Sublease Preparation and Review For Tenants
The usual use for a sublease is to lease part of the existing leased premises to someone else. For example, a tenant with a large space may have surplus floor space that is needlessly costing money. It makes good commercial sense to rent the excess space to another business.
A tenant is different to a licence in that the subtenant will have exclusive rights to the subleased premises, which usually mean they have their own lock and key to their part of the premises.
Engaging a lease lawyer early in the sublease process will ensure you are aware of your rights and obligations and that you are adequately protected.
Things for you to consider as the main tenant:
As a sitting tenant, there are several important considerations. This process involves not just finding a suitable subtenant but also ensuring compliance with legal, financial, and contractual obligations.
Here’s a list of considerations for tenants planning to sublease:
Does the Lease Permit Subleasing?
Check the original lease agreement to ensure that subleasing is permitted. Some leases prohibit while others allow it in limited circumstances.
Is Landlord Approval necessary?
If there is a basic right to sublease specified in the lease some landlords will be very particular about vetting the suitability of the proposed sub-tenant. Others will not be overly concerned, knowing that you as the tenant will remain responsible for the all the actions of your subtenant and that the rent and outgoings will always remain your responsibility as the head tenant. It is critical to note that the landlord consent will need to be in writing and clear.
Assessing the suitability of the Subtenant
We always recommend that appropriate background and credit checks of a proposed subtenant is undertaken. Are they “respectable, responsible and solvent?” This includes verifying their character, their experience in running a business and their ability to meet their financial obligations.
Payment of Rent and Outgoings
What is the basis for the calculation of the rent? What proportion of the outgoings will the tenant be liable for or will this be grossed up into a fixed starting rent that included rent and outgoings (known as a “gross rent”) . How will the rent be paid each month and to whom? Typically, the subtenant pays rent to the original tenant, who then pays the landlord. However, arrangements can vary. It is important to have the methodology and liabilities to be clearly outlined to prevent disputes arising.
Security Deposit
Holding a security deposit is essential in protecting your interests. In the even that the tenant defaults in payment of money to you or if the premises get damaged at least you will have a buffer there to minimise any loss. This amount is typically in proportion to amount you have the landlord, based on the size of the area sublet.
Insurance
The subtenant should take out their own public liability and buildings, at a minimum. As the head tenant you should be noted on the policy as an interested party. Also review your own insurance policy to check how subleasing may affect your own insurance cover.
Property Condition
A condition report should be carried out at the commencement of the subtenancy. This provides clarity to all in the event of damage at the end of the tenancy.
Documenting The Sublease Agreement Correctly
Drafting a formal sublease agreement needs to be done by an experienced lease lawyer.
Subleases need to be correctly linked to the head lease and also include any changes to the head lease.
Both the landlord and you as the sitting tenant will want you interests protected.
Remember that as the head tenant (or sublessor), you will be liable for the actions of the subtenant, so it is especially important that your interests are protected.
We are very experienced at drafting and reviewing subleases and we understand the particular complexities of different scenarios.
Call us today on 1300 907 335 or, alternatively, please complete the contact form on this page and we will respond to you promptly.
