Sandwich Lease
A sandwich lease is a commercial real estate arrangement where a tenant (the middle party) leases space from a landlord and then subleases all or part of that same space to another tenant, creating a three-party relationship. The original tenant becomes both a lessee to the landlord and a lessor to the subtenant, positioned "sandwiched" between the two other parties.
Example
“The consulting firm entered a sandwich lease arrangement, subleasing half the office space to a startup while still paying rent to the building owner.”
Memory Tip
Picture a sandwich - the middle tenant is the 'meat' squeezed between the landlord (top bread) and subtenant (bottom bread).
Why It Matters
Sandwich leases allow businesses to reduce their occupancy costs by subletting unused space or enable entrepreneurs to control valuable real estate without the capital requirements of ownership. However, they also create additional liability and management responsibilities for the middle tenant.
Common Misconception
People often think sandwich lease arrangements automatically transfer all responsibilities to the subtenant, but the original tenant typically remains liable to the landlord for all lease obligations regardless of subtenant performance.
In Practice
A law firm leases an entire floor of an office building but only uses half the space, so they sublease the remaining offices to a marketing agency while remaining responsible to the building owner for the full lease terms and payments.
Etymology
Named after the sandwich food item because the middle tenant is 'sandwiched' between the original landlord above and the subtenant below.
Common Misspellings
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