Subleases in Commercial Real Estate: Rights and Responsibilities

A for rent sign nailed to a fence

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A sublease is a lease or rental agreement between a tenant who already holds a lease to a commercial space or property and another party—called the sublessee or subtenant—who wants to use part or all of that space. The tenant assigns or gives certain rights to the sublessee that they hold under the terms of their own original lease with the landlord. 

Landlord Approval

A sublessor cannot sublet their premises unless they are permitted to do so according to the terms contained in their own lease. If the lease doesn't say that subleasing is prohibited, but it doesn't specifically allow it either, you can approach the landlord for permission and ideally get that permission in writing. Otherwise, it's possible that the landlord would have grounds for eviction—particularly if the sublessor has vacated the premises and turned it over entirely to the sublessee.

In that case, the landlord would have an unknown third party in their property, and should they take legal steps to remove the sublessee from the premises, the sublessee might have legal recourse against the sublessor for entering into an insupportable agreement and assigning rights that they had no entitlement to assign.

Some larger cities have ordinances in place that obligate landlords to accept subleases, but this is more common with residential properties than with commercial properties. If you're thinking of entering into such an arrangement, consult with your landlord and possibly a local attorney.

Rent Responsibilities

A sublessee pays their rent to the original tenant, who is commonly called the sublessor. They may either share the rented space with the sublessor or take over the entire space; they don't pay rent directly to the landlord.

The sublessor remains legally responsible for the rent payments to the landlord under the terms of the original lease. If the sublessee doesn't pay the rent, the responsibility falls on the sublessor. It's always a good idea to screen your potential subtenant for this reason. Take a look at their credit report before entering into a sublease with them. 

There's usually no rule that says a sublessor can't charge the sublessee more rent than they are currently paying to the landlord, but state laws vary, so check before you try to turn a profit on the arrangement. 

Damage and Repair Responsibilities

The original tenant or sublessor would be legally responsible for the cost of repairs if the sublessee damages the property unless this eventuality is covered in the sublease. Even then, the sublessor remains responsible for the damage under his original contract or lease with the landlord if the sublessee defaults and refuses to pay up. A sublease doesn't supersede the original lease; it's more of a private arrangement between the sublessor and sublessee.

Assignable Rights 

A sublessor cannot legally assign rights to a sublessee that they don't already hold under the terms of their own lease or rental arrangement with the landlord. For example, if the leased space is in a complex with assigned parking spots, the sublessor can't grant more parking spots than they have a right to under the terms of their original lease—although they are within their rights to give less.

The Bottom Line

Subleasing can be a wise move in commercial real estate, but both the sublessee and the sublessor have to be aware of their rights and responsibilities under the law.