As employees choose to work from home long-term, more and more businesses are finding themselves with a surplus of space. Subleasing space can be an effective way to maximize the value of your real estate with a new revenue stream. Adding a subtenant can help you downsize without having to move, or help you cover the final lease payments if you relocate before the agreement ends. Here’s what to consider when subletting your office and where to start.
[Read more: Coworking Space vs. Traditional Office Space: Which Is Right for You?]
Check your lease requirements
Before subleasing to another tenant, you must get clearance from your existing landlord, if you have one. If you own the space, then you can move on to the next step.
First, check your lease agreement to see which restrictions and rights are designated to you and which are under the control of your landlord. If your lease doesn’t allow for subtenants, you can try to work with the landlord to get their consent. If it does allow for subtenants, you will need to work with the landlord to determine the details of this allowance.
“[Y]ou’ll want to make sure that there are no restrictions on what type of tenant you can solicit. Some landlords may want to limit what type of tenants occupy their building, prevent you from subleasing to an existing tenant in the building or restrict your right to sublease to tenants who have shown interest to some degree in the building directly,” wrote one commercial property expert.
Hash out details regarding how long you can sublet a space, whether or not you can advertise for sublessors and the type of tenant deemed acceptable before you go out and find a new tenant.
Determine the price and lease term
When you consider how to price your sublease, consider a few of these factors:
- Market conditions. Are there a lot of leases available, or will your space be in high demand?
- Your rental rate. How much are you paying your landlord?
- The layout and space available. How much space can you offer? Are there private offices or hot desks available? What furniture can you offer?
- Other building tenants. What are other tenants in the building paying for comparable spaces/arrangements?
- Time horizon. How soon do you need to secure a subtenant?
“In some situations, you may stand to profit from a sublease if the market is tight and your rental rate is well below market. In this case, you may be able to secure a sublease rate above your own rental obligation,” wrote Aquila Commercial.
In some situations, you may stand to profit from a sublease if the market is tight and your rental rate is well below market. In this case, you may be able to secure a sublease rate above your own rental obligation.
Aquila Commerical
Vet potential subtenants
This step is probably the most challenging part of the whole sublet process. Finding a tenant that’s compatible with your business is not always easy. First, you want to be sure you aren’t subletting to a competitor. Second, it’s important to do your due diligence to make sure the tenant can pay their share of the rent. Collect financial statements and get recommendations from previous landlords to make sure the business owner can pay on time. Lastly, make sure the business is compatible with your company culture. You don’t want noisy neighbors disrupting your operations or disturbing customers. Spend time vetting potential subtenants before extending a lease offer.
[Read more: When to Consider a Shared Office Space]
Finalize a sublease agreement
Finally, once you have a tenant in mind, create a sublease agreement with terms and conditions for sharing your space. This agreement should cover things such as:
- Lease term and monthly payment.
- Payments for utilities.
- Shared amenities, office services and potential renovations.
- Branding.
- Office environment/code of conduct.
You may also ask the subtenant to pay a security deposit in case of any damages. It’s a good idea to run the agreement by an attorney before signing the sublease to make sure there are no conflicts of interest with your original lease agreement. Then, schedule a moving day and get to know your new tenants.
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