When you’re ready to move on from your current rented commercial real estate, you may be considering subletting the space to soften a financial hit or so that you don’t violate terms of your lease. Whether you’re reducing overhead, scaling back to adjust to changing economic conditions, closing up shop or shifting your business model, there’s a lot to think about. On top of that, when you sublet a commercial space, there are a number of factors to take into consideration. To help you navigate the experience, here are the top five things you need to know about subletting.
1. Your lease may not allow you to sublet the property. When you’re ready to sign a lease and dreaming of what your business will become, you may not be thinking about what happens if you leave the space before your lease is up. Now that the time is here to move on, you’ll want to make sure your lease permits you to sublet. Some leases may only allow you to sublet part of the property, and the landlord may have the right to take back the space you are subletting. More, some leases may make it so challenging to sublet that it’s not worth your while. According to www.businessknowhow.com, “When and How to Sublease Office Space You’ve Rented,” your lease may have a clause allowing you to break the lease with appropriate notice; if so, you’ll want to consider whether it’s better to go that route than sublet the space.
2. Subtenants are hunting for a deal. And that means you may need to choose to rent the space for less than the rent you are paying. But if the market is hot and you’re able to charge more than that, know that you may also be required to share the profits with your landlord. Your lease agreement should specify whether you are required to split rents from subletting the space.
3. You may need to pay for changes to the space. If your new tenant needs remodeling done to accommodate their business, you may have to foot the bill. And remember, all modifications will need to suit the building code.
4. You will have to create a clear subletting agreement. Are you considering what’s called a desk-sharing agreement, where you are leasing desk space to someone? Or maybe you’re leasing a percentage of the property, to reduce overhead and allow employees to telecommute? Your agreement with the subtenant will need to detail all of the services and access the subtenant has to the office space, supplies and equipment, such as the copy machine, the kitchen, the support staff and so on. It goes without saying, but as you consider whether to sublet space, you will want to take into consideration possible privacy issues and increased noise levels.
5. If the subtenant cannot pay the rent, you are responsible for it. If the subtenant in the space either refuses to pay rent, or simply can’t do it, your name is on the lease—holding you responsible for the obligation. This may be the most important factor to know about subleasing. Bottom line: choose your subtenants carefully.
When Thinking about Subletting, Consider Future Growth
As you look to sublet the commercial space as a business solution, keeping all of this in mind, don’t forget to consider the future needs of your organization. Is it possible your business will grow in the future? You may want to think carefully about this when drawing up the lease agreement. Because while subletting may offer a great short-term solution, in the long-term you will want to plan for your organization’s needs for expansion, even in times of temporary contraction.