When you are quoted a commercial real estate price per square foot by a broker or a landlord, you may be wondering: What does this rate include? How is it... Read More
If you’re renting office space but not using all of it for your business, why let it go to waste? Much like apartment renters use Airbnb to rent out their extra rooms, businesses can sublease office space for extra money.
How to Sublease Your Office Space
- Check your lease. Don’t go through all the trouble of finding subtenants before ensuring you’re allowed to sublease your office. Dig up your leasing contract and make sure it allows for subtenants. Have an attorney read the lease and help you determine whether you can sublease, and if so, which terms and conditions apply.
- Talk to nearby businesses. Once you determine that you are, in fact, allowed to sublease your space, it’s time to find subtenants. Before you offer the space to just anyone, ask those already working nearby. Companies operating in close by office spaces or buildings may be looking to expand. You may even already know them, and they may be able to move in more quickly than someone new. If you don’t directly know anyone looking to sublease, streamlined services like PivotDesk – an online marketplace where businesses can find or advertise shared office space – give you access to a pool of tenants looking to share a portion of an office.
- Carefully screen applicants. This step is possibly the most important. Having subtenants could be great, but not if you acquire the wrong type of neighbor. First, make sure you are not subleasing the space to a company working in a competing industry. The anchor tenant in a commercial area may have an agreement with the landlord specifying that no other companies in their industry can rent office space in the complex. Second, make sure that your subtenants will be able to pay their share of the rent; remember, even if they don’t pay their rent to you, you still owe the full rent to the landlord. Third, choose subtenants you don’t mind seeing every day. For example, if there’s any chance they’d be loud or disruptive in any way, you won’t want them working in your office.
- Decide on a leasing price. Typically, businesses and individuals are interested in subleasing rather than leasing an entire space because of the shorter lease and the reduced costs. Keep this in mind when deciding upon rent charges for your subtenant. Also, remember that some leases prohibit tenants from charging enough in sub-rental fees to make a profit rather than just to help cover the rent they owe the landlord each month. You may also request a damage deposit to cover any potential damages that may occur during the subtenant’s time subleasing your office space. Damage deposits are typically equal to one month’s rent.
- Agree on the terms. You will need to discuss factors like potential renovations; lease terms; payments for utilities; sharing amenities and office services; branding; and office environment. Be sure to make all of these arrangements up-front and include them in the sublease paperwork. It should go without saying, but make sure you ask an attorney to ensure all the paperwork is correct before moving forward.
- Finalize the agreement. Once you’ve chosen subtenants and agreed to the terms of the sublease, it’s time to sign the paperwork and let them move in.
3 Reasons to Sublease Office Space
Why should your business consider subleasing office space? Under a typical leasing situation, you as the tenant rent the space from the landlord. When you sublease your office space, you become a sublessor, and those renting from you become your subtenants. The subtenants sign an agreement with you and pay you the rent directly. Then you pay the entire rent to the landlord. Businesses choose to sublease some or all of their office space for many reasons, mostly revolving around trying to avoid breaking their current lease and paying the associated costs (usually losing your security deposit and paying an additional fee). Entrepreneurs, freelancers, startups and small companies are usually the ones looking to sublease properties because they don’t need or can’t afford to rent an entire office space outright.
Let’s talk about some common reasons for subleasing office space. And finally, we’ll walk you through the subleasing process. Get ready to start saving money on your rent!
Reason #1: You have space you’re not going to use. This is the most straightforward reason to sublease. Maybe when you first leased the space, the office was just the right size, but you’ve downsized since then. That means you’re paying for space you don’t use. Maybe that was OK for a while, but company sales are down, and you’re hurting for cash. Instead of letting the extra space go to waste, you may choose to find a subtenant to offset the overall rental price.
Reason #2: You have space you don’t need yet. It’s important to choose office space that allows for company growth. That’s why you may find yourself renting a building with extra private offices or usable space that you can’t fill with new employees until a year or so down the road when the company generates more revenue. In this case, you might find some short-term subtenants to help you pay rent until you can afford to hire additional employees.
Reason #3: You need to move to another office. Most leases last at least three to five years. If your company grows faster than expected or you want a change of scenery, you may find yourself considering breaking your lease. However, subleasing your old space to some subtenants while you move into a better space may be a less messy and more cost-effective solution. If you want to avoid the three to five year lease term altogether and instead opt for a flexible, shorter-term office solution, you may benefit from FLEX by SquareFoot.
What to Consider Before Subleasing Your Office
Before you start subleasing your office space, realize potential drawbacks exist. Read through this list of considerations to make sure subleasing is right for you before you start sharing your workspace.
You’re responsible for damages.
- Since you signed the original lease with the landlord, you’re responsible for returning the space in its original condition at the end of the lease. While commercial subtenants are typically responsible for maintaining the property, you as the sublessor become responsible should they refuse to repair or pay for the damages.
- You must pay the rent no matter what. One of the most popular reasons to sublease is so the subtenants will help you pay the rent, but what if they don’t? Well, you still owe the full amount to the landlord.
You must ensure subleasing is practical.
- Even if you have a few extra offices, subleasing may not be realistic. First, ensure the office space includes entrances and exits that can accommodate everyone. Second, make sure there is enough parking. Your future subtenants might need extra space for visiting contractors and clients to park. Third, ensure shared areas like kitchens, hallways, and common areas will not become overcrowded with the addition of some subtenants.
Keep privacy in mind.
- Inviting employees with a different company to work in close proximity to you means they will often be within earshot. Remind your employees to talk about sensitive information—such as finances or customers’ personal information—only behind closed doors. Or, if this is too much trouble, subleasing may simply not be a good idea.
The office environment could potentially change.
- Subtenants will change the culture and character of the space to some degree, so be sure to take this into consideration. Will they disrupt visitors’ perception of your company? Will they have any kind of negative impact on your brand? Will they cause too much excess noise for your employees to work effectively?
When the Tenant Becomes the Landlord
If you have carefully weighed the pros and cons of subleasing and dutifully screened any potential subtenants, you’re well on your way to saving money on rent—and gaining some possibly interesting office neighbors. The bottom line is this: subleasing is a popular way to save money, but always do your homework first.
Don’t go it alone—get assistance finding the right subtenants to share your space. Maybe you need help drafting a sublease that benefits you and your subtenants and covers all of the legal details. Or, perhaps you want suggestions for new office spaces your company can move into while you sublease the old space.
Contact us, and we’ll put you in touch with one of our tenant brokers. We look forward to answering all of your subleasing-related questions.