Last Updated February 2, 2024
What is a Commercial Sublease Agreement?
With a Commercial Sublease Agreement, commercial tenants can lease a part (or all) of their rental property to a subtenant. The original tenant then becomes a sublandlord and must ensure that the subtenant fulfills their obligations.
To clarify subtenant obligations, a commercial sublease outlines the length of the subtenancy, payment terms, and permitted uses of the property. It also contains contact details for the sublandlord, subtenant, and original landlord.
Who are the parties in a Commercial Sublease Agreement?
Sublandlord: Also known as the original tenant or the sublessor, the sublandlord is the party responsible for subleasing the space and reporting to the landlord.
Subtenant: Also known as the sublessee, the subtenant is the party that rents commercial space from the sublandlord.
Although the original landlord is not party to a Commercial Sublease Agreement, the contract should include the landlord’s contact details and written permission to sublease.
When should I sublease a commercial space?
Subleasing is an effective way for a commercial tenant to recoup costs and share certain lease obligations without breaking their contract with a landlord.
For instance, subleasing may be a good option when a business tenant has extra office space available or needs to move out before their lease is over. In either case, a subtenant can help the original tenant make rent payments, maintain the property, and fulfill their duties to the landlord.
Additionally, sublease agreements can benefit small businesses when they are just starting out. A commercial sublet can provide a startup with the right amount of space for an affordable price.
How does subleasing work?
Before entering into a Commercial Sublease Agreement, commercial tenants must obtain their landlord’s consent. If the original lease (known as the master lease) doesn’t mention or bans subletting, the tenant should ask for permission with a written Landlord’s Consent to Sublease.
Next, screen and select a subtenant. Some landlords may prefer to be a part of the selection process, or they may trust the sublandlord to find an appropriate renter. In any case, be thorough when screening potential subtenants. This is important because the sublandlord remains responsible if a subtenant defaults on rent or breaks lease terms.
Once you’ve found a suitable subtenant, document the terms and conditions of the lease. Business tenants often need flexible terms for day-to-day operations and may ask to expand or change a space. Use LawDepot’s Commercial Sublease Agreement template to protect each party’s interests in the property and clarify your mutual understanding.
Note that a sublease agreement cannot include terms that breach the master lease agreement. If the terms of the original agreement are not met, the sublease contract may be terminated.
What does a Commercial Sublease Agreement include?
You can customise LawDepot’s Commercial Sublease Agreement to include information about:
- The sublandlord and subtenant (i.e., the sublessor and sublessee, respectively)
- The lease type (fixed term or automatic renewal) and length
- A required check-in inspection
- Costs such as rent, damage deposits, utilities, and insurance
- The specific areas available to the subtenant
- Any rights to modify the property
Requiring a check-in inspection is optional, but documenting the condition of a property before a subtenant occupies the space helps prove responsibility for any damage that they cause during a tenancy. Likewise, terms about deposits and insurance are optional but provide further protections for both parties in the agreement.
A sublandlord must abide by the terms of the master lease when restricting or allowing certain property rights. For example, a sublandlord may allow minor changes like painting an office or rewiring outlets, but must prohibit large structural changes like demolishing or building walls.
How much should I charge for subletting?
Generally, a sublandlord cannot charge a subtenant more rent than what they pay to the landlord. If a sublandlord is renting out their entire rental space, they often charge 80 to 100% of their rent to help recoup as much money as possible. If a sublandlord is subletting a portion of the property, determining a fair rent price depends on the amount of space they are supplying.
If you’re unsure how much rent to charge, research the costs for similar properties in your area. Also, consider any perks your space offers to a subtenant (such as location, amenities, or furniture) and whether this should be reflected in your rental price.
What terms are negotiable in a Commercial Sublease Agreement?
Business tenants have needs that vary depending on the size of their company and line of work, so it’s common to negotiate basic terms to accommodate these needs. However, it’s important to remember that a sublease is always secondary to the master lease.
For instance, a commercial subtenant may request to alter the property to suit their daily operations, but a sublandlord can restrict any changes that go against the master lease.
Although, if the landlord agrees, it may be possible to allow specific alterations. If needed, a landlord can change the terms in the master lease with a Lease Amendment.
A subtenant may also negotiate with the landlord for the right to continue leasing the property if the sublandlord defaults. Otherwise, a subtenant may face eviction if their sublandlord fails to pay rent, goes bankrupt, or breaks the master lease.
Whether you are a sublandlord or subtenant, it helps to consult a commercial lawyer when negotiating terms of a sublease.
Is a Sublease Agreement legally binding?
Yes, when executed properly, a Commercial Sublease Agreement is a legally binding contract between a sublandlord and subtenant. If one party fails to uphold their end of the contract, the other party may seek to enforce certain terms through the courts. In this case, contract and commercial tenancy laws in your jurisdiction will apply.