Subleasing office space may not currently be on your radar, but the idea of selling or purchasing space may not be ideal for you amid other budgetary restrictions — especially as business costs rise. The option can be an excellent alternative for many business owners, though, because it allows their companies to have the space they need to function while earning money off the rooms they don’t need.
A lot goes into deciding if subleases are right for your operations, however. This quick guide will help clear up any confusion around the pros and cons of subleasing office space and show you how it can be a game changer for your business.
What Is a Sublease?
A sublease involves renting property to a third party for a portion of your existing lease contract. Under a sublease, the original tenant is still liable for all the obligations stated under the lease agreement. There are usually five steps involved in the subleasing process:
- Check the Terms of Your Current Lease Agreement
You need to always check whether the terms and conditions of your lease allow for subletting office space. Many commercial lease agreements do not, while others simply require permission from the landlord first.
- Search for Potential Subtenants
The next step involves finding qualified subtenants. It is usually not hard to find eager businesses to rent a reduced-rate sublet, but this also depends on the market. Before you start advertising, start talking with companies you are already familiar with. They may be your best candidates.
- Vet Potential Subtenants Carefully
Your subtenant will be paying the rent to you, so this step is critical. In this agreement, you are still responsible for any damages caused by the subtenant or any rent that is not paid. That is why you should make sure to check for any red flags before you sign the sublease agreement.
- Determine the Price and Draft the Contract Terms
It is best to speak to an experienced real estate attorney to do this. Contracts protect you legally from possible issues, so you want to make sure yours provides you with the best protection there is. These contracts need to consider renovations, utility payments, security deposits, branding, amenity costs, and other concerns faced by sublessors.
- Finalize the Agreement
Once you decide on the tenant and the contract terms, it is time to finalize the agreement and allow your subtenant to move in.
Subleasing is a great opportunity for many businesses, but it is still essential to make sure you take care of all the details and do your due diligence before you start the process. Doing so can save you a lot of headaches and stress later on.
Three Pros of Subleasing
Subleasing your commercial space can provide you with many advantages, especially if you are a small business or just starting out. These pros include:
- Shared Resources
If you are sharing space, you can benefit from shared customers, resources, networking, workplace diversity, and even a reduced carbon footprint.
- More Flexibility
Subleasing agreements are often more straightforward than other complicated commercial leases and are easier for you to manage.
- Quickly Transfer Partial Rights
Subleasing can prevent you from breaking your lease term and help you save money. You can also quickly transfer partial rights to your office space and start saving almost immediately.
In most instances, subleasing is the perfect solution when you are looking to save money or maximize unused office space. However, sublease agreements are not without their issues.
Three Cons of Subleasing
Often, the most significant disadvantages of subleasing office space are the legal or logistical problems. These difficulties tend to involve the following:
- Business Incompatibility
Depending on the zoning laws in the area, some businesses may not be allowed. Before you sublease, you need to make sure the new company is compatible. This is not only to save you from legal troubles but also for your own sanity as well: You do not want to be dealing with loud banging when you are on the phone with a client.
- Subtenant Defaults on Payment
Even though the subtenant pays rent to you, the entire space is still your responsibility according to the original lease. This means that even if your sublessee does not pay, you will remain on the hook to the landlord or property manager.
- Rental Reliance
If subletting is crucial for you to make your rental payments, it can be a highly risky arrangement. Why? Because the sublessee can vacate the premises at any time and leave you with a huge bill. In cases like these, you want to make sure you are not at your subtenant’s mercy — and that you have extra cash around in case you do need to cover all the rent that month.
Before letting these negatives sway your decision to sublease, you need to figure out if subleasing is right for your business. In most cases, it can provide your company with fantastic opportunities and financial freedom.
How to Know If Subleasing Is Right for Your Company
If you are trying to figure out if subletting might be a good option under your company’s lease, consider the following questions:
- Does my lease allow for subletting?
- Is this the best financial decision for my company?
- What type of subletter do I want?
- Do I know anyone that is looking to sublet?
- What does the written agreement need to look like?
Going over these critical issues can genuinely help you figure out if you are ready to sublease and whether it is the best decision for your company.
What to Do If You’re Not Sure If Subleasing Is Right for Your Company
Even if you have gone over all the pros and cons and examined all the critical questions, you still may not be sure if you are ready to sublease. In these situations, it may be best to work with a trusted commercial real estate advisor that can help walk you through what’s best for your company’s needs.
These advisors will go over all the benefits of subleasing and whether it is right for your business. They can also help you save money and time by finding the right tenant broker for you — one who can assist you through every step of the process.
Subleasing Office Space — Make it Work For You
Whether you are looking for someone to rent out your entire space or help you reduce your monthly rent payments, subletting can be an excellent option for many business owners. But before you start searching for a potential subtenant, it is important to understand your responsibilities and rights. Contact The Genau Group today to discuss your office space subleasing questions or speak with an expert about other commercial real estate needs you might have.