At a glance:
- Rent unused space to a subtenant.
- Save costs and gain flexibility.
- Get landlord consent and draft agreements.
- Avoid risks with expert help.
Flexibility is the buzzword of modern, fast-moving businesses. Imagine being on a lease for a big office space and being able to use just half of it. Or you may have reduced the scale of your operation recently but are stuck with a long-term lease. Subleasing can save the day. Before you get into that, though, it’s important to learn of the opportunities, challenges, and legal complications of subleasing a commercial property.
Let’s dive into everything an entrepreneur needs about subleasing: the benefits, the risks, and actionable tips that make a difference.
What Is Subleasing, and How Does It Work?
Quite simply, subleasing is the act of renting out a leased property to another tenant, referred to as the subtenant. You, the original tenant, are still bound by the master lease agreement with the landlord, whereas the subtenant will occupy and use the property under a separate agreement with you.
Key Players in Subleasing
- The Tenant (You): Holds the primary lease with the landlord and takes responsibility for the property.
- The Subtenant: Obtains the facility from the lessee for his own purposes.
- The Landlord: He is the property owner and, as such, most often has to agree to any sublease.
Common Instances Where Subletting Would Be Appropriate
- You have extra room due to the downscaling or relocation of a business.
- You are on a long lease but no longer need the premises.
- You want to cut overhead costs by sharing it with another company.
Why Subleasing Might Be Appealing to Businesses?
Sub-leasing offers many attractive benefits to businesses, particularly those that require cheap solutions in the competitive commercial market. Here’s why you should consider it:
- Cost Efficiency: The subleasing option may help you offset a part of the rent by sharing financial responsibilities with a subtenant.
- Monetising Unused Space: Instead of having a portion of your property sit idle, subleasing turns it into an income generating asset.
Legal and Contractual Issues
Sub-leasing is not without its legal complexities. First, before making any move, it is imperative to carefully navigate the following aspects:
Reviewing the Master Lease Agreement
Most lease agreements allow your landlord to take care of subleasing. Sometimes, the landlord will not permit subleasing, while in other cases, a landlord may permit subleasing under certain circumstances.
Landlord Consent
Even in the instance of permission granted for subleasing, it is often required to seek written permission from the landlord. Lack of written permission from a landlord could lead to potential lawsuits or eviction.
What to Negotiate in a Sublease Agreement
- Rent and Payment Terms: Spell out how much the subtenant is to pay and how often.
- Duration: This should coincide with the remaining period on your lease.
- Responsibilities: Define who is responsible for maintenance, utilities, and other expenses.
Challenges and Risks of Subleasing
While sub-leasing is very advantageous, it is also not without possible drawbacks.
Some challenges that may arise are:
- Dealing with landlords or subtenants can get tricky, especially if there’s miscommunication or if people have different expectations.
- Plus, if your subtenant can’t make their rent, you’re still stuck paying the landlord.
- Also, keep in mind that the demand for your place might change, making it tough to find someone to take over.
How to Find the Right Subtenant
Choosing the right subtenant is crucial to a successful subleasing arrangement. Here’s how to go about it:
Market the Space Effectively
Advertise your property on authentic portals; mention location, facilities and the type of business it would suit.
Sublease Approval with Reference to Financial Safety
Demand the sub-lease to bring their financial statement/credit check; therefore, it would be efficient to pay for the rent.
Check compatibility between intended use by the subtenant with the use of a property.
Make sure the type of business of the sub-lessee/tenant is compatible with the use of the property described in the master lease.
How to avoid common sub-leasing pitfalls
- Write a Solid Sublease Agreement: It is highly recommended that you seek a legal expert to create an agreement in your favour.
- Transparency: Be transparent with the landlord and subtenant, so you’re always on one wavelength.
- Professional Expertise: Real estate brokers and attorneys are helpful in the negotiation of these complexities involved with subleasing.
Subleasing can be strategic for business growth and operational costs, but in such a case, the success lies in proper knowledge about legal matters, choice of proper subtenants, and frank communications among parties.
At Axis Property, we specialise in assisting businesses through sub-leasing complexities and other commercial real estate needs.