Steps to Subleasing Commercial Property
Subletting a commercial property is similar to assigning one, yet both transfer methods have very different outcomes.
Below are the steps involved in subletting a commercial rental space from a tenant's point of view.
1. Refer to your Commercial Lease Agreement. Before you can consider subletting your office or warehouse space, you must refer to your Commercial Lease Agreement to see if there is a clause stating your right to do so.
Often, there will be a term detailing your right to transfer a leasehold, although it may require written consent from your landlord. If there is no clause stating the landlord's policy on subleasing, consult with them about your options.
2. Provide notice. You may be required to provide advance notice to your landlord that you are transferring rights to another renter. If your lease clearly states your ability to transfer, adhere to the notice time mentioned.
3. Find a tenant. If possible, screen tenants until you find a suitable renter. Because you are liable for their tenancy, it's vital to make sure they have a reliable renting history.
4. Draft and sign a Commercial Sublease Agreement. Once you have found a trustworthy prospect, you must draft a Commercial Sublease Agreement to address the terms of their tenancy. You are now referred to as the sublandlord, and the new tenant becomes the subtenant.
As mentioned, the master lease still stands between you and your landlord, but you are now responsible for the subtenant's tenancy. While most of the terms in the Sublease Agreement will mirror the lease, the sublandlord has flexibility in determining several aspects, such as rent/utility price, insurance, damage deposit, improvements, lease term (automatic renewal or fixed)
, property purpose, inspections, and any other additional clauses. Discuss the terms of the sublease with your landlord to ensure they approve.
For arrangements that involve subletting a portion of your commercial space, ensure the space is clearly described in the sublease.
Sign the agreement with the subtenant and restate the terms to confirm their acknowledgment and understanding of the tenancy.
5. Carry out the sublease. As the sublandlord, you are liable for the subtenant. For example, you are responsible for collecting rent and for any damage caused during their tenancy.
In addition, the subtenant would contact you to take care of any of the landlord's obligations, and it would then be your job to approach the landlord. Essentially, there is little to no legal relationship between the subtenant and landlord.
Pros to Subleasing:
- You are able to quickly transfer partial rights of a commercial property to save money on rent expenses. This will prevent you from breaking a lease term, or having to pay out the remainder of the lease.
- You get to be flexible in your sublease contract.
- If you are sharing a space, you may benefit from shared resources or customers, networking, reduced carbon footprint, and workplace diversity.
Cons to Subleasing:
- You may be adding to your workload by managing a tenant, in addition to your own landlord-tenant relationship.
- You are liable to the landlord for damages or lease violations that occur from the sublease.