78
Beverage Media
November 2012
know
the
law
Subletting & Assigning
Sublet/assignment provisions are impor-
tant to both the tenant and the landlord.
Most landlords seek a provision which
prohibits an assignment without its pri-
or written consent. Additional language
may provide that a sale or transfer of any
interest in the tenant would constitute
such an assignment and constitute a
material default under the lease unless
the tenant has first obtained the express
prior written consent of the landlord.
The tenant will want a provision that
such consent will not be unreasonably
withheld. It may be advisable for a ten-
ant to provide for certain “carve-outs”
for estate and tax planning.
Provisions which restrict subletting
the premises and assigning the lease
affect the tenant’s ability to sell its
business. When reviewing the assign-
ment clause, the tenant should keep in
mind the permitted uses in the lease.
Most leases restrict a tenant’s use of
the premises to the use or uses enumer-
ated in the lease. This restriction can
make it difficult to assign the lease, un-
less the tenant is selling its business to
the assignee. This is especially true for
a wholesaler or supplier renting office
space. For example, if the clause pro-
vides that the premises can be used
only for the wholesale sale of alcoholic
beverages, the tenant would not be able
to assign its lease to a law firm.
Thus, it is preferable to obtain a
right to assign a lease for any legal
purpose, subject only to the landlord’s
reasonable right to restrict such as-
signment based upon financial con-
siderations. It should be noted that in
the event of a sale of its business, the
tenant should seek permission to assign
the lease and to sublet the entire prem-
ises; not just the right to assign. In this
way, if the business is not sold in an “all
cash” transaction, the seller will have
a right to re-enter the premises if the
purchaser defaults in the payment of a
deferred portion of the purchase price.
Then, when the sale is made, the seller
signs both a sublease of the entire prem-
ises and an assignment of the lease. The
assignment is held in escrow until the
purchase price is paid in full.
A tenant should keep in mind that
even if the lease is assigned and the pur-
chaser assumes the tenant’s obligations
under the lease, unless the seller receives
a release from the landlord upon the as-
signment (a “Novation”), it will remain
liable under the lease even though it is
no longer the tenant.
If the tenant seeks and obtains a
right to sublet a portion of the premises,
an accompanying right to alter it may
be necessary, as there are SLA require-
ments that the licensee’s premises be
self-contained.
Warehouses, Tax Benefits
and Hazmats
Leasing a warehouse to a licensee pres-
ents additional issues. As with most
tenants of warehouses, the tenant will
likely need to make some alterations to
the demised premises. Depending upon
the length of the lease term and the
percentage of the warehouse leased, the
landlord may demand some variation
of a net lease, whereby the tenant pays
some or all of the real estate taxes levied
against the property; the insurance on
the building; and is obligated to make
structural repairs to the building during
the term of the lease. A real estate tax
escalation clause may be in the form of
a percentage of any tax increase above
the taxes levied in the first year of the
lease or all or a portion of the entire real
estate tax bill for the building.
In all likelihood, the landlord will
demand an indemnity from the tenant
against an environmental hazard or con-
dition created or suffered by the tenant.
This would be true, especially, where
the tenant plans to have trucks and fuel
storage tanks on the premises. A tenant
should seek a reciprocal indemnity from
the landlord, if environmental condi-
tions were caused by the landlord or
third parties. These indemnities usually
survive the termination of the lease.
Tax benefits given by the Industrial
Development Administration or the
Industrial & Commercial Abatement
Program and a variety of utility incen-
tive programs offered by the state and
local governments may benefit both
the landlord and the tenant. Before
signing the lease, the tenant should
consider a detailed discussion of the
availability of these programs with a
benefits consultant.
Most leases are taken for a signifi-
cant time period. Take the time to think
about how the clauses in the lease may
affect your future, before signing on the
dotted line.
■
ThisarticlewaswrittenbyArthurJ.PanoffandKevenDanow.
Arthur J. Panoff, is a third generation real estate lawyer. Kev-
en Danow is an attorney representing members of all three
tiers of the Beverage Alcohol Industry. Both are members
of the firm of Danow, McMullan & Panoff, P.C.. 275 Madison
Ave, NY, NY. 10022 (212-370-3744). Website: dmppc.com;
email:
or
.
Clarification
Scott Wexler, Executive Director of the
Empire State Restaurant & Tavern Asso-
ciation, was kind enough to point out a
mistake in my October column. As I re-
ported in a prior column, requirements
for Municipal notifications of alteration
and license renewals have been elimi-
nated for licensees outside of the City
of New York. Only licensees within the
five boroughs of the City of New York
are required to give advance notice of
a renewal application or alteration. The
notice is given to the local Community
Board using a standard SLA form.
Think ahead to
December 31
st
…
Applications for All Night Permits for
New Years Eve 2012 must be filed no
later than November 16
th
, 2012.
