Monday, November 7, 2016

Real Estate & Related Terms Explained: Sublet

You may have heard the term sublet or sublease before, as in “my friend is subletting their space”.  But do you know what that means?  This is an important topic as a Tenant or Landlord in commercial leasing and one that is rarely understood properly, until the situation arises…

What Exactly Is a Sublet?
A sublet occurs when a Tenant no longer needs their space or it no longer suits their needs, but still is responsible for the remainder of the term of the lease they signed. So, instead of letting the space sit dark while continuing to pay, they sublet the space to another Tenant. When some sort of arrangement is agreed to, a sublease agreement is signed by both parties.

How Does a Sublet Work?
After a sublease is signed, the sub-tenant starts to pay rent to the sub-landlord. The Tenant in turn continues to pay rent to the Landlord. Even though the sub-tenant is now occupying the space, the original Tenant is responsible for all the terms under the original lease.

What Else Should I Know About Subletting?
If a Tenant wants to sublet their space, they require a Landlord’s written approval. Landlord’s are not allowed to unreasonably refuse a request for a sublet. Usually your lease agreement will speak to the ability to sublet and any mechanisms that apply. Should you have any issues with subletting, contact your lawyer.

From a sub-tenant perspective, sometimes subleasing space comes with risk, as it doesn’t come with any renewal options. This can put you in a bind when your term runs out. Therefore, when we have strong Tenants considering a sublet space, often times the deal goes back to the Landlord for them to deal with directly (instead of on a sublet basis) on the space so that proper terms can be negotiated for the tenant and then a termination is negotiated between the Landlord and the existing Tenant.

With careful thought and planning, sublets can be pulled off without a hitch. Make sure to hire an experienced commercial realtor to guide you through the process towards a smooth transaction.

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