Subleasing Your Office Space – Top Things to Know

Key Takeaways

Subleasing office space can provide financial flexibility for businesses facing growth, downsizing, relocation, or changing space needs, but it requires careful review of your existing lease before moving forward.

• Subleasing allows a tenant to lease out part or all of their space to another party, helping offset rental costs without breaking an existing lease agreement.
• Common reasons businesses consider subleasing include growth leading to an unplanned relocation, staff reductions, planned relocations, temporary space needs, and the need for financial relief during difficult periods.
• Before marketing your space, review your lease carefully for sublease restrictions, including limitations on pricing, profit sharing with the landlord, prospective tenant eligibility, and the landlord’s right to recapture the space.
• Subleasing comes with additional costs beyond your existing rent, including brokerage commissions, attorney fees to draft the sublease, tenant improvement allowances, and any fees required for landlord approval.
• Working with a qualified team of advisors helps ensure you maximize value, stay compliant with your lease terms, and minimize risk throughout the subleasing process.

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:

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.

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.

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.

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.

Financial Relief

In challenging economic times, subleasing can help businesses manage cash flow by offsetting rental expenses.

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

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.

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.

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 important to review the original lease agreement. You’ll want to make sure subleasing is permitted and to understand any specific conditions or restrictions imposed by the landlord.

Subleasing can be complicated. 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.

Frequently Asked Questions About Subleasing Office Space