What Is a Commercial Sublease Agreement, and Who Should Consider Subleasing?

What Is a Commercial Sublease Agreement, and Who Should Consider Subleasing?
Due to the COVID-19 pandemic, a lot of companies are subletting their space. Many companies have employees who work from home and have extra unused office space. If your company needs a smaller office space now, it may be ideal to look into subleasing an office space as there are a lot of sublets on the market right now.

What Is a Commercial Sublease Agreement?

A commercial sublease refers to the transfer of a portion of an existing tenant’s right to a third party. The tenant who subleases a rented space is known as the sublessor and the new tenant is known as the sublessee. The sublessee stays in the tenant’s rented space for the remainder of the tenant's lease period or the duration of the agreed sublease term.

Key Subleasing Considerations

For sublessors planning to sublease, it is important to pay attention to the following points:

How much rent will the new tenant pay to the original tenant?
What are the existing lease provisions concerning subleasing and landlord's consent?
What happens when the sublease terminates?
Who pays utility expenses?
Do the parties have obligations to secure insurance?
What security (including bank guarantee, cash security, and/or personal guarantees) is the subtenant providing?
How are other costs (including rent, outgoings, levies, etc.) passed on?

Normally, the sublessor is still responsible for your lease payments, so it is important to have a system in place to collect monthly payments when due. It is also essential to be well acquainted with the terms in the existing commercial contract to avoid any legal issues with the landlord. Preferably, you may want to approach your landlord before subleasing your office space.

The Benefits of Subleasing Commercial Space

Subleasing a space has its benefits especially in a time like this when many employees work from home. Here are some advantages to subleasing commercial space as a tenant:

Subleasing unused space can be a great way to save money. Subleased spaces are usually more cost-efficient than a standard commercial lease.
Subleasing is a great alternative for small businesses who do need a big space especially when they are just starting.
Your rent can be paid as a flat monthly payment.
Since it is part of a larger property, you may not need to spend time and money in upgrading the space.
As a sublessee, you may not need to pay for some expenses such as security systems or Internet access.
Subleases may also not be responsible for the maintenance of the common areas (CAM).

It is important to remember that if you are the sublessor, you are still bound by the contract between you and the landlord. This remains true whether the sublessee meets their obligations to you or not. Hence, it is important to conduct due diligence when subleasing a space. Preferably, you may want to work with a tenant rep who can help you avoid the common pitfalls when subleasing a property. A tenant rep broker can help you determine the best rate for your space, and also help you navigate the extremely complex negotiation process.