In this uncertain time, subletting commercial property or a portion of your space to another business might help with cash flow and lower rental costs. However, it’s crucial to be aware of your obligations and rights regarding commercial subleasing, both as the sublessee and the sublessor.
What Is Commercial Subleasing?
A commercial sublet is a separate contract between a tenant who already has a lease on a piece of real estate (the sublessor) and a third party who wants to occupy all or part of that real estate (sublessee).
A company could decide to rent its space for several reasons, such as cost savings, space optimization, or site consolidation.
Is it legal to Sublease?
Legally, subleases are allowed. Subleasing is generally allowed by law if your current lease agreement does not expressly forbid it.
To sublease a property, you must seek your property manager’s written authorization as stipulated by some laws and lease agreements. Even if your property management rejects your request, specific state rules may permit you to sublease your space.
You should carefully analyze all the facts and conditions when considering subleasing your unit, among other legal concerns. Use real estate attorneys to assist you in obtaining compliance or dealing with your landlord. It is advisable to deal with a legal expert for the entirety of your relationship with a subtenant because of the danger involved with subleases.
Main Benefits of Commercial Subleasing
Commercial subleasing has benefits, especially in the present economy where many companies are struggling.
Reduced cost
The cost is one of the most important advantages of commercial subleasing.
Sublessors
Subletting can be a short-term tactic for sublessors to cut costs and boost cash flow, especially post-covid. For example, when subleasing space to a sublessee, it’s important to anticipate receiving less than 50% of the rent paid under the head lease. The market’s abundance of office vacancies and available sublease stock has quickly reduced the value of sublease rents.
Sublessees
Sublease rent is usually significantly less than lease rent related to a direct lease. Finding a property at an affordable price can be difficult if your business only needs a modest amount of space. You have a better chance of only paying for what you require with commercial subleasing.
You won’t have to concern yourself with upgrades or fit-outs because most subleased premises come completely furnished. Negotiation will determine if you are responsible for the cost of “making good” at the end of the term.
Some commercial sublease agreements will demand that you fulfill the conditions of the main lease. In this situation, the sublessor will contend that they are no longer in direct control of your subletting area.
Networking Opportunities
Subleasing a portion of a commercial space next to a complementing company can provide opportunities for networking, sparking fresh thinking, and expanding both sublessors’ and sublessees’ businesses.
Who Is Responsible for a Sublease?
A sublet must be managed by the tenant, who is also accountable. The renter will deal directly with the sub-tenant because they share the property. The sub-tenant will not be involved in legal disputes with the property owner or manager.
Because of this, renters must understand how much risk they accept when subleasing a building, apartment, or piece of land. Major financial and legal problems might arise from choosing the wrong sub-tenant or creating a poor sublease agreement. Before you agree with a prospective sub-tenant, you should also consider if subleases are legitimate in your city, county, or state.
Bottom Line
Before taking any further action, check the sublease regulations of your state or municipality. Get written confirmation from the landlord or property manager if they permit subleasing. Additionally, confirm that a subleasing provision is included in the rental lease agreement.
Subletting falls solely under the purview of a property manager. Make sure your lease agreement contains language stating that subletting is not permitted under any circumstances if you decide to do so. Managing a sublease is simple with UnitConnect’s Commercial real estate software.
