Change happens in business, which can make you feel that leasing office space is inflexible. One of the ways to create flexibility is through subleasing. Subleasing is an agreement that allows a tenant, known as the sublessor, to lease out a portion or all of their leased space to another party, called the sublessee. This arrangement can offer you options if you have surplus space or are looking to downsize without breaking your existing lease. 

Several scenarios may lead you to consider subleasing your office space:

1. Growth: Companies can experience unplanned growth and simply need more space for administrative, training, and other professional staff. Subleasing can help offset the cost of the existing space while the company moves forward with leasing/purchasing a new space that fits.
2. Downsizing: Businesses experiencing a shift in operations or staff size may find themselves with more space than they need. Subleasing allows them to reduce costs without terminating their lease.
3. Relocation: Companies planning to move to a larger or more strategically located space might still have time left on their current lease. Subleasing can mitigate the financial burden of paying for two spaces simultaneously.
4. Seasonal or Temporary Needs: Some businesses may have temporary changes in their space requirements. Subleasing can provide a short-term solution without long-term commitments.
5. Financial Relief: In challenging economic times, subleasing can help businesses manage cash flow by offsetting rental expenses.

So you want to get started? Here are our top things to consider if you are a business owner/tenant and want to sublease your space:

1. Read and understand your rights and obligations under of your existing lease.
   • The Basics: You’ll want to understand the square footage of premises, base rent, operating expenses/pass-throughs, permitted use, services (including janitorial) and remaining lease term. The remaining lease term is especially key as it can have a significant impact on the market value of your space.
   • Your rights: Typically, there will be a sublease/assignment clause in your lease which details what you can and cannot do with regard to subleasing and assigning your lease. For example, landlords may put restrictions in leases that prevent you from marketing your space at a rate below the prevailing rental rate of the building. Other common restrictions may be related to marketing or leasing to other tenants of the building or the financial health of the prospective sublessee.
   • Landlord’s rights: Your lease will also typically outline the Landlord’s rights related to a potential sublease. For example, it is common to need the landlord’s approval of a prospective sublessee. It is also common that the landlord charges a fee to review the proposed sublease to help cover their attorney’s fees. Furthermore, landlords may include a right to recapture your space rather than allowing you to sublease.  You may also find that you have a profit-sharing obligation in the event your sublease is negotiated at a rate higher than your existing lease.
2. Understand the costs related to subleasing. In a sublease scenario, you are playing the dual role of landlord and tenant.  As you analyze your options, you should be aware of additional expenses such as brokerage commissions and other marketing expenses, attorney’s fees to draft the sublease, leasing concessions like a tenant improvement allowance, and any fees related to securing the landlord’s approval.

Conclusion
Before proceeding with a sublease, it is crucial to review the original lease agreement to ensure subleasing is permitted and to understand any specific conditions or restrictions imposed by the landlord. Subleasing can be complicated, and you will want a qualified team to assist and advise you with a potential transaction to ensure that you maximize value and minimize risk.  If you are a business owner needing guidance with a sublease scenario, we are happy to help!

Call us at 704.219.0908, email Barrett@FowlerPropertyAdvisors.com, or schedule an appointment using the button below.