime tenant’s space more difficult. The remaining term of the sublease may not

equal the remaining prime lease term, leaving the landlord without a tenant for

that future stub period. The subtenant may have expansion rights that the landlord

may not be able to, or may not want to, honor, either because the prime tenant has

subleased to someone else in violation of these rights or because these rights

cause the landlord further damage by hindering its ability to relet the balance of

the prime lease premises.

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Since subleases during the last few years have often been made at a

significant discount from the prime lease rental, this type of accommodation has

become even more rare. Rather than having a non-disturbance agreement

negotiated up front, the subtenant’s real relief usually takes the form of a

negotiation between the landlord and the subtenant at the time of termination of

the prime lease. As discussed further below, the landlord and subtenant each are

motivated to come to terms under these circumstances.

I. Renewal and Expansion Rights

Most subleases do not create any express rights of the subtenant to

extend its sublease term or expand the sublet space. This is easy to understand

since subleases are generally short term occupancy solutions for the subtenant and

are not seen as a long term base for the growth of the subtenant’s business. If

these rights are given to a subtenant they will fall into two categories, vested

rights in the prime tenant’s existing space during the existing prime lease term or

contingent rights exercisable if the prime tenant subsequently elects to expand its

space or extend the prime lease term. In the latter situation, it is important for the

prime tenant to expressly negate any agreement to exercise its renewal and

expansion rights for the benefit of the subtenant.

There has been a surprising amount of litigation about the ability

of a subtenant to force the prime tenant to exercise its renewal rights under the

prime lease or to force the landlord to accept an election to extend directly from

the subtenant. The general rule, as one would expect, is that the subtenant does

not have the right unilaterally to exercise the tenant’s option and enforce that

- 24 -

option against the landlord due to the subtenant’s lack of privity with the

landlord.xiii However, if the sublease specifically obligates the prime tenant to

exercise its option under the prime lease, the subtenant will have the right to force

the prime tenant to exercise its renewal option so that it can honor the subtenant’s

renewal right or to collect damages if the prime tenant fails to do so.xiv

The cases are shining examples of poor drafting and abusive

behavior by the prime tenant. It may even be that renewal rights were granted to

subtenants in some of these cases inadvertently by incorporation of the applicable

provisions of the prime lease. In any event, a subtenant which seeks rights to

extend the term of its sublease beyond the then-current term of the prime lease

should obtain a specific covenant by the prime tenant to so extend the prime lease.

The subtenant should be advised that, if the prime tenant fails to so extend, the

subtenant may be able to recover for its damages against the prime tenant but it

will be unable to force the landlord to recognize the renewal absent some specific

direct agreement between the landlord and the subtenant.

In a sublease of the full premises, the subtenant may be quite

interested in controlling the renewal and expansion rights. Here we see another

difference between a full sublease and an assignment of the prime lease. An

assignee would have received these rights directly upon the assignment but a

subtenant cannot exercise the prime tenant’s rights of expansion and renewal

without the landlord’s approval. The subtenant’s right to cause these options to

be exercised is equivalent to the right to increase the liability of the prime tenant

- 25 -

by either prolonging the term or expanding the size of the premises. Typically,

this is not a risk that a prime tenant wants to bear.

There is another risk in the renewal and expansion area that arises

when dealing with a sublease. Many prime leases provide that renewal and

expansion rights are not available if the premises are sublet at the time that these

options are exercisable. The prime tenant’s counsel should review the prime lease

in this respect when negotiating a sublease and make sure that the tenant will not

be losing any rights by entering into the sublease.

J. Additional Rent

The most dangerous type of “mirror” clause is one that deals not

with a contingency but with the actual monthly payments under the sublease. The

most common “money issue” drafting problem in office subleases is ambiguity in

the subtenant’s obligation with respect to the payment of “additional rent”.

Additional rent is based upon the prime tenant’s proportionate

share of taxes and operating expenses of the office building and can involve the

full amount of such taxes and operating expenses or just increases in such items

during the term. If the prime tenant and subtenant are paying additional rent on

exactly the same basis a “mirror” clause will work. Alternatively a new clause

can be added simply requiring the subtenant to pay a portion of each additional

rent payment billed by the landlord. This portion equals the then-current

percentage of the entire demised premises represented by the sublet space.xv The

problem occurs when the subtenant is paying additional rent on a different basis

from the prime tenant.

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Over the years different approaches to additional rent go in and out

of fashion. Subleases are usually marketed with a current rent structure so that

they can compete on an “apples-to-apples” basis with other space available for

lease. An older prime lease may require the prime tenant to pay additional rent

based upon the prime tenant’s obligation to pay for increases in taxes and

operating expenses over a “base year” -- typically the first year of the prime

tenant’s occupancy. This is a somewhat irrelevant measuring point for the

subtenant comparing this sublease rental rate with rents at other locations.

As a result, subleases in this situation may require the subtenant to

pay a certain fixed amount of “base rent” (probably incorporating all of the prime

tenant’s tax and operating expense escalations through the beginning of the

sublease term) for the first year of the sublease term and then pay a proportionate

share of increases in those items after the first year of the subtenant’s occupancy.

This situation can be addressed by a modified “mirror” clause, changing the “base

year” for purposes of the sublease to the first year of the sublease and using the

portion of the building represented by the sublet space rather than the full

premises to calculate the subtenant’s proportionate share.xvi Otherwise all of the

definitions and mechanisms in the prime lease can be adopted.

A more complicated drafting problem is presented when the

market demands that the subtenant pay additional rent on a “net basis”, that is

paying the full per square foot cost of all taxes and operating expenses in the

building, while the prime tenant is paying on the basis of increases in such items

over its base year. Here the sublease must contain a different payment clause

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forcing the subtenant to pay the full amount of taxes and operating expenses

allocable to the sublet space for each year of the sublease. Even though the prime

tenant is not paying the full amount, that amount should be shown on the

landlord’s statements and can be calculated on a per square foot basis for the

subleased space. Extra language should be added to confirm the parties’

understanding that the subtenant is intended to pay such full amounts even though

the prime tenant is only responsible for increases in those amounts under the

prime lease.

