What is a Commercial Sublease Agreement?
A Commercial Sublease Agreement allows a tenant of a commercial property to lease (or rent) the property to another party. The tenant can sublease the whole property or part of it (e.g. an office or a boutique).
The original tenant becomes the sublandlord once the agreement is in effect and must ensure that the subtenant fulfils the terms and conditions of the Commercial Sublease Agreement.
The Commercial Sublease Agreement outlines the length of the lease, payment amount and methods, and permitted uses of the property. It also contains the sublandlord and subtenant’s contact information.
This document is also known as a:
- Business sublease agreement
- Commercial real estate sublease
- Commercial property sublease
- Commercial sublease form
- Commercial sublet agreement
Who are the parties in a Commercial Sublease Agreement?
There are three parties involved in a Commercial Sublease Agreement:
- Landlord: The landlord is the person who owns or manages the property. The landlord has a lease agreement with the tenant, and the tenant needs the landlord’s consent to sublease the property.
- Sublandlord: Also known as the head tenant or sublessor, the sublandlord is the party who is renting the property from the landlord and subleasing the space to the subtenant.
- Subtenant: Also known as the sublessee, the subtenant is the party who rents commercial space from the sublandlord.
How do I write a Commercial Sublease Agreement?
A Commercial Sublease Agreement outlines the details of the agreement and helps minimize any confusion related to the sublease.
Once you have established the terms and conditions of the sublease agreement, use Lawdepot’s Commercial Sublease Agreement template to create a legal document that protects the interests of all parties and provides a mutual understanding.
1. Provide information about the property
You’ll want to have as much information about the commercial space as possible on hand before drafting your Commercial Sublease Agreement, including:
- The property’s address
- Landlord’s name
- Sublandlord’s name and mailing address
- Subtenant’s name and mailing address
- A copy of the original lease
- The amount for rent and how it will be delivered
You may also want to include the property’s size (in square feet/square metres).
If you include a diagram of the property in the Commercial Sublease Agreement, highlight the property in red and attach it after printing your document.
2. Get the landlord’s consent
Before the sublandlord and subtenant can enter into a Commercial Sublease Agreement, the property’s original landlord must give formal consent.
It’s important that the sublease agreement doesn’t violate the original lease, also known as a master lease.
LawDepot’s Commercial Sublease Agreement includes a section where the landlord can give their approval of the sublease if they haven’t yet given written consent.
3. The length of the sublease
The length of a Commercial Sublease Agreement can vary. The length of your sublease can be:
- Fixed-term
- Week-to-week
- Month-to-month
- Year-to-year
Fixed-term
A fixed-term allows the sublandlord and subtenant to know precisely when the sublease will end or need renewal.
If the sublease expires, the parties will have the option of renewing the lease or continuing to sublet on a month-to-month basis under the same rules as the original sublease.
Periodic tenancy
A periodic tenancy (either weekly, monthly, or yearly) continues until one of the parties involved terminates the lease. It provides flexibility for subtenants who are uncertain about how long they’ll need to be in the agreement.
4. Rent Collection
The sublandlord and the sublessor should come to an agreement about the rent details.
Rent details include:
- Rent amount
- Frequency of payment
- Person responsible for collecting the rent (sublessor or lessor)
- Rent payment location
5. Permitted use of the commercial space
Permitted use refers to the type of business and activities allowed to operate out of the commercial property.
Make sure you have the landlord's consent if your Commercial Sublease Agreement includes a permitted use other than those already stated in the original lease. You also need approval from the landlord if the sublease agreement is in effect and you want to change or expand the permitted use of the property (e.g. providing a service and then expanding to sell products related to that service).
6. Check-in inspections
The sublandlord must provide the subtenant with a Condition Report if performing a check-in inspection at the time of possession.
The check-in inspection form should contain details of the property's condition at the time of the subtenant's possession. It will provide a record of the original state of the property to determine if the subtenant caused any damage to the property during the sublease.
The sublandlord should give the subtenant a reasonable amount of time to complete the check-in inspection form. Between 7 days and 30 days is usually considered suitable depending on the circumstances under which the subtenant will take possession.
7. Additional costs
Damage deposit
The damage deposit, also known as a bond, covers the cost of repairing any damage caused by the subtenant to the property during the tenancy. The damage deposit is paid by the subtenant to the sublandlord at the beginning of the sublease term.
Utilities
Utilities refer to costs like electricity, natural gas, water, sewer, telephone, security, trash/recycling, internet, and cable.
Discuss who will pay for which utilities. It’s possible to include the cost of utilities with the rent or have the subtenant pay them separately.
Insurance
You should make sure to take out insurance for the commercial property. However, the subtenant isn’t required to have insurance if your insurance policy sufficiently covers the property.
8. Modifying the property
The subtenant may want to make modifications to the property. Not only will you need to include details like this in the sublease agreement, but the details will have to comply with the original lease.
If the subtenant wants to make changes to the property that violate the master lease, it’s possible to have the landlord change the terms of the original lease with a Lease Amendment.
You can also negotiate a restoration clause if the tenant needs to return the property to its original condition. For instance, will the data cabling for phone and internet need to be removed at the end of the lease?
9. Signing details
Both the sublandlord and the subtenant must sign the Commercial Sublease Agreement. It’s a good idea to have at least two witnesses also sign it.
Why should I sublease my commercial space?
Outgrowing your current location
Sometimes business is going so well that you have no choice but to move to a different location. You may need to move to a bigger shop that can hold more machinery and equipment, a new warehouse for more storage, or an office space that has room for additional hires.
Flexibility
The terms of a sublease agreement tend to be shorter because part of the original lease has likely already passed when the subtenant and sublandlord sign the sublease agreement.
The first sublease agreement can act as a trial run for future agreements with the same subtenant.
Suppose you plan to renew the original lease with the landlord and continue subletting the property. In that case, you may feel confident having the same subtenant in the space for a longer duration if the subtenant's first sublease agreement went well. On the other hand, a short-term sublease agreement can also act as a natural conclusion to a straining business relationship.
Sharing the cost and saving money
Entering into a commercial sublease agreement is an efficient way to recoup some money.
The subtenant’s lease can contribute towards some or all your financial commitment in the master lease. It is also a good way to share the maintenance and obligations of the property.
Is a Commercial Sublease Agreement legally binding?
Yes. A Commercial Sublease Agreement is legally binding when properly executed. It becomes binding when the sublandlord and subtenant sign the agreement.
One party may seek to enforce specific terms through the court if the other party fails to uphold its end of the agreement. For example, a head tenant may pursue legal action if modifications made to the property violate the sublease agreement's terms.
What are my responsibilities as a sublandlord?
Being a sublandlord comes with responsibilities similar to those of a landlord.
It’s the sublandlord’s responsibility to:
- Collect rent and pay bills on time
- Maintain the property
- Communicate directly with the landlord when necessary
- Meet the conditions of the master lease and sublease
Australian state and territory legislation:
LawDepot's Commercial Lease Agreement is tailored to meet the governing laws in Australian states and territories, including:
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