Should You Sublease Your Office Space? | Key Questions

Commercial office leases represent a major expense for most businesses.  But, what happens when you have too much office space?  You’re paying for unused space!  Even if you don’t have a termination clause in your lease, all is not lost.  You can sublease your extra office space to offset this expense.

I’ll use this article to explain some subleasing considerations to see if this strategy makes sense for you. 

What Is Subleasing?

In a traditional lease contract, two parties exist.  The lessor (i.e. landlord) leases the property to the lessee (i.e. tenant).  With subleasing, a third party joins the relationship.  The original tenant leases all or a portion of its space to a new tenant.  The original tenant becomes a sublessor, and the new tenant becomes a sublessee. 

Tenants typically sublease extra, unused space to offset their lease expense.  For sublessees (the new tenants), subleases often provide office space on far more flexible terms than an original lease.

Of note, subleasing does not release the original tenant from its lease terms.  If the new tenant fails to pay rent, the original tenant still needs to pay the landlord. 

Does My Lease Allow It?

If you have surplus office space and can’t break your lease, subleasing may make sense.  But, before moving ahead, make sure your commercial lease allows it.  And, if so, confirm what landlord notification requirements exist.

Most leases require tenants to notify landlords once a sublessee commits.  However, some require notification as soon as the tenant begins marketing the space.  Review the specific subleasing terms of your lease.  And, for due diligence, get the landlord’s written consent before marketing the space. 

If your lease does not allow subleasing, you can still ask your landlord for permission.  Most landlords would prefer a subleasing situation to a potential default by the original tenant. 

Commercial real estate professionals can help you review your current lease agreement to see if subleasing is an option.  Need help connecting with reliable ones? Drop us a note!

What Else Is Included in the Sublease Option?

Most sublease situations include furnished, ready-to-occupy office space.  This makes subleasing appealing to smaller and start-up businesses.  When marketing your extra space, include a full inventory of what furniture and equipment will be included in the sublease.  Or, if not included, you can offer these items as optional purchases for the new tenant.

Either way, conducting a full inventory provides two benefits.  First, it protects you as the original tenant.  You know exactly what belongs to you when the new tenant’s sublease ends.  Second, providing a full inventory will help your marketing efforts.  Tenants want options, and a move-in ready office is definitely appealing. 

Has the Market Rate Changed?

It’s not uncommon to sublease office space several years after signing an original lease.  Market office rents may have changed significantly during this period.  You do not need to lease your extra office space at the same rate you pay. 

Instead, you should conduct a market analysis.  If office rents have increased, you may want to list your space for these higher rates.  This can further help offset your lease expense.  Or, you can offer the space at your original rate, making it more appealing to tenants.  This latter option can help you quickly fill a space if speed is a priority. 

Feel free to drop us a note if you need help analyzing current commercial lease rates in your local market.  This can seem challenging, and we’re happy to help!

Where Should I List the Space?

Finding a tenant depends on marketing the space appropriately.  You need to list the property in the right places.  Different markets have different online listing sites and general listing strategies.  Working with a commercial real estate broker can help you quickly and efficiently find a quality tenant.

But, as a sublessor, you’ll also need to pay for these services.  Typically, businesses find office space with the help of tenant representatives.  And, these representatives will expect a commission for bringing you a tenant.  In most subleasing situations, the original tenant’s broker and the new tenant’s representative split this commission. 

This additional expense shouldn’t dissuade you from working with commercial real estate professionals.  The whole point of subleasing is to offset your larger-than-necessary rent expense.  A commercial broker will help you accomplish this goal as quickly as possible. 

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We recognize that, even after outlining the above information, tackling the challenges of subleasing extra office space can seem daunting.   

That’s why we’re here to help.  The Pocket Broker team lives and breathes commercial real estate, so drop us a note to see how we can help you achieve your unique objectives!