The final variation occurs when the subtenant must pay for

increases over a new base year while the prime tenant is paying on a “net” basis.

This typically occurs when the sublet space is small and is competing with small

direct leases in older buildings that still use a base year approach. The payment

clause in the prime lease must be substantially revised to add definitions of a base

year and the subtenant’s proportionate share as well as a payment clause relating

to increases over a base year rather than full participation. Again it should be

clear that payments are being made by the subtenant on account of increases only.

Whenever the prime lease and sublease differ on additional rent,

care should be taken in calculating the monthly estimated payments that are

required under the sublease. If the subtenant and prime tenant are paying on the

same basis, the subtenant can be simply required to pay for its share of all

estimated monthly payments and any year-end adjustments as and when billed by

the landlord. Here the share is based on the percentage that sublet space

represents of the full premises.

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If the subtenant is paying on a different basis from the prime

tenant, payment of such a share of the prime tenant’s estimated payments will not

work. The solution here is to add a “mirror” clause using the mechanisms,

including the time for changing estimates and reconciling with actual results, from

the prime lease. Here the prime tenant must take responsibility for making its

own estimates and billing the subtenant on a monthly basis.

The prime tenant may have the right to inspect the landlord’s

books and records to verify the amount of taxes and operating expenses and to

dispute overcharges. Rather than blindly incorporating this clause and giving the

subtenant parallel rights to examine the books and records of the prime tenant,

which is not of much benefit to the subtenant, the sublease should provide that the

prime tenant will share with the subtenant any results of such investigation

undertaken by the prime tenant.xvii The prime tenant should obviously share with

the subtenant any amounts that are recouped as a result of such contest, keeping in

mind that the subtenant’s additional rent payments may be calculated using a

different methodology than the prime tenant’s payments.

Typically, the prime tenant will not want to give the subtenant the

right to initiate such a contest. This is especially the case in situations where the

cost of the contest is borne by the prime tenant. This situation should be

negotiated differently where the subtenant occupies the entire leased premises.

Here the subtenant is the sole party in interest and should decide upon the need

for such a contest and bear the related expenses.

IV. LEASE RESTRUCTURING AND SUBLEASES

A. Goals

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Subleases complicate the restructuring of a prime lease. Due to the

dramatic reductions in market rental rates and the desire of landlords to retain

tenants, today a prime tenant is often reducing its old, above-market rental rate in

exchange for agreeing to an extension of its lease term. Alternatively the tenant

(or its new landlord) may be buying the tenant’s way out of the old lease rental

obligations. When the landlord and prime tenant want to keep a subtenant in

place, the concerns are that the restructuring will inadvertently create a right on

the part of the subtenant to terminate the sublease or to stay in occupancy without

paying the landlord. Other issues in the restructuring include the possibility that

the landlord may assume some accrued liability to the subtenant and the

possibility that the changes in the prime lease will somehow be incorporated into

the sublease and create arguments about payment of sublease rent.

B. Sublease Circumstances

If the prime tenant has a subtenant for a sublease rental which is

less than the prime tenant’s old rate but which is still in excess of current market

rentals, the landlord wants to preserve that deal. The prime tenant doesn’t need

that space and is still thinking of it as a guaranteed monthly loss; the landlord

would be happy to collect the above-market sublease rent. This is the most

common situation.

If the subtenant is paying a sublease rental that is even lower than

the reduced rate being offered to the prime tenant, the landlord is not motivated to

collect directly from the subtenant and the sublease will generally be left in place.

The even rarer case, where the subtenant is paying sublease rent higher than the

- 30 -

tenant’s old rental rate and the tenant does not want to disturb that subrent, can

also be handled by leaving the sublease in tenant’s name, undisturbed by the lease

restructuring. If the landlord wants to participate in the tenant’s sublease profit it

can do so either by adjusting the new prime lease rate or by taking a percentage of

that profit under its subleasing and assignment clause.

C. Effect of Surrender

There is an interesting, and sudden, fact-based shift in the effect on

subtenants of a voluntary surrender of space by a prime tenant to its landlord. In

general, the cases mandate that a sublease will survive any surrender which

occurs prior to the institution of proceedings to enforce a landlord’s rights after

the prime tenant’s defaultxviii but provide for termination of the sublease in the

event of a surrender occurring after the landlord has so initiated proceedings.xix

The latter result is logical based on privity principles since a successful

termination of the prime lease by the landlord as a result of that default by the

prime tenant would have defeated the sublease estate.

When the prime tenant’s and landlord’s interests merge, the

subtenant once would have enjoyed a windfall. Under an old English rule, the

merger of the two estates caused the disappearance of the prime tenant’s

reversionary rights under the sublease, along with its rights to collect rent under

the sublease.xx This rather startling result left the landlord without any rights to

either evict the subtenant or take any action to collect rent under the sublease. As

long ago as 1731 the English decided this rule should not apply in the case of a

prime tenant voluntarily restructuring its lease and in 1845 the rule was abolished

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entirely.xxi The common law echoes of this old rule have been quieted in the

United States, usually by courts finding facts that evidenced either an attornment

by the subtenant or a direct assumption by the landlord of the prime tenant’s

rights under the sublease.xxii The common result today is that “a sublease is not

terminated by the cancellation, through surrender of the master lease, and the only

legal effect of the surrender was to transfer the reversion, as encumbered by the

sublease, to the fee owner”.xxiii

D. Assignment of the Sublease

To minimize the chances of a termination, the restructuring should

take the form of a lease amendment rather than a new lease. The prime tenant is

deleting the sublet space from the prime lease to guarantee that it is relieved of its

loss on the sublet space. Since the landlord wants to enforce all of the prime

tenant’s rights under the sublease, the landlord should do more than simply take

back the space subject to the sublease. For example, a surrender without a

specific assignment of past due rents was found not to transfer to the landlord any

rights to those delinquent sublease rentals.xxiv The landlord (or its management

agent or other related entity to minimize the chances of a merger) should also take

an assignment of the tenant’s rights and obligations under the sublease. In this

way the landlord gets all of the rights it expects and the prime tenant gets what it

wants -- the landlord to accept the direct credit risk of the subtenant without any

continuing liability of the prime tenant for any rent on the sublet space should the

subtenant default.

