Subleasing is an excellent strategy for getting another tenant to supplement your rent.
It allows tenants to downsize or exit completely, optimise space, or consolidate sites with some cost recovery and minimal capital expenditure. And it’s widely used in the market because the landlord approval process is typically less onerous.
However, as a sublessor, it is important to understand what to expect from the subleasing.
Here are five things to think about if you’re considering subleasing your space:
In the current market, your office will be competing with other quality subleasing and direct landlord stock. Sublessees also know subleases are the best deals on the market, so it’s important to be commercially attractive from the outset.
As the incentive to the deal, you’ll need to offer your space at a heavily discounted rate in order to attract a quality subtenant. And, in our experience, sublessors should only expect to recoup around 50% of the rent that they’re currently paying.
Once you’ve sourced a sublessee, you (as the sublessor) effectively become their landlord. That means you need to be comfortable with their ability to pay rent and fulfil the obligations under the sublease. You’ll also need to keep in contact with them for the remainder of the lease term and ensure that any property maintenance requests go through you to your original landlord.
Some tenants go in thinking that subleasing is a get-out-of-jail-free card. But this is not the case.
Under a sublease, the lease liability remains with the original lessee (i.e. you, the sublessor), which means that you are still responsible for the lease terms, even if the sublessee fails to pay rent or fulfil their obligations. You’ll also likely remain liable for the bank guarantee and any makegood requirements at the end of the sublease period.
Your right to sublease will come down to your leasing agreement. That’s because Landlords have a right to know who will occupy their building and be assured that the rent will continue to be paid.
More often than not, subleasing will be allowed, but only after obtaining written permission from your landlord. However, some leases explicitly prohibit subleasing (and some even prohibit specific tenants from subleasing). So, don’t assume that you have an automatic right to do it.
If you require the landlord's approval, ensure you get the wheels turning as soon as possible because the process can be lengthy. There may also be some landlord consent costs involved, including legal fees and/or property management services. So, be sure to factor them in.
If it’s taking Landlords with experience, deep pockets and market data 9-12 months to fill a vacancy, what makes your space so appealing that you can do it faster?
Finding a commercial subtenant can be challenging for various reasons, including:
For tenants looking to downsize or relocate, subleasing can be a cost-effective strategy with the potential for some cost recovery. However, it’s not the only solution for tenants looking to offload unwanted space and is best undertaken:
Whether it’s subleasing, assigning or surrendering, you require a detailed property strategy. It’s best to consult a tenant representation specialist for guidance, especially if there is less than a year remaining on the lease.
At Tenant CS, we represent tenants, not landlords. Whether you're looking to sublease, exit your lease, find & negotiate a new lease or undertake a mid-lease rent review, appointing us can save you hundreds of thousands of dollars over the lease term and protect your interests.
Book a call with us today to find out how we can help you!