Now more than ever, it seems like change is the only constant in the modern work environment and companies of all types need to be flexible and ready to adapt to whatever comes their way. Even office space management presents new challenges in the age of remote and hybrid work. In a traditional office setting, organizations knew exactly how many employees were coming in to work every day, but this is no longer the case. You could have employees working remotely full-time, while others are switching between in-office and work-from-home schedules. In this scenario, space, too, needs to adapt to accommodate these flexible arrangements.
Understandably, all of this makes businesses more reluctant to sign long commercial leases that bind them to a property for several years. Those who choose to rent office space for a longer period may realize a few years into the contract that it’s no longer sustainable for them due to financial or other reasons. Luckily, many of these contracts allow for a bit of flexibility, and this is where subleasing and subletting come into play.
The terms sublease and sublet are often used interchangeably but there are important differences. Both arrangements occur when a tenant wants to lease out a part or the entirety of the space they rent to a third party. What differs is the primary tenant’s relationship with the landlord and their responsibilities regarding the commercial space.
What is a sublease?
We talk about a sublease when the original tenant (sublessor) rents out all or some of the space to a third party (sublessee). The primary tenant remains responsible for fulfilling the terms of the lease, so they will want to find a reliable sublessee who pays rent on time and is careful not to damage the property. Any delays in payment or damages to the property will fall under the sublessor’s responsibility.
Let’s see how this looks in practice. Imagine that you’re the head of an established tech company occupying three floors in an imposing office building somewhere downtown. You’re in the 6th year of a 10-year commercial lease. After recently adopting a hybrid work model, a significant percentage of your employees started working from home most of the time, leaving at least one floor empty. Of course, this didn’t suddenly reduce your rent or overhead costs, so the unused space is starting to put a strain on your budget. What can you do?
The first thing that may come to mind is finding a smaller space that better fits your hybrid staff’s needs. However, this would require you to terminate your current lease, which inevitably brings some fees and penalties with it. You’re also too happy with the location, the view, and overall design of the space to give up on it that easily.
Eventually, you find a more ideal workaround. You remember that your contract allows you to sublease, so all you need to do is search for a smaller business that could occupy the floor you’re no longer using and contribute to the rent. It’ll be a win-win situation: you’ll no longer pay for space that you don’t use, while the smaller company gets to enjoy a welcoming office at a prestigious address. In this scenario, there’s no need to involve the landlord or to draft a whole new contract, either. The primary agreement remains between you and the property owner, while the sublease, as its name suggests, is a secondary relationship between you and the sublessee.
What is a sublet?
Similarly to subleasing, subletting involves looking for a new tenant to occupy the commercial space you’re renting. Here, however, the primary tenant will no longer answer for the original lease – instead, a new relationship will form between the landlord and the new tenant. The latter will be directly responsible for damages and payments. Also, they will write up a whole new contract that will allow for greater transparency and smoother communication between landlord and tenant without any mediators.
How does subletting work in practice? Picture once again that you’re a business owner who’s been renting the same office space for a few years. Except this time, you’re convinced that you need to move to a different building to make ends meet. Your company has seen exponential growth in the past year, and you hired more people than you anticipated so the office no longer meets the demands of your workforce. Simply put, you need to relocate to a larger space.
Here, too, you’ll want to avoid breaking the lease and the fees that come with it, but it’s not enough to share the property with someone else, you need to sublet it. This means that you’re now looking for a third party that will completely take over your lease, leaving you free to sign a contract somewhere else.
Key considerations
As we’ve seen, subleasing and subletting come to the rescue when companies scale up or down and need larger or smaller office spaces for their employees. Along the same lines, subleasing is a good method if your rent is too high or you’re simply trying to save money, so you bring in a new business to share the costs of rent and maintenance. There can be many other causes prompting you to share expenses or to relocate completely and you’ll find subleasing and subletting ideal solutions to suspend or terminate the contract without penalties.
The only question that remains is whether anyone can sublease and sublet, and the answer is, it depends. The first thing you need to ensure is that the local laws and regulations allow for these two practices. Next, you need to carefully review your lease agreement and see if its provisions include the possibility of subleasing and subletting. Last but not least, you have to make sure that your landlord is on board with your plan, which is more of a common courtesy than a legal requirement.
Subleasing and subletting both involve a tenant renting out commercial space to a third party, but they differ in the following aspects:
- Landlord involvement
In a sublease, the primary tenant is responsible for collecting rent or dealing with any damages to the property, as per the initial lease agreement. There will be little or no communication between the new tenant and the landlord because everything goes through the original tenant.
In a sublet, the primary tenant transfers their lease rights and obligations to the new tenant, so a new relationship will form between the landlord and the new tenant.
- Writing the contract
Subletting will inevitably involve drafting a new contract between the landlord and the new tenant. In the case of subleasing, it may not always be necessary, but the original tenant can create a document to be better able to hold the sublessee to its terms.
- Rent payment
Sublessors are responsible for collecting rent from the sublessees and handing the payment over to the landlord. In a sublet, the new tenant pays the amount directly to the landlord.
- Lease termination
If you’re subletting a commercial space, your lease could end immediately or it could be suspended until you return to the space, depending on your agreement with the landlord.
In contrast, a sublease will keep your current contract in place, and you’ll only be able to remove yourself from the property and the responsibilities that come with it when the agreement expires.
To sum up, the only similarity between a sublease and a sublet, then, is the fact that the primary tenant wants to bring in another party for various reasons. This could involve reassigning the lease in the form of a sublet or just sharing the space and the rent as a way to save money.