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Typical lease “boilerplate” clauses allow a landlord to transfer its

interest in a lease without any need for the consent of the tenant and provides that

the transferring landlord is not liable for obligations accruing after the date of the

transfer. If this clause is in the prime lease and has been incorporated by

reference into the sublease, the subtenant should have no right to consent to the

sublease assignment to the landlord or to look to the prime tenant for liabilities

accruing after the transfer. In addition, lease forms will often require the prime

tenant to attorn to any lessee of the landlord’s interest in the building. Inclusion

of this type of a clause in the sublease also strengthen the landlord’s position that

the assignment does not give the subtenant any grounds to claim that the sublease

has been terminated.

E. Assumed Liabilities

There is a chance that the landlord may take the sublease

assignment and find that it is subject to claims against the prime tenant under the

sublease. This could include items such as prepaid subrent, estimated payments

of additional rent, return of a security deposit or damages for the prime tenant’s

failure to perform its obligations under the sublease. Unless it is possible to get

an estoppel from the subtenant, the landlord should obtain a strong representation

and warranty from the prime tenant as to the status of the sublease.

F. Additional Rent

A more mechanical problem affecting this sublease transfer relates

to the subtenant’s obligation to pay additional rent. This clause should be

reviewed carefully in considering a transaction of this type. As discussed above,

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this obligation may be defined in the sublease by a requirement that the subtenant

pay a certain proportionate share of the prime tenant’s additional rent payable

under the prime lease. If the sublet space is being eliminated from the prime

tenant’s premises under the prime lease, this formula will no longer produce the

correct mathematical result. A “mirror” clause which relates directly to the

landlord’s taxes and operating expenses is less likely to be affected by an

assignment of the sublease.

If this is a problem, one can leave the prime tenant’s additional

rent obligation for the sublet space in place and simply eliminate its base rent

obligation with respect to the sublet space. Here the prime tenant may look to the

landlord for relief in the nature of an offset against the rental payable on the

remainder of the premises if the prime tenant is ever deemed to have a payment

obligation with respect to the space that was sublet.

Similar problems can arise when the prime tenant is receiving a

period of abatement to induce it to extend its lease term or when the prime

tenant’s new deal changes its methodology for calculating additional rent. The

fact that no additional rent is being paid by the tenant for any portion of the leased

premises may suspend the subtenant’s payment obligations with respect to

additional rent. The deletion of defined terms or other sublease reference points

in the prime lease may also give rise to arguments and interpretations that could

lead to an unexpected economic benefit for the subtenant.

V. LANDLORD/SUBTENANT RELATIONSHIP WHEN THE PRIME TENANT DEFAULTS

A. Generally

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The general rule, which is well-known for making subleasing a

risky business, is that a termination of the prime lease as a result of the prime

tenant’s default causes an automatic termination of all subleases under the prime

lease.xxv Since there is no privity of contract or estate between these two parties,

the courts have nothing to permit them to determine what the agreed-upon rental

rate should be -- is it the prime lease rate which one party agreed to or the

sublease rate which the other party agreed to? This result will hold absent

specific language to the contrary in a document signed by the landlord or

post-termination actions by the landlord which constitute an adoption of the

sublease as a direct lease with the subtenant. Of course the subtenant will have a

claim against the prime tenant for the loss of its sublease bargain, but the right to

seek damages does not satisfy a subtenant which wants to stay in possession of its

subleased space.

This automatic severance of the landlord’s and subtenant’s

relationship might in some cases be beneficial to the subtenant if it is in

occupancy at a rental rate which is above market when the prime lease terminates.

These conditions create an environment in which the landlord wants to keep the

subtenant. The prime tenant which is in default might be able to use the

subtenant’s right to escape from its obligation as a negotiating chip in negotiating

a lease restructuring. As discussed above, the landlord will generally have the

right to take over the sublease in the event of a voluntary surrender by the prime

tenant prior to initiation of enforcement proceedings.

B. Attornment

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The landlord, of course, would like the option of keeping the

subtenant in place if it benefits the landlord under the circumstances at the time of

termination. To achieve this, landlords often insert attornment language into their

sublease consents for the subtenant’s signature. This binds the subtenant to stay if

the landlord elects to hold the subtenant to its sublease bargain when the prime

lease is terminated. This language will sometimes appear in the prime lease itself,

in which case a subtenant does not have any real opportunity to object to it and

will probably be deemed to have accepted it by taking subject to the prime lease.

To better protect itself from a default by the tenant, a landlord can

also require a collateral assignment of the prime tenant’s right to any sublease

rents. This clause is not as common as one might expect. This clause will at least

protect the landlord from competing claims for the sublease rent accruing after the

date of the termination of the prime lease.xxvi

C. Subtenant’s Rights

Absent some specific agreement by the landlord, a subtenant will

not be entitled to preserve the tenant’s leasehold estate by making required

payments under the prime lease.xxvii However, if the landlord does begin to accept

sublease payments and the situation continues, the subtenant may be able to build

a claim that the landlord has accepted the subtenant as a direct tenant on the terms

of the sublease. However, this is not a simple argument and it may well be that

the acceptance of monthly rent by the landlord will leave the subtenant only as a

tenant at sufferance,xxviii subject to removal on thirty days notice, or whatever the

statutory notice may be in the applicable jurisdiction, if the landlord later decides

- 36 -

to evict the subtenant. The landlord may after some time be deemed to have

waived its right to evict the subtenant.xxix

The most likely result is the negotiation of a new direct lease

between the subtenant, which has an investment in the space and does not want to

have its operations disrupted, and the landlord, which does not want to give up a

living and breathing occupant if reasonable terms can be negotiated. Some might

even argue that the landlord’s failure to attempt to retain a subtenant in occupancy

would be a violation of its obligation to mitigate damages in those jurisdictions

that impose this doctrine on landlords.xxx

D. Bankruptcy

The major impediment to working out such an arrangement

between a landlord and subtenant is a bankruptcy filing by the prime tenant. The

automatic stay temporarily leaves the landlord unable to terminate the prime lease

and the subtenant unable to terminate the sublease. The landlord can’t enter into a

new direct lease with the subtenant until the prime lease is accepted or rejected.

