Feb 03rd, 2020, By

Should You Sublease Out Your Extra Office Space?

When you sign a lease for office space, you're generally stuck with it. Most lease contracts are pretty clear -- the landlord provides the space and you pay for it. Period. But what happens if you have time left on your lease and you don't need all (or any) of the space? The document says that you're stuck, but you might actually have another option.

 

Most leases have language that give you the right to sublease out the space. You find a tenant. They pay you rent. And you pay the landlord. Everyone wins.

 

How Subleasing Works

First, carefully review your lease to understand what rights you have to find a subtenant for your space. Sometimes, you need your landlord's permission in general. You might also need to run each specific tenant by the landlord for individual approval. Once you know that you can sublease the space, you make it available on the leasing market. Usually, this means hiring an expert tenant rep to help you promote it.

 

Usually, you can lease out your entire space or a portion of it, depending on your needs. If you're only leasing out a portion, think about how you can split the space up to get some separation from your new subtenant. If you're planning to do construction to make this happen, remember to get permission from your landlord. Also, pay attention to physical concerns like making sure everyone has the HVAC controls they need or the entry and egress doors that the fire code requires.

 

Once you find a tenant that you and your landlord accept, negotiate the terms of your sublease, and get it signed. They will usually pay you rent, and you will turn around and use their money to pay some or all of your contracted rent.  This provides a financial solution to some or all of the cost of your unused space.

 

Why Tenants Sublease

Most of the time, tenants go on the sublease market for one of two reasons. Subleases tend to be shorter in duration than traditional leases, so they fit tenants with rapidly changing needs well. The other reason is that sublease space is frequently less expensive than "direct" space. After all, if you're stuck with the space, the expectation is that you'll make a deal to get it filled. Something is better than nothing, right?

 

Put simply, your subtenant will probably be looking for a deal.  However, as we discussed above, whatever you get from them is probably better than not getting anything for your empty office space.

 

Why Not Sublease?

Subleasing might seem like a no-brainer, but there are reasons that you might choose to keep your extra space off the market. The first is if you don't have a long time left on your lease. Finding a subtenant takes time and costs money. If there isn't enough time left on your term, you could end up spending a bunch of time, energy, and money on sourcing a tenant then not recoup it.

 

The second consideration is that you end up mixing your tenancy with someone else. If your space isn't easily demised, you could end up with another company literally sharing it. They could come in and out through your doorway, or share your restroom or break room.  This might not be a cultural option for you.

 

Even if your space can be easily split up, your financial destinies become intertwined, at least to some extent. If you're using their money to pay you rent, what happens if they don't pay? If something happens on "their" side of the space, who is liable? While these risks can be managed if you are willing, you have to be willing to manage them.

 

Nevertheless, subleasing can be a great way to monetize your unused office space. If you have empty space, the first step is to reach out to your commercial real estate broker and have him or her assess if you are a candidate.

 

Here are a few other articles we know you'll enjoy:

What to Know About Rent Escalation Clauses

What is a Tenant Improvement Allowance?

What is Rent Abatement & What You Should Know

 

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