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An Introduction to Subleasing Commercial Space

Posted by Lance Langenhoven on July 17, 2014
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Unless you’re running your business from a home office, you’re going to need commercial property at some point. There are many options these days when it comes to securing it. One possibility every business should consider is taking advantage of subleasing. There are a number of unique benefits possible for either party involved.  So before you sign any papers for your commercial property, consider the following about subleasing.

What Does Subleasing Commercial Property Entail?

For the most part, subleasing in the commercial realm is no different than with private property. An individual or company rents property from a landlord—or some commercial equivalent—and, in turn, offers up all or some of it to another party to rent.

In the case of one party handing over the entire property to another, many people refer to that situation as an assignment. In this article, however, subleasing will refer to this situation or one where only some of the property is handed over.

Let’s now take a look at some of the benefits of this practice, starting with renting the property out to tenants.

More Affordable Space

Every company is looking for ways to save in today’s economy. Sometimes, though, one of their best options goes unnoticed, albeit for good reason. Most businesses simply aren’t prepared to think of spending more money as a way to save it. However, if your company spent more to rent more room than they needed, they could actually end up saving on rent by subletting it to another company. This added revenue would offset your company’s own overhead for occupying their space.

Get New Space When You Need It

On the other hand, some companies may actually be at a point where they’re looking to expand their operation. This often entails taking on more space. If they’re still under a lease agreement, though, they could face all kinds of penalties for breaking it in order to get the commercial space they need. Otherwise, they may need to go with a less-than-ideal solution like renting out a secondary space somewhere else and splitting the company until the original lease is up (they’d obviously have to synchronize the second lease to end at the right time too).

However, by, renting your space out to another company, you can keep the original lease intact. Plus, like the prior example pointed out, you now have extra revenue coming in to help you pay for that office space you need to expand your business.

Prior to Renting

However, if you wish to take advantage of subleasing as a tenant, you need to first make sure the company you’re renting from approves. You can always ask after the rental period begins, but it’s best to have the option stipulated in your contract.

Obviously, you need to consider possible risks as well. Once you rent your property to another party, you’re responsible for what happens. So there’s a lot of due diligence you’ll need to handle before handing over the keys to another company. You may even need to check with the owner first to ensure they approve of your choice.

Any damage they do or changes they make to the property are on your head. However, don’t forget that you’re relying on their rent to cover your lease too. If they don’t pay, you now have the pleasure of being on the hook for two separate leases.

Now, let’s move onto the other side of the coin. Say you’re in need of commercial space; is it still a good idea to lease from someone who’s the original tenant and not the actual “landlord”? It’s definitely worth your consideration and here’s why:

Ready Made

First of all, your commercial space will generally come ready-made for your company. Especially in situations where the original renter moved on to a bigger space or had to leave because of downsizing, you’ll have to spend a lot less time and money making the property fit your needs.

Preferable Terms

You’ll also find that a lot of these properties will come with far more preferable terms. For one thing, many leases will be much shorter than the standard length. This is ideal for companies that are just starting out and may not know what their future will hold. Instead of signing papers for monthly rent you may not be able to afford next year, sign a shorter lease that will cost you less too.

Discounted Rent

That’s right: your rent will generally be a lot cheaper as well. This is to be expected though, especially when you’re renting a portion of the larger whole. In this economy, saving on overhead like rent can make all the difference.

Be Sure of the Original Tenant

That being said, make sure you do your research on the party renting to you. Remember that it’s not their property, so you’ll want to know what their lease agreement is like in terms of what’s subject to change. You also need to trust they’ll make their payments to the actual owners too. If they don’t, you may lose your space along with them.

Instead of rushing into a rent agreement, consider all the benefits that come from the world of subleasing. The benefits are too good to ignore.

Sources:

http://www.nolo.com/legal-encyclopedia/clb-sublet-assignment-clauses-commercial-leases.html

http://womeninbusiness.about.com/od/subleasingcommercialspace/a/procon-sublease_2.htm

http://www.officepropertygroup.com/subleasing-and-the-risks-associated

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