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When the Tenant Becomes the Landlord

January 19, 2019 By Shantanu Mohan

If you have carefully weighed the pros and cons of subleasing and dutifully screened any potential subtenants, you’re well on your way to saving money on rent—and gaining some possibly interesting office neighbors. In short: it’s great to save money, but always do your homework first.

Luckily, you don’t have to do your homework alone. Maybe you need assistance finding the right subtenants to share your space. Maybe you need help drafting a sublease that benefits you and your subtenants and covers all of the legal details. Or, perhaps you want suggestions for new office spaces your company can move into while you sublease the old space. Contact us, and we’ll put you in touch with one of our licensed tenant brokers right away. We look forward to answering all of your subleasing-related questions.

If you’re renting office space but not using all the space, why let it go to waste? Much like apartment renters use Airbnb to rent out their extra rooms, businesses can rent out office space. Renting your excess office space is called subleasing.

Under a typical leasing situation, you as the tenant rent the space from the landlord. When you start subleasing, you become a sublessor, and those renting from you become your subtenants. The subtenants sign an agreement with you and pay rent directly to you. Then you, of course, pay the entire rent to the landlord. Entrepreneurs, freelancers, startups and small companies are usually the ones looking to sublease properties because they don’t need or can’t afford to rent an entire office space outright.

First, let’s look at some reasons businesses choose to sublease. Then, we’ll examine some potential drawbacks for subleasing. And finally, we’ll walk you through the subleasing process. Get ready to start saving money on your rent!

3 Reasons to Sublease Office Space

Businesses choose to sublease some or all of their office space for many reasons, mostly revolving around trying to avoid breaking their current lease and paying the associated costs (usually losing your security deposit and paying an additional fee). Here are some common situations in which tenants find themselves considering acquiring some subtenants.

  1. You have space you don’t use. This is the most straightforward reason to sublease. You’re paying for space you don’t use. Instead of letting them go to waste, you may choose to find a subtenant to offset the overall cost of rent.
  2. You have space you don’t need. It’s important to choose office space that allows for company growth. That’s why you may find yourself renting a building with extra private offices or usable space that you can’t fill with new employees until a year or so down the road when the company generates more revenue. In this case, you might find some short-term subtenants to help you pay rent until you can afford to hire more employees.
  3. You need to rent a larger space. Most leases last at least three to five years. If your company grows faster than expected or you want a change of scenery, you may find yourself considering breaking your lease. However, subleasing your old space to some subtenants while you move into a better space may be less messy and more cost-effective.

How to Sublease Your Office Space

  1. Check your lease. Don’t go through all the trouble of finding subtenants before ensuring you’re allowed to sublease your space. Dig up your leasing contract and make sure it allows for subtenants. Because you may not understand all of the legal jargon, have an attorney read the lease and help you determine whether you can sublease, and if so, which terms and conditions apply.
  2. Talk to your neighbors. Once you determine that you are, in fact, allowed to sublease your space, it’s time to find subtenants. Before you offer the space to just anyone, talk to your neighbors. Companies in adjacent office spaces or buildings may be looking to expand. You may even already know them, and they may be able to move in more quickly than someone new.
  3. Carefully screen applicants. This point is possibly the most important. First, make sure you are not subleasing the space to a company working in the wrong industry. The anchor tenant in a commercial area may have an agreement with the landlord specifying that no other companies in their industry can rent office space in the complex. Second, make sure that your subtenants will be able to pay their share of the rent; remember, even if they don’t pay their rent to you, you still owe the full rent to the landlord. Third, choose subtenants you don’t mind seeing every day. If they’re going to be loud or be disruptive in any way, you won’t want them working in your office.
  4. Decide what to charge. Typically, businesses and individuals are interested in subleasing rather than leasing an entire space because of the shorter lease and the reduced costs. Keep this in mind when deciding upon rent charges for your subtenant. Also, remember that some leases prohibit tenants from charging enough in sub-rental fees to make a profit rather than just to help cover the rent they owe the landlord each month. You may also request a damage deposit to cover any potential damages that may occur during the subtenant’s time subleasing your space. Damage deposits are typically equal to one month’s rent.
  5. Agree on the terms. You will need to discuss factors like potential renovations, lease terms, payments for utilities, shared amenities, branding, and office environment. Be sure to make all of these arrangements up-front and include them in the sublease paperwork. It should go without saying, but make sure you ask an attorney to make sure all the paperwork is correct before moving forward.
  6. Finalize the agreement. Once you’ve chosen subtenants and agreed to the terms of the sublease, it’s time to sign the paperwork and let them move in.

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