Industry jargon. Commercial real estate is chock-full of it. Whether you have negotiated a commercial lease before or it’s your first time, chances are you will run into some potentially... Read More
In the real estate market, you will sometimes hear the terms sublet and sublease in reference to a particular type of rental agreement. Considering the use of sublet vs sublease, you may be wondering if these terms mean the same thing, or if there are any significant differences in these types of leases.
Sublet vs sublease: Meaning, Definition & The Difference
Essentially, sublet and sublease are two different words for the same concept. The suffixes of each word, “let” and “lease,” both mean to rent out a property (although that use of let – a verb with several meanings – is more common in British English).
So, if you encounter these terms while looking to rent a property, rest assured that there is no discernable difference between sublet vs sublease—they mean the same thing.
What it means to sublet or sublease a property
Now that we’ve established that the battle of sublet vs sublease is an unnecessary one, since they are identical concepts—what do they mean?
If a company sublets or subleases a property, essentially what they are doing is renting it out to another renter. That is to say, the company that holds the original lease agreement with the landlord for the property is now leasing also known as ‘subleasing’ it to a new tenant.
Typically a tenant chooses to sublet or sublease the property that they are renting if for some reason they cannot presently stay there, but they have a current lease agreement that they are unwilling or unable to break. By subletting the property to a new tenant, they can collect rent and pass it along to the landlord. The responsibility for paying the rent still lies with the tenant who has a lease agreement with the landlord of the building.
What is a lessor vs. leasee? The definitions
These are the three main parties involved in a sublet or sublease agreement:
Landlord / Lessor – This is the property owner who offered the original lease agreement to the tenant and who that tenant pays rent to each month.
Sublessor / Lessee / Tenant – This is the original tenant renting the property who has an established lease agreement with the landlord. In relation to the landlord, this party is the lessee. In relation to a subtenant, this party is the sublessor.
Subtenant – This party is the new tenant renting the property from the original lessee or tenant of the property.
The advantages of subleasing
While at first glance subletting may seem to add an unnecessary layer of complexity to the rental process, there are many reasons that all three parties might favor subleasing.
For the subtenant:
If your company is looking for a short-term situation and you don’t want to have to commit to a long lease, subleasing can be ideal. In commercial real estate, where leases are often as long as five or 10 years, this especially makes sense for seasonal businesses (e.g. a Halloween store) or rapidly growing start-ups that may be unsure how much office space they will need in a year or two.
A willingness to consider a sublease agreement may also open up a wider array of rental options in terms of size, space and location when you are searching for just the right property for your business. Subletting can also offer the subtenant much better rates than if they were taking on a direct lease.
For the sublessor:
Imagine that your business has grown exponentially and you need more office space, or you have had to make cuts when you are only three years into a five-year lease agreement. To avoid trying to break the contract with the landlord, you could find a subtenant to occupy the property for the next two years, and pay you the rent, which you will then pay to the landlord. This would allow you to continue honoring the rental agreement without having to continue paying for a property that you no longer need to occupy.
Another situation may be that your business has not grown at the rate you initially expected, leaving you with some office space sitting empty. Rather than letting that valuable space go to waste, you could sublet it to a smaller business and collect rent on it.
Solutions like PivotDesk connect businesses who have excess office space with those companies who are looking for a few desks.
For the landlord:
Ideally a landlord wants their properties to always be occupied by reliable renters who pay faithfully each and every month. But if a tenant is unable to complete the lease term and another tenant has to be found, this can cost the landlord in everything from real estate broker expenses to lost revenue from the time the property is unoccupied. Therefore, if an existing tenant is able to bring in a subtenant to continue paying rent for the rest of the lease term, that is likely a better situation for the landlord as well.
Responsibilities among each party
In commercial real estate, the landlord is almost always aware that the tenant is subletting the space to a subtenant. (If not, the situation is usually described as an illegal sublet – but this most often happens in residential real estate.) Depending on the landlord’s preference, the subtenant may either pay the tenant (who in turn pays the landlord) each month or the subtenant may make their rental payments directly to the landlord.
The subtenant will need to abide by the same rules in the original lease as the tenant, since the terms of that lease are essentially still in effect. Since the original tenant is now acting in the role of a sublandlord, they should take the responsibility of ensuring that the subtenant doesn’t do anything to violate the lease terms.
Do you need a new rental agreement when subleasing?
While the original rental agreement signed between the landlord and the tenant is still valid for the property being leased, a new sublease agreement should also be signed between the tenant and the subtenant. This agreement will also likely include a place for the landlord’s signature as well, since they should have the opportunity to “sign off” on the sublease as well.
If you need any guidance or resources (such as the best type of sublease contract to sign) when considering a sublet / sublease situation, consider consulting an experienced commercial real estate broker. They will be able to give you advice and to ensure that you enter the agreement fully understanding all of the potential pros and cons.