The Pros and Cons of Subleasing Commercial Space
Weighing the Advantages and Disadvantages of Subleases
There are many advantages to subleasing commercial spaces. But to get the most out of subleasing, be sure you shop around first because subleasing space also has its disadvantages. When you sublease—you become the subtenant—you are really renting space from another tenant—not the owner. Due to the subordinate nature of a sublease, you must be sure to understand the risks and benefits involved.
Subleasing laws will vary by state, so, be sure to check the landlord-tenant laws of your area before entering into a contract.
The Original Tenant
There are many reasons a tenant may decide to sublease space. Perhaps the original tenant—known as the sublessor—had too much space and wanted to sublease to make income by filling the empty office. The tenant may have grown too big and moved but was still locked into a long-term agreement so needed to sublease to cover costs.
Whatever the reason for a tenant sublease, you must carefully read the contracts involved to protect yourself. Ask the original tenant to see their lease with the property owner or property manager. Make sure the owner has agreed to allow the tenant to sublease the property. The sublessor who will not show you their original lease should not be trusted.
Never accept a first sublease rent offer. Always try to negotiate a better deal.
Pros of Subleasing Commercial Spaces
Subleasing commercial space can be very advantageous for a smaller business or one that is just starting out. Often, sublease space is more affordable than a standard commercial lease, and it may be easier to qualify for a sublease than for an exclusive lease.
You can rent just the space you need. If your business is small and you only need several hundred square feet, you will find a lot more options in subleasing markets. Most subleased spaces are already finished. You won't have to worry about upgrades and build-outs.
Fewer "Strings Attached"
Subleases are generally simpler and more straightforward than other complicated types of commercial leases. However, subleases are still binding legal documents and are also contingent on the original lease. You should give strong consideration to having an attorney or trusted realtor view the sublessor's lease, as well as the sublease before signing.
Access to Common Areas, Perks, and Networking
Many subleased spaces provide access to reception areas, break rooms, conference rooms, storage, and other shared spaces at a reduced cost or, in some cases, even for free.
Since subleased spaces are part of a bigger space, you may not have to pay for alarm systems or internet access if space is already wired for these things.
Also, if you work alone, you may benefit from subleasing space if you team with someone in a similar profession. You may get business or client referrals, have a new peer to talk industry with, or share resources.
Access to Administrative Support
If space is shared, and you are not in the office all day, other sublessees or employees of the sublessor may be able to answer your phones, receive mail and packages, or greet unexpected visitors. If you ask for these services, you may need to pay for them, but you won't have to be tied to the office all day just to get the mail.
Many sublessees can negotiate leases that allow them access to the sublessor's FAX and photocopying machines or other office technology, requiring fewer pieces of equipment to purchase.
Option to Take Entire Space
If the sublessor wants to move before their lease is up, they may be able to sublease the entire space to you. It can make obtaining larger spaces easier to qualify for if you have an existing financial relationship with a sublessor, and should you wish to keep the space after the original lease has expired, you may be in a better position to negotiate your lease with the actual landlord.
No CAM or Other Unpredictable Fees
In a typical sublease, you are responsible for repairing the damages you cause. However, your sublessor—or their landlord—is usually required to repair and maintain common areas. Review the lease held by the original tenant and see who is responsible for the various maintenance listed.
In most cases, subleases are fully serviced leases with a flat monthly rent. This flat-rate rent means there are no common area maintenance (CAM) charges and other unpredictable fees. It can make budgeting for rent payments easier.
Cons of Subleasing Commercial Spaces
The disadvantages of subleasing are mostly logistical or legal. These difficulties are not to be ignored as they can cost you don't address them at the start.
You may be limited on how you can use the property. Be sure to check the zoning in the area you expect to sublease to make sure your type of business is allowable. Also, make sure that the other businesses in the adjacent spaces are compatible with yours. You don't want loud banging or other noise when you are on the phone with a client.
Subleasing could also affect your access to exterior and interior signs or other forms of advertising. It may present a "smaller business" feel to clients who come to your office. For this reason, it is helpful to sublease from someone in the same profession. For example, an attorney should first seek to sublease from another attorney if they are sharing space. By teaming with other similar professions, it can help dispel the small business atmosphere.
You are also at the mercy of the decorating tastes of your sublessor. You will be limited to the changes you can do with the spaces you sublease.
Unfavorable Terms Can Be Passed Along to You
Legal issues can arise if you have problems with either the sublessor or the sublessor's landlord. To minimize your legal exposure and protect rights as a sublessee, be sure to have an attorney review your sublease and the original lease before signing.
If the sublessor negotiated a "bad" deal with their landlord, they might try to pass certain fees and higher rent along to you. Be sure to read both the sublease and original lease and compare your sublease terms to other comparable rents and offers in similar spaces. This is one reason why you should look at as many other spaces as possible before deciding on any particular space.
Default by Sublessor
If your sublessor defaults by not paying the landlord or property manager, it could affect your sublease. For example, you pay the sublessor rent, but the sublessor does not pay their landlord.
You can address this by including in your sublease rights to recover costs and damages if you are evicted because of the sublessor defaulting.
Delays in Maintenance Services
If you need repairs to the property or other services provided by the landlord, you may still have to go through the sublessor for remedy. It can cause delays and headaches in problems being addressed and can complicate legal remedies for unresolved problems.
Despite the disadvantages, subleasing generally offers new and small business owners an affordable and convenient way to get out of the home-based office and into the "real" world.
It is important to review the pros and cons of each opportunity and have a professional—attorney or licensed real estate agent—review the documents before signing.
The information contained in this article is not legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current legal advice, please consult with an attorney.