In this regard, the prime tenant’s estate will be doubly interested in the new deal

between landlord and subtenant. The new rental will be both an indication of

market rental rates for calculating damages due to the landlord for any balance of

the leased premises which is not being sublet and a measure of damages for both

landlord and subtenant, as measured against the original lease rate and the sublet

rate, respectively.

To break the log jam, in certain bankruptcy situations, the bankrupt

prime tenant has, with the cooperation of the landlord, used short-term subleases

- 37 -

that can be converted into direct leases upon rejection. This is a way to continue

the operations of the bankrupt prime tenant in a portion of the space while

realizing on the value of its unused space without coming to a premature

conclusion about the rejection or assumption of the prime lease, which must be

accepted or rejected as a whole.xxxi

This tri-party relationship is very problematic in bankruptcy. At

least one case has held that the bankruptcy of a subtenant, and the resultant

automatic stay, precludes the landlord from terminating the prime lease even

when the prime tenant is in default.xxxii There is also some question regarding the

right of the subtenant to retain all of its sublease rights upon the bankruptcy of the

prime tenant. The Bankruptcy Code states that the bankruptcy of a “landlord”

(which in the sublease context means the prime tenant) may terminate the

obligation to provide services from the bankrupt entity under the lease, but does

not disturb the possessory rights of the tenant (or in this case the subtenant).xxxiii

In this way a subtenant would appear to be protected from the rejection of its

sublease during the bankruptcy of the prime tenant. The prime tenant is not really

providing direct services so the subtenant may not have the same worries that a

prime tenant has about obtaining services from a bankruptcy landlord.

However, another fact of bankruptcy complicates the sublease

picture. A tenant, as opposed to a landlord, has the right in bankruptcy to either

accept or reject the prime lease as a tenant. In the case of a rejection of the prime

lease by the prime tenant, there will be an automatic termination of the sublease

under state law absent some agreement to the contrary in favor of the subtenant.

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The subtenant will then have a claim against the prime tenant’s bankruptcy estate

but will be effectively denied the possessory benefits of its sublease. Once again,

we see that the subtenant pays a legal price for its bargain rent, facing yet another

situation in which it is less protected than a prime tenant.

VI. CONCLUSION

A sublease is not as simple as it looks. As we have seen, the sublease,

with its tri-party nature, is an even more fertile source of controversy and

conflicting interests than the direct lease. There are issues lurking behind every

clause. If the parties can be made to focus on and negotiate these issues, the

drafter has a much greater chance of achieving the drafting ideal -- a document

that expresses the parties’ true, intended result in most foreseeable circumstances.

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APPENDIX 1

GENERAL INCORPORATION

A. The relationship between Sublandlord, as sublessor, and Subtenant,

as sublessee, shall in all respects be governed by, and be conducted in accordance

with, the terms and conditions of the Lease to the extent such terms and

conditions are not inconsistent with the terms and conditions of this Sublease.

Unless otherwise specifically provided in this Sublease, Sublandlord shall have all

of the rights and shall incur all of the obligations of the lessor under the Lease and

Subtenant shall have all of the rights and incur all of the obligations of the lessee

under the Lease. In the event of any inconsistencies between the terms and

provisions of the Lease and the terms and provisions of this Sublease, the terms

and provisions of this Sublease shall govern.

B. In order to ascertain the rights and obligations of Sublandlord and

Subtenant herein with respect to the Sublet Space, whenever the term “Lessor”

appears in the Lease, the word “Sublandlord” shall be substituted therefor;

whenever the term “Lessee” appears in the Lease, the word “Subtenant” shall be

substituted therefor; and whenever the word “premises” appears in the Lease, the

word “Sublet Space” shall be substituted therefor.

C. Subtenant recognizes that Sublandlord has reserved certain rights

and assumed certain duties with respect to the Sublet Space under the terms and

provisions of the Lease, which rights will continue to be exercised by Sublandlord

and which duties will continue to be performed by Sublandlord. Accordingly,

- 40 -

(i) Subtenant agrees to cooperate with Sublandlord and to

otherwise conduct itself in its use and occupancy of the Sublet Space so

that Sublandlord can continue to exercise its rights under the Prime Lease

and perform its duties thereunder, and

(ii) Subtenant further agrees that any obligations, responsibilities

and duties incurred by Sublandlord hereunder, including, but not limited

to, the performance of any services, the providing of any utilities and the

constructing of any repairs or alterations which may be required in

accordance herewith, may be undertaken by the Sublandlord and that the

performance of such obligations, responsibilities and duties by the

Sublandlord in accordance with the terms hereof will constitute full

performance thereof by Sublandlord hereunder.

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APPENDIX 2

SPECIFIC INCORPORATION

Subtenant agrees to perform all of the covenants, make all the waivers and

indemnities and honor all restrictions made by or imposed upon Sublandlord

under the Lease to the extent that such matters relate to the Sublease Space. To

effectuate this agreement, Sections ____, ____, ____, and ____ of the Lease are

expressly excluded from this Sublease. All other provisions of the Lease are

incorporated into this Sublease with the following changes: this Sublease shall be

deemed to be the “Lease”; Subtenant shall be deemed to be the “Tenant”;

Sublandlord and Landlord shall be deemed to be the “Landlord” (unless

Sublandlord has notified Subtenant in any instance that “Landlord” shall mean

only Sublandlord -- which shall be the case in all situations requiring payments of

money to the “Landlord” and in the case of Sections ____, ____ and ____); the

term “Premises” shall be deemed to be the Sublease Space; the term “Term” shall

be deemed to be the Sublease Term and the term “Building” shall be deemed to

include the Building and the Premises. Whenever the consent or approval of

Landlord to any action of Subtenant is required, Sublandlord shall have the right

to consent to or approve such action. Once Sublandlord has consented to or

approved an action, Sublandlord authorizes Subtenant to deal directly with the

Landlord to secure such consent or approval from Landlord. Alternatively, at the

request of Subtenant, Sublandlord shall request from Landlord, and cooperate

with Subtenant in obtaining, any such consent or approval. Subtenant

acknowledges that the Lease contains many restrictions on Sublandlord and its

- 42 -

rights as Tenant under the Lease and agrees that Subtenant shall have only those

rights against Sublandlord under this Sublease that Sublandlord would have

against Landlord under the Lease. Subtenant further acknowledges and agrees

that Sublandlord’s only obligation to Subtenant with respect to the enforcement of

Landlord’s obligations under the Lease shall be to use Sublandlord’s good faith

efforts to do so, but that Sublandlord may elect not to enforce its rights under the

Lease without incurring any liability to Subtenant whatsoever, if enforcing such

rights, in the reasonable judgment of Sublandlord, would be detrimental to the

overall relationship between Sublandlord and the Landlord.

