When a commercial property lease is set up, it’s usually for a number of years with the option of extending at the end of the lease agreement. They can be long term and not very flexible. 

So what happens when a primary tenant of a commercial space wants to bring in another tenant under their existing lease? This type of set up is called a sublease, or a sublet. 

What is a Sublease? 

A sublease is when a premises already has a tenant, however another tenant could also use a portion of the space for a fee under an agreement. 

The primary tenants will still have their rental agreement in place, however they may decide to further rent out part of their space to another party, called a subtenant. 

Why Sublease a Commercial Property? 

There are many reasons for subletting a commercial premises. Perhaps the primary tenant isn’t maximising the whole space or is looking to create some extra revenue. Another reason could be if a primary tenant wants to relocate and cannot exit the rental agreement, they could set up a sublease where costs of the lease are covered by a subtenant, freeing them up to also relocate. 

Subleasing arrangements can be very popular in multi storey office style buildings where whole floors can be sublet to new tenants under the existing lease. The subtenant has the same rights and responsibilities as the main tenant, however the main tenant is responsible for the subtenants’ behaviour and if anything goes wrong. 

But how does this all work from a legal perspective and who is responsible for the paperwork? 

Obtaining Permission to Sublease 

It’s important to note that the main lease agreement must allow for a sublease to be initiated and the landlords consent must always be obtained when setting up a sublease. In order to accurately understand the lease agreement and if subleasing is allowed, it’s important to have an experienced commercial lawyer like TY Lawyers in Chatswood, to help you understand any clauses that may relate to subleasing. TY Lawyers are experienced small business lawyers who specialise in commercial, leasing and property matters. 

To start the process, a deed of consent can be entered, whereby the landlord’s official consent is obtained to allow for a sublease to occur. 

The primary tenant is then the one responsible for organising the subleasing documentation and confirming the leasing agreement, including the amount of rent to be paid and when. Notably, the main tenant is also the one to collect rental income from the subtenant and basically acts as a landlord to the subtenant for the duration of the agreement. 

Subleasing documentation should outline all the important attributes relating to the agreement. 

Benefits of a Sublease 

Some of the benefits of having a sublease for Primary Tenant’s include: 

• Help with cash flow
• Offset own rental payments
• Post Covid, many businesses are downsizing their workforces ongoing, meaning they need less office space than before - subleasing can save these businesses having to go through the headache of relocating due to a smaller workforce space requirement
• If you’re business is closing down, a sublease agreement can save you from the costs of exiting a lease early
• Cross promotion and networking opportunities with subtenants 

Equally, a sublease can be beneficial for Subtenants also: 

• Subleases are usually a lot more affordable
• Subtenants only pay for the space they need and have more flexibility if only a small space is required
• Usually subleased spaces are already furnished/fitted out
• Subleases are good options for businesses competing in volatile industries
• Cross promotion and networking opportunities with primary tenants
• Subleases are far less complex than regular commercial leases 

Before entering into any lease or contract, always consider engaging a Lawyer who can review your documents and provide advice on moving forward. TY Lawyers in Chatswood will assist you every step of the way to ensure your business interests are taken care of. 

Contact us today to discuss your commercial leasing or subleasing enquiry and one of our experienced legal professionals will get back to you as soon as possible. Call TY Lawyers Chatswood on: (02) 8007 0135.