From availability and cost to occupancy and maintenance needs, office space is always in flux. Businesses typically rent office space through a commercial lease, a legal contract made between a landlord and tenant. Sometimes a business signs a lease, but must vacate that building due to growth or ends up with extra office space as a result of downsizing or changing workforce occupancy needs. As a result, many organisations sublease office space to recoup the costs of that lease. In a commercial sublease, the tenant becomes the sublessor, collects rent from a subtenant, and pays the full rent amount to the landlord. There are some important things to consider before jumping into a subleasing agreement with a subtenant. Here are four tips for minimising risk and successfully subleasing your office space.
Why organisations sublease office space
There are many reasons why businesses choose to sublease some or all of their workspace. With an office sublease, businesses are trying to avoid breaking the terms of their current lease, losing the security deposit, and paying additional fees. As more businesses employ modern workspace strategies such as co-working, flex time, remote, and hotelling options, the amount of extra space increases. Instead of leaving that space unused, many successful organisations are subletting to offset rental expenses. Businesses can also use a short-term commercial sublease to help pay for rent until projected growth is realised or more employees are hired. Sometimes the business grows faster than expected and needs a larger space. Rather than breaking the lease, your organisation could still move to a larger location and sublease the entire space.
What you need to know before you sublease
How does subletting work? In a commercial lease, a lessor and tenant (your business) enter into a contract with terms that govern costs, rights, and responsibilities. In an office sublease arrangement, your organisation becomes a sublessor and your tenant becomes a subtenant. There are benefits and some potential drawbacks associated with a commercial sublease.
In order to be successful in your subleasing efforts, it’s essential to be prepared. Your business should review the terms of your lease, any supplementary documentation, and consult with your solicitor before subleasing. The first thing you need to review is whether your lease allows subletting and whether or not you need to get consent from your landlord. Additionally, your organisation will want to inspect the available space to see if it’s suitable for sublease. Does it have access to toilets and kitchen space? Does it offer enough electrical outlets and lighting? If you’re only leasing a portion of your office space, will a subtenant negatively impact your ability to conduct business?
Four tips for creating a successful sublease
To keep pace with changing occupancy needs and employ modern workspace strategies, competitive businesses are learning how to reduce expenses with subleasing. Your organisation must be prepared to protect its rights and responsibilities when entering into a sublease agreement. Here are four best practises to follow when subleasing:
1. Examine your commercial lease agreement and terms.
Consult with your solicitor or a commercial real estate agent to ensure you fully understand your contract. Be aware of common subletting restrictions including no subleasing to other tenants in the building, no discounting your net rent, and no profiting from your sublease.
2. Scrutinize prospective subtenants, including checking references.
It’s important to screen applicants to ensure their presence won’t violate the terms of the lease—for example, your landlord may have an agreement with another tenant that prevents competitors from renting in the same building. Your organisation also needs to verify the subtenant’s financials and ensure they will be good neighbours.
3. Determine costs for rent, fees, and security deposits.
Be sure to follow the terms of your lease; as mentioned above, you may be prohibited from making a profit on your sublease. Many businesses request a security deposit equal to one month’s rent to cover potential damages and require the subtenant to get an insurance certificate.
4. Review all terms before you sign and finalise the agreement.
Similar to your organisation’s commercial lease, the office sublease should cover property rights and responsibilities including utility payments, maintenance, signage, and other amenities. Check whether your landlord needs to approve the sublease before it’s finaliaed. Remember, your business is still accountable, so make sure all the legal details are covered before the subtenants move in.
Proactively plan for all your office space needs
Businesses that proactively plan for workspace flexibility and occupancy needs can reduce costs and drive growth. Understanding the benefits and drawbacks of subleasing is important to minimize risk and ensure workspace plans are aligned with organisational goals. Asure Software can be a strong partner in helping you manage your space, occupancy, and assets to create a smarter office.