Minding Business

Tips for Subletting Commercial Property


As a commercial real estate tenant, you may be able to sublease
Posted: July 22, 2019 by Anna Jotham

When you lease commercial property for your business, you may be allowed to sublease a portion of your property to subtenants. It can be a nice option for businesses that are expecting to downsize or know they’ll have extra space. But before you sublet any portion of commercial property you are leasing to a third party, there are many things you should know.

As a tenant, when you sublet to a third party, you become a sublandlord and the new tenant becomes a subtenant.

 

HERE ARE OUR TIPS FOR SUBLEASING COMMERCIAL PROPERTY:

Know that the original lease remains active.

Even when a new lease is signed by a subtenant, the original lease stays in effect. It is called the head lease. You need to know the responsibilities you agreed to in the head lease are still your obligations to fulfill.

 

Secure the head landlord’s consent.

Before you bring in a subtenant, you’ll want to make sure it’s OK with your landlord. So check to ensure the landlord approves and ask about any special conditions you’ll need to address when doing so. Getting consent from the head landlord is a formal process, and you’ll enter into a deed of consent. You may want to get a lawyer to help you through the process and ensure your interests are protected.

 

Take care when choosing a subtenant

Remember: you are still obligated to fulfill the original lease. You don’t want to take chances by onboarding a subtenant who won’t fulfill their obligations. Be sure to conduct a credit check, check references and review their business plan if applicable. And, of course, you’ll want to be certain the business the subtenant is running is permissible under your existing lease.

 

Think carefully about the sublease length

A short sublease can give you the flexibility you need for your business, but in the long run it may make it tough to attract desirable subtenants. Consider the terms of the sublease carefully. In general, subleases end the day before the expiration of the head lease, which eliminates confusion.

 

Make sure you are protected

When you leased the property, chances are you paid a security deposit or got a bank guarantee. Your subtenant should be required to do the same, in proportion to the amount of space they are subleasing. That way, if the subtenant does not follow through on their sublease obligations, you can draw from that money to fix the problem.

 

Commercial property subleases: not to be entered into lightly

Subletting may be right for you for many reasons, in particular if you have more space than you need through your commercial property lease or if your business would benefit from an additional injection of cash. Be sure to protect your interests and obligations under your original, or head lease, and you will increase the likelihood of a positive subleasing experience. 

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