When thinking of rental commercial property, it can be easy to focus on the negative. Rent prices are high and it can sometime be difficult to find the ideal premises, especially for smaller businesses. However, once a company has found their ideal space, they may consider subletting. Subletting provides a wealth of benefits, flexibility and even the potential for an extra revenue stream. Of course, there are caveats to consider and it won’t be available to everyone but for some business owners, it can be ideal.
What is Subletting?
Those renting commercial property will make an agreement with a landlord and will therefore become a tenant or letter. Should they then decide to rent out this space to a third-party, that third-party becomes a sub-letter. You then have a three-party relationship in which there is an original lease between the landlord and tenant and then a sublease, between the tenant and sub-letter.
It’s worth noting that not all commercial properties can be sub-let. It will depend on the landlord in question and whether they allow this. This should be outlined in the original lease agreement between the two parties. This should also cover what aspects of subletting is permitted, for example could you let a small part of the building. Even if subletting is allowed, the tenant will need to get permission from their landlord and ideally, this should be in writing.
When subletting, it’s important to note that the tenant then becomes a sub-landlord. As well as having responsibilities to their own landlord, they themselves will have responsibilities as a sub-landlord. This will include creating a sub-lease, detailing the agreement between the parties, including information on money and responsibilities.
With all of this in mind, what are the benefits of subletting?
Rent
Unfortunately, businesses can face financial difficulty, particularly in the current climate and taking on a subletter can mean the difference between paying and not paying the rent. In this scenario, both tenants would work in the same commercial property, in different areas and the money provided by the sublease could be used to ensure the overall rent is paid. Obviously, this would only be possible with larger commercial buildings which have the space for two distinct tenants. However, when possible, this type of agreement can provide a much-needed lifeline to businesses struggling with their finances.
Flexibility
One of the major advantages of subletting is the flexibility that it can provide. For example, a business may find that their circumstances change and this effects their rental situation. If a company falls on hard times and needs to downsize to a smaller premises, subletting allows them to keep the property ticking over, in the hope they can move back. Conversely, if a business finds themselves in need of growth and a larger premises, subletting provides a safety net, should they need to downsize in the future.
Profit
Whilst many may focus on the practical benefits of subletting, there is also the potential for profit. For example, a business based within a commercial property, with space for a sub-letter can create a new revenue stream. Assuming the company is financially stable, any money acquired through the sub-let will become a new form of cash flow. Of course, this is only an option in instances in which properties are large enough and subletting is permitted. However, any way in which a business can increase their income is welcome.
Considerations
Whilst there are many advantages to subletting a commercial property, there are potential drawbacks which should be considered. One of the main considerations being the responsibilities involved with being a sub-landlord. Each case will be different and depend on the lease and sub-lease but the letter in question will likely have to take on some sort of landlord duties.
Another aspect of subletting which can be complex is the added people and businesses involved. A relationship between a landlord and tenant is relatively straightforward, however when you add a third-party, things can become more complicated. It therefore becomes even more important to draw up a comprehensive lease agreement that can help to safeguard against potential problems.
So, after hearing about all the advantages of subletting your commercial property, you’re on board- but where to start? The team at Salhan have a wealth of experience in providing expert financial services and advice. Feel free to get in touch for further help with subletting your commercial property.
