The pros and cons of commercial subleasing (+ VIDEO)

March 13, 2018 | Commercial Real Estate

In his video, Tim touched on some of the benefits of commercial subleasing. We delve a little deeper into the topic to ensure you make the most out of your next subleasing opportunity.

What is commercial subleasing?

A commercial sublease is a stand-alone agreement between a tenant who already holds a lease to a commercial property (sublessor) and another party who wants to occupy part or all of that commercial property (sublessee).

The advantages of commercial subleasing

Image of shared office | commercial subleasing article

There are many benefits that come with commercial subleasing. Here are just a few…

1. Lower cost

One of the biggest benefits to commercial subleasing is the cost.

The rent attached to subleases is almost always substantially less than a direct lease. What’s more, most subleased spaces come fully fitted out, so you will not have to worry about upgrades, fit-outs or the cost of ‘making good’ at the end of your lease.

2. Flexibility

Generally, a landlord will expect you to commit to a minimum term of three years with the option to extend. Most subleases, on the other hand, tend to be within the six to 24-month range, so they are great for businesses that are looking for short lease terms.

Subleasing also keeps things flexible for companies in volatile industries, who may have to upsize or downsize at the drop of a hat.

3. Networking opportunities

Image of a mind map | commercial subleasing article

Subleasing part of a commercial space with a complimentary business can create opportunities to network, generate new ideas and grow your referral base with other similar but non-competing companies.

4. Fewer strings attached

Subleases are far less complicated than other types of commercial leases. However, it’s important to note that a sublease is a legally binding contract that is based on the original lease. So, ensure you carefully review the terms of both the sublease and the original lease to minimise your risks.

It’s best to consult a tenant representation specialist or lawyer before signing, and stay wary of sublessors who refuse to show you their original leasing documents.

5. Shared amenities and facilities

Subleased spaces are usually part of larger areas, so you may not