In the age of COVID-19, many companies are finding themselves paying for unused office space. If yours is one of them, subleasing may be a smart decision. Subleasing is when you lease all or a portion of your office space to another tenant who pays rent for the square footage that they occupy. Read on to learn more about subleasing, so you can make an informed decision about whether it's right for your company.
Things to Consider
To determine whether subleasing is possible for your company, consider the following questions:
1. Does Your Lease Entitle You to Sublease?
Not all leases contain a sublease clause. If yours does not, you would need to renegotiate your lease before you could proceed. Some landlords may be amenable to this given concerns over the future of the commercial real estate market, but others may be less flexible.
2. Do You Need Your Landlord's Consent to Exercise the Right?
Even if your lease does contain a sublease provision, the terms may require you to obtain written or verbal permission from the landlord before you enter into a subleasing agreement. Read over the clause carefully to find out what the procedure is for issuing your request.
3. If You'll Be Occupying a Portion of Your Office, Can You Share with Another Tenant and Still Remain Within Social Distancing Standards?
Maintaining social distancing is vital to protecting your employees during the pandemic. You may find that you need the unused square footage to place desks six feet apart and improve the flow of traffic through your office to keep employees safe.
4. Can You Afford the Costs of Setup and Any Ongoing Costs?
Should your company pursue subleasing, you can expect to incur some costs in the form of brokerage commissions, attorney fees and moving and relocation costs. You may still be responsible for ongoing maintenance fees even if you sublease your entire space.
Benefits of Subleasing
Subleasing has three main benefits:
1. Lower Financial Burden on Your Company
When you sublease, you can offset all or some of the costs associated with unused office space with monthly payments from your sublessee.
2. Retains Your Office Space for Your Use in the Future
A short-term sublease agreement lets you hold onto your office space, so that you can return to it when the pandemic comes to an end.
3. Can Protect You From Default
If your company is in a dire financial situation due to the coronavirus, subleasing could help you avoid the consequences of defaulting on your lease.
Drawbacks of Subleasing
Some drawbacks of subleasing that you need to be aware of include:
With a sublease agreement, your company retains the responsibility for your space. If your sublessee defaults, you'll be on the hook for the full rent. When it comes time for your company to move out, you may be required to return the office space to its original condition and cover the costs of any damage or modifications that the sublessee made.
2. Complicated Contracts
Sublease contracts are complex. You'll need to make decisions about a variety of topics including the cost of rent, indemnifications needed to protect your company and how utility costs will be paid. As with an initial lease, a sublease may go through several rounds of negotiation that can be time-consuming for your company.
3. Potential for Ongoing Clashes
A sublease keeps you in the middle between your landlord and your sublessee, meaning you may find your company caught up in clashes that will take time and energy to resolve.
Subleasing isn't the only option available for companies who are not using their office space due to the coronavirus. Your lease may enable you to terminate your contract early and move out of your space by paying a fee. Assignment is another possibility. With this arrangement, you turn your lease over to a new tenant and walk away from your office entirely.