What is subleasing?
Leasing (or letting) means renting out a space by a landlord to a tenant. Therefore, subleasing means renting out a space by that tenant to another tenant.
What are the benefits of subleasing?
Commercial leases are, generally, a long-term contract, which span several years. Therefore, the tenant will tend to look for a space that addresses needs at the time of lease, as well as some anticipated needs. If these anticipated needs do not correspond to the space, in time, there are two scenarios that lead to a sublease situation (usually).
Tenant expansion – a business may outgrow its space during the term of the original lease and, if the original lease did not include an expansion option, the tenant may choose to relocate the whole operation to a bigger space, before the lease expires. In this case, the tenant may choose to pass on the space to a different tenant, for the remaining time of the lease.
Tenant downsizing – alternatively, the business may need to downsize before the original lease expires, in which case it would not be profitable to keep paying for more space than is needed. In such situations, the tenant may seek another tenant with which to share the space, meaning subleasing a portion of the original leased area.
What is a license to sublease?
In either situation, the tenant is required to obtain the approval of the landlord, which is done by a “License to sublease/sublet.” This contract is signed by the landlord, the original tenant and the in-coming sub-tenant.
In this arrangement, the new tenant is liable to the original tenant, who remains liable to the landlord, as per original lease agreement (whether the original tenant vacates the space or shares the lease are with the new tenant).
In the event that the new tenant requires alterations to the space, a “License to alter” of “License to change” may also be required.
Before deciding to sublease, it is preferable to consider the differences between a sublet and an assignment and consider if an assignment may be the better option for all parties involved (see “Assignment”).
You might also be interested in:
Search other terms