Legal Definitions - derivative lease

A derivative lease, often referred to as a sublease, occurs when a tenant who holds a leasehold interest in a property grants a portion of that interest to another party. In this arrangement:

• The original landlord remains the landlord to the original tenant.
• The original tenant becomes the "sublandlord" to the new tenant.
• The new tenant is the "subtenant."

The derivative lease is dependent on the original lease; its terms cannot exceed the original lease's terms, and the original tenant remains ultimately responsible to the original landlord for rent and compliance with the original lease agreement.

Here are some examples to illustrate this concept:

• Example 1: Residential Subletting

  Maria leases a two-bedroom apartment for a year. Three months into her lease, she gets a temporary job assignment in another city for six months. Instead of breaking her lease, she finds a friend, David, who agrees to rent one of the bedrooms from her for those six months. Maria and David sign an agreement where David pays rent directly to Maria. In this scenario, Maria's agreement with David is a derivative lease. Maria remains the primary tenant responsible to her landlord, and David is her subtenant, operating under the terms Maria established with him, which must also comply with her original lease.

• Example 2: Commercial Office Space

  Tech Solutions Inc. leases an entire floor of an office building for five years. After two years, they realize they only need about 70% of the space due to a shift to remote work for some employees. To reduce their overhead, Tech Solutions Inc. decides to lease out the unused 30% of their floor to a smaller startup, InnovateNow LLC, for the remaining three years of their original lease term. The agreement between Tech Solutions Inc. and InnovateNow LLC is a derivative lease. Tech Solutions Inc. is the sublandlord, and InnovateNow LLC is the subtenant, paying rent to Tech Solutions Inc., which in turn remains responsible for the full rent to the building's owner.

• Example 3: Retail Pop-Up Shop

  A clothing boutique, "Fashion Forward," leases a prime retail space in a mall for three years. During the holiday season, they decide to host a temporary "pop-up" shop for a local artisan jewelry maker, "Sparkle & Shine," within a designated corner of their store for one month. Fashion Forward charges Sparkle & Shine a fee for the use of the space and a percentage of sales. This arrangement constitutes a derivative lease. Fashion Forward is the primary tenant and sublandlord, while Sparkle & Shine is the subtenant, operating within the confines of Fashion Forward's existing lease with the mall management.