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APPENDIX 3

CONSENT TO SUBLEASE

AGREEMENT made as of this _____ day of _______________, ____, by

and among ______________________________, a _______________

corporation having its principal office at ______________________________

(“Landlord”), and ______________________________, a _______________

corporation having an office at ______________________________ (“Tenant”),

the tenant under a lease dated as of _______________ (which lease as heretofore

or hereafter amended is hereinafter called the “Master Lease”), under which the

Landlord demised to the Tenant, a portion of the floor in the building known as

____________________ (“Demised Premises”) and

______________________________, a _______________ corporation having an

office at ______________________________ (“Subtenant”).

The Landlord hereby consents to the subletting by the Tenant to the

Subtenant, pursuant to a sublease (hereinafter “Sublease”) dated as of

_______________, of a portion of the Demised Premises as shown and marked

on the floor plan attached hereto (which space is hereinafter referred to as the

“Sublet Space”), such consent being subject to and upon the following terms and

conditions, to each of which Tenant and Subtenant expressly agree:

1. Nothing contained in this agreement shall either:

(a) operate as a consent to or approval or ratification by the

Landlord of any of the provisions of the Sublease or as a representation or

- 44 -

warranty by Landlord, and Landlord shall not be bound or estopped in any

way by the provisions of the Sublease, or

(b) be construed to modify, waive or affect (i) any of the

provisions, covenants or conditions in the Master Lease, (ii) any of

Tenant’s obligations under the Master Lease, or (iii) any rights or

remedies of Landlord under the Master Lease or otherwise or to enlarge or

increase Landlord’s obligations or Tenant’s rights under the Master Lease

or otherwise, or

(c) be construed to waive any present or future breach or

default on the part of Tenant under the Master Lease. In case of any

conflict between the provisions of this agreement and the provisions of the

Sublease, the provisions of this agreement shall govern.

2. The Sublease shall be subject and subordinate at all times to the

Master Lease and all of its provisions, covenants and conditions. In case of any

conflict between the provisions of the Master Lease and the provisions of the

Sublease, the provisions of the Master Lease shall govern.

3. Neither the Sublease nor this consent thereto shall release or

discharge the Tenant from any liability under the Master Lease and Tenant shall

remain liable and responsible for the full performance and observance of all of the

provisions, covenants and conditions set forth in the Master Lease on the part of

Tenant to be performed and observed. Any breach or violation of any provisions

of the Master Lease by Subtenant shall be deemed to be and shall constitute a

default by Tenant thereunder.

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4. This consent is not assignable and shall not be construed as a

consent by Landlord to any further subletting either by Tenant or Subtenant. The

Sublease may not be assigned, renewed or extended nor shall the Demised

Premises or Sublet Space, or any part thereof, be further sublet without the prior

written consent of the Landlord thereto in each instance.

5. Upon the expiration or any earlier termination of the term of the

Master Lease, or in case of the surrender of the Master Lease by Tenant to

Landlord, except as provided in the next succeeding sentence, the Sublease and its

term shall expire and come to an end as of the effective date of such expiration,

termination or surrender and Subtenant shall vacate the Sublet Space on or before

such date. If the Master Lease shall expire or terminate during the term of the

Sublease for any reason other than condemnation or destruction by fire or other

cause, or if Tenant shall surrender the Master Lease to Landlord during the term

of the Sublease, Landlord, in its sole discretion, upon written notice given to

Tenant and Subtenant not more than thirty (30) days after the effective date of

such expiration, termination or surrender, without any additional or further

agreement of any kind on the part of Subtenant, may elect to continue the

Sublease with the same force and effect as if Landlord as lessor and Subtenant as

lessee has entered into a lease as of such effective date for a term equal to the

unexpired term of the Sublease and containing the same provisions as those

contained in the Sublease, and Subtenant shall attorn to Landlord and Landlord

and Subtenant shall have the same rights, obligations and remedies thereunder as

were had by Tenant and Subtenant thereunder prior to such effective date,

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respectively, except that in no event shall Landlord be (1) liable for any act or

omission by Tenant, or (2) subject to any offsets or defenses which Subtenant had

or might have against Tenant, or (3) bound by any rent or additional rent or other

payment paid by Subtenant to Tenant in advance. Upon an expiration of the term

of the Sublease pursuant to the provisions of the first sentence of this paragraph, if

Subtenant fails to vacate the Sublet Space as therein provided, Landlord shall be

entitled to all of the rights and remedies available to a landlord against a tenant

holding over after the expiration of a term.

6. Both the Tenant and Subtenant shall be liable for all bills rendered

by Landlord for charges incurred by or imposed upon Subtenant for services

rendered and materials supplied to the Sublet Space.

7. Any notice or communication which any party hereto may desire

or be required to give to any other party under or with respect to this agreement

shall be given by prepaid certified or registered mail addressed to such other

party, in the case of Landlord at its address first hereinabove set forth, and in the

case of Tenant or Subtenant at the building in which the Demised Premises are

located, or in any case at such other address as such other party may have

designated by notice given in accordance with the provisions of this paragraph.

The time when such notice or communication shall be deemed to have been given

shall be the time same shall be so mailed.

8. This agreement shall be construed in accordance with the laws of

the State of __________, contains the entire agreement of the parties hereto with

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respect to the subject matter hereof and may not be changed or terminated orally

or by course of conduct.

IN WITNESS WHEREOF, the parties hereto have duly executed this

agreement as of the day and year first above written.

__________________________________, as Agent for Landlord

By:________________________________

___________________________________

By:________________________________ (Tenant)

___________________________________

By:________________________________ (Subtenant)

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APPENDIX 4

ADDITIONAL REMEDIES LANGUAGE

Subject to the provisions of paragraph ____ of this Sublease, Subtenant

agrees that in the event of any default by Sublandlord hereunder which arises

from a failure of Landlord to perform its obligations under the Lease, so long as

Sublandlord diligently pursues an action against Landlord, Subtenant’s monetary

damages and remedies against Sublandlord for such default will in all such cases

be limited to, and shall not exceed, those monetary damages recovered by

Sublandlord from the Landlord by reason of such breach and those remedies

successfully invoked by Sublandlord against Landlord for such default by

Landlord under the terms of the Lease. If, as a result of a default under this

Sublease by Subtenant, Landlord deems Sublandlord in default under the Lease

and pursues such remedies therefor as may be provided Landlord by law, equity

or the Lease, Subtenant agrees to reimburse Sublandlord promptly on demand the

amount of any and all costs, claims and expenses, including reasonable attorneys’

fees and costs resulting therefrom.

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APPENDIX 5

NOTICE PERIODS SET FORTH IN INSTRUMENTS COMPRISING THE LEASE

Sublandlord and Subtenant agree that whenever, pursuant to the terms of

the instruments comprising the Lease and forming a part of this Sublease,

(a) Subtenant is required to perform some act or to make some payment to

Sublandlord within a given number of days after a specific occurrence or a

specified act of Sublandlord, or (b) Sublandlord is required to give Subtenant

written notice a given number of days prior to taking a particular action

authorized thereunder, in each instance the given number of days set forth in the

instruments comprising the Lease shall be reduced as follows:

10 days shall be reduced to 5 days;

15 days shall be reduced to 10 days;

30 days shall be reduced to 20 days; and

90 days shall be reduced to 60 days.

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APPENDIX 6

SERVICES

All services furnished to Sublandlord by Landlord pursuant to

Section ____ of the Lease with respect to the Sublease Space shall in turn be

furnished to Subtenant by Sublandlord, but only to the extent such services are

actually furnished by Landlord. Subtenant shall pay to Sublandlord the Subtenant

Percentage of all electric power provided to the Premises. Upon the request of

Subtenant, Sublandlord will request, and cooperate with Subtenant to obtain, any

other services offered by Landlord that are desired by Subtenant. Should

Landlord provide such other services for which Landlord requires payment from

Sublandlord, Subtenant hereby agrees to reimburse Sublandlord for all such

payments made to Landlord by Sublandlord for services requested by Subtenant.

If Sublandlord receives any abatement of the Net Rent payable by Sublandlord

under the Lease pursuant to Section ____ of the Lease due to any portion of the

Sublease Space being affected as described therein, Subtenant shall receive an

abatement of Net Rent payable hereunder for the same period and for the same

square footage of the Sublease Space. In addition, when Sublandlord has the right

to have certain painting and carpeting work done by Landlord pursuant to

Section ____ of the Lease, such work shall be requested for the Sublease Space as

well and Subtenant shall cooperate with Landlord in connection with such work

as Sublandlord has agreed to do under Section ____.

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APPENDIX 7

MAINTENANCE AND REPAIRS

Subtenant acknowledges that under the terms of the Lease, Landlord is

obligated to maintain, at its own expense, the structural members, footings,

foundations, sprinkler systems, exterior walls, roof and items of a like nature in

the Building and to keep the same in good repair during the term of the Lease.

Pursuant to paragraph ____ of this Sublease, Subtenant shall cooperate with

Landlord, including granting access to the Sublet Space to Landlord, to facilitate

the performance of such repairs and maintenance by Landlord.

In light of the obligations of Landlord under the Lease, Subtenant agrees

that in the event such maintenance or repair becomes necessary, anything in

paragraph ____ of this Sublease or elsewhere in this Sublease to the contrary

notwithstanding, Sublandlord’s obligation with respect thereto will be limited to a

duty to take all steps reasonably necessary and to use its best efforts and due

diligence to cause Landlord to immediately commence such maintenance and

repair. If, however, after Sublandlord has taken all such steps and used its best

efforts and due diligence, Landlord nevertheless fails to commence such

maintenance and repairs, Subtenant agrees that Sublandlord shall not be deemed

in default of this Sublease as a result thereof so long as Sublandlord continues to

use its best efforts, including the initiation of legal action against Landlord, to

cause Landlord to commence such maintenance or repairs.

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APPENDIX 8

CONSTRUCTION OF DEMISING WALL AND SIGN AND PERFORMANCE OF ALTERATIONS

Subtenant agrees to construct or to cause to be constructed, at its sole cost

and expense, any and all floor to ceiling demising walls along the perimeter of the

Sublet Space which are necessary to divide the Sublet Space from the leased

premises of Sublandlord or any other tenant located on the same floor of the

Building; provided, however, that prior to commencing the construction of such

demising walls, Subtenant shall submit to Sublandlord for the approval of

Sublandlord and Landlord copies of the plans and specifications for such

demising walls, which approval shall not be unreasonably withheld. In the event

Sublandlord and Landlord approve such plans and specifications, Subtenant

agrees to adhere to all of the requirements of paragraph ____ of the Lease in the

construction of such demising walls.

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APPENDIX 9

EMINENT DOMAIN

Paragraph ____ of the Lease to the contrary notwithstanding, if any

condemnation proceeding shall be instituted by any competent authority in which

it is sought to take or damage any part of the Building in which the Sublet Space

is located or the land on which the Building stands, Sublandlord’s election to

continue or terminate the Lease with Landlord pursuant to paragraph ____ of the

Lease shall be binding on Subtenant. Subtenant shall have no independent right

to terminate this Sublease pursuant to paragraph ____ of the Lease. In the event

of a termination of the Lease pursuant to the terms of paragraph ____ of the

Lease, Subtenant shall have no right to assert any claim for any additions or

leasehold improvements in the Sublet Space.

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APPENDIX 10

REPRESENTATIONS AND WARRANTIES REGARDING

1. Sublessor represents and warrants to Sublessee that:

(i) the Master Lease is in full force and effect; Sublessor is

the Tenant under the Master Lease; no default by Sublessor under

the Sublease now exists; Sublessor has full right and power to

execute this Sublease and to lease the Sublet Space to Sublessee,

subject only to the consent of Landlord under the Master Lease; no

agreement or understanding exists between the Sublessor and

Landlord except as disclosed in the Master Lease; and the Master

Lease has not been amended, modified, supplemented or

superseded in any manner except as disclosed in this Sublease;

(ii) there is no existing default under the Master Lease on

the part of the Landlord and Sublessor has no claims against or

disputes with the Landlord currently existing with respect to tenant

improvements, rent, security or other deposits, duties and

obligations of the Landlord or Sublessor or any other matters

arising under the terms of the Master Lease;

(iii) no rent or any other amounts have been prepaid,

except as provided in the Master Lease, and rent payments have

been made through and including the date hereof; and

(iv) the Master Lease has not been assigned, nor has any

portion of the Sublet Space been subleased, nor will Sublessor

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enter into any assignment of the Master Lease or sublease which

includes any part of the Sublet Space without the prior written

consent of the Sublessee.

2. Sublessor agrees that, so long as Sublessee shall pay the Rent due

under this Sublease and shall perform all other obligations of Sublessee herein

contained:

(a) Sublessee shall be entitled to the peaceful and quiet

enjoyment of the Sublet Space, subject to the terms, covenants, conditions,

provisions and agreements hereof and Sublessor shall keep, observe and perform

all of its obligations under the Master Lease; and

(b) Sublessor will not amend, modify or supplement any of the

terms or conditions of the Master Lease which would operate to amend or

abrogate the terms and conditions of the Master Lease and which would adversely

affect Sublessee’s use and occupancy of the Sublet Space or rights under this

Sublease, without, in each instance, obtaining Sublessee’s prior written consent

thereto.

3. Sublessor agrees to indemnify, defend and hold Sublessee free and

harmless from and against any loss, cost or damage (including reasonable

attorneys’ fees and expenses) that Sublessee may suffer as a result of a breach of

Sublessor’s representations and warranties and covenants under the foregoing

Paragraphs. Sublessor agrees to send to Sublessee a copy of all notices of default

received by Sublessor under the Master Lease within three (3) business days after

Sublessor’s receipt thereof.

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APPENDIX 11

ADDITIONAL RENT -- PARTIAL SUBTENANT AND SUBLANDLORD EACH PAYING ON NET BASIS

Subtenant shall pay as “Additional Rent” to Sublandlord the Subtenant Percentage

of all Additional Charges accruing during the Sublease Term and payable by

Sublandlord pursuant to Section ____ of the Lease. As used herein, the term

“Subtenant Percentage” shall mean _____, being the rentable area of the Sublease

Space divided by the total space leased to Sublandlord under the Lease.

Sublandlord shall give Subtenant notice from time to time of the amount of such

Additional Charges promptly after receipt of such information from Landlord.

Additional Rent shall be payable in the same manner, time and place as the Net

Rent and without set-off or reduction. Without limiting the generality of the

foregoing, Subtenant agrees to pay Sublandlord the Subtenant Percentage of any

year-end adjustments to the estimated Additional Charges which Sublandlord is

required to pay pursuant to Sections ____ and ____ of the Lease within the time

periods given in Sections ____ and ____ of the Lease and Sublandlord agrees to

credit to Subtenant the Subtenant Percentage of any net amounts credited to

Sublandlord pursuant to Section ____ of the Lease, after deduction of any costs

incurred by Sublandlord in obtaining such credit.

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APPENDIX 12

ADDITIONAL RENT -- PARTIAL SUBTENANT AND SUBLANDLORD EACH WITH DIFFERENT BASE YEAR

A. Subtenant acknowledges and agrees that, pursuant to the terms of

the Lease, Sublandlord is obligated to pay Sublandlord annually, in addition to the

base rent provided for therein, a sum of money (“Sublandlord’s Contribution”)

representing a portion of the amount by which the annual operating expenses of

the Building exceed an agreed base figure for operating expenses set forth in the

Lease.

B. For the calendar year ____ and for each subsequent calendar year,

all or any part of which falls within the term of this Sublease, Subtenant agrees to

annually pay Sublandlord an amount (“Subtenant’s Contribution”), equalling a

portion of the Sublandlord’s Contribution, determined as follows:

(a) The amount by which (1) those expenses of operating the

Building which are considered under the Lease in calculating the

Sublandlord’s Contribution for the calendar year in question exceed

(2) such operating expenses for calendar year ____ (or for the first

calendar year thereafter in which they are incurred, if any such expenses

are not incurred in ____) shall be determined (the “Expense Excess”) and

(b) The amount of the Expense Excess determined pursuant to

paragraph B(a) above shall be multiplied by a fraction, the numerator of

which equals 193,587 and the denominator of which equals 874,000 - the

product of such multiplication being equal to the Sublandlord’s share of

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such difference determined pursuant to paragraph ____ of the Lease, as

amended.

(c) The product derived pursuant to the multiplication set forth

in subparagraph B(b) above shall then be multiplied by a fraction, the

numerator of which equals - the total square footage of the Sublet

Space - and the denominator of which equals 193,587 - the total square

footage of space leased by the Sublandlord in the Building pursuant to the

Lease. The product determined pursuant to the multiplication set forth in

this subparagraph B(c) shall equal the Subtenant’s Contribution payable

for such year.

Subtenant agrees to pay the Subtenant’s Contribution to Sublandlord within seven

(7) days following the date upon which Sublandlord provides Subtenant with (a) a

statement setting forth the total operating expenses of the Building, certified by

the firm of certified public accountants then employed by the Sublandlord to

examine the accounts and (b) Sublandlord’s statement of the amount of

Subtenant’s Contribution then due, accompanied by the calculations used to

derive such amount. If Subtenant fails to pay Subtenant’s Contribution within

seven (7) days from such date, Subtenant’s Contribution shall bear interest at the

rate of nine percent (9%) per annum thereafter until paid.

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APPENDIX 13

ADDITIONAL RENT -- DISPUTING STATEMENTS

If Subtenant believes that the amount of the Subtenant’s Contribution paid

Sublandlord in any year is greater than the amount Subtenant was actually

obligated to pay in accordance with the requirements of paragraph ____ hereof,

Subtenant shall so notify Sublandlord in writing within thirty (30) days after

payment to Sublandlord of the Subtenant’s Contribution, specifying in detail the

reason for Subtenant’s objections. If Subtenant’s objections relate to

Sublandlord’s calculations with respect to the formula set forth in subparagraph

____ above, Sublandlord agrees to review and substantiate its calculations with

Subtenant and, in the event Subtenant proves to Sublandlord that its calculations

with respect to Subtenant’s Contribution were in fact incorrect, Sublandlord

agrees to promptly reimburse Subtenant the amount by which the Sublandlord’s

Contribution previously paid by Subtenant exceeded the amount of the corrected

Subtenant’s Contribution. If, however, Subtenant’s objections relate to an error

by Landlord in either its determination of Sublandlord’s Contribution or in its

calculations of the expenses used in determining Sublandlord’s Contribution,

Sublandlord agrees to cooperate with Subtenant to attempt to elicit Landlord’s

cooperation in reviewing its calculations with respect to the Sublandlord’s

Contribution and to request Landlord to make its books and records available to

Sublandlord and Subtenant for the limited purpose of verification of the amount

of the Sublandlord’s Contribution.

1130608

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i. Shakespeare, "As You Like It", Act I, Scene 3.

ii. See Appendix 1 for a typical provision.

iii. See Appendix 2 for a more detailed incorporation clause covering many of these concerns.

iv. A typical sublease consent form is attached to this paper as Appendix 3.

v. See Appendix 4 for a broader remedies clause.

vi. See Appendix 5 for a typical clause addressing this.

vii. See Appendix 6 for a sample clause.

viii. See Appendix 7 for this type of limitation.

ix. See Appendix 8 for example.

x. See Appendix 9 for a condemnation example.

xi. See Appendix 10 for an example of such provisions.

xii. S & D Group, Inc. v. Talamas, 710 S.W.2d 680 (Tex. App. -- Corpus Christi 1986).

xiii. Liebowitz v. Bickford's Lunch System, 241 NY 489, 150 N.E. 525 (1926); Neal v. Craig Brown, Inc., 356 S.E.2d 912 (N.C. App. 1987); 39 A.L.R. 4th 824 (1985). These cases show the many gaps between the expectations of the subtenant which thought it had a viable option, with an implicit understanding that the prime tenant would exercise its renewal, and the prime tenant which wanted to preserve the flexibility to decide (or perhaps get additional consideration from the subtenant for deciding) to renew its lease based on the circumstances at that time.

xiv. Gilman v. Nemetz, 203 Cal. App. 2d 81, 21 Cal. Rptr. 317 (2d Dist. 1962). If the prime tenant has drafted the sublease renewal clause carefully to make the subtenant's rights to renew contingent upon the tenant's removal, it may voluntarily surrender the prime lease prior to the time for exercising the prime lease renewal option without liability to the subtenant. Futterman v. South African Airways, 126 Misc. 2d 90, 481 NYS 2d 283 (1984). A very few courts have gone further and found an implied obligation of the prime tenant to renew under some fact situations even when an express undertaking to renew the prime lease was not present. Northridge Hospital Foundation v. Pic 'N' Save, 232 Cal. Rptr. 329 (Cal. App. 2 Dist. 1986).

xv. See Appendix 11 for this "percentage of" approach.

xvi. See Appendix 12 for an example of this approach.

xvii. See Appendix 13 for this type of a clause.

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xviii. See Friedman on Leases, � 7.703 n. 12; Northridge Hospital Foundation, supra.

xix. See Friedman on Leases, � 7.703 n. 10.

xx. Bordwell, "English Property Reform and Its American Aspects", 37 Yale L.J. 1 (1927).

xxi. Bordwell, supra, 16-17; Friedman on Leases, � 7.703 n. 16, 18.

xxii. Metropolitan Life Insurance Co. v. Hellinger, 272 NY 24, 3 N.E.2d 621 (1936).

xxiii. Futterman v. South African Airways, supra at 481 NYS 2d 286.

xxiv. George W. Loft Realty Co. v. M.H. Harris, Inc., 174 A. 709, 712 (Court of Appeals and Errors of N.J. 1934). This case reminds us that there was another time when market rental rates dropped precipitously and the courts had to reconcile similar disputes over these lease restructuring and buy-out issues.

xxv. Friedman, supra, � 7.703 n. 6.

xxvi. Lincoln Crest Realty, Inc. v. Standard Apartment Development, 61 Wisc. 2d 4, 211 N.W. 2d 501 (1973).

xxvii. Liebowitz, supra; Neal, supra.

xxviii. Friedman on Leases, � 7.701 n. 5; Neal, supra at 916.

xxix. Liebowitz, supra, 150 N.E. at 528.

xxx. For example, Illinois requires a landlord to take "reasonable measures" to mitigate its damages. Ill. Rev. Stat., c.110, � 9-213.1.

xxxi. In the Matter of Chicago, Rock Island and Pacific Railroad Company, 860 F.2d 267, 272 (7th Cir. 1988).

xxxii. In re 48th Street Steakhouse, Inc., 835 F.2d 427 (2d Cir. 1987). The complex factual relationship between the prime tenant and the subtenant may have contributed to this result. See "From the Bankruptcy Courts", B. Weintraub & A. Resnick, 24 U.C.C.L.J. 177 (1991) and Note, "Bankruptcy and Subleases: The Depravity of Privity", 14 Cardozo Law Rev. 193 (1992).

xxxiii. 11 U.S.C. � 365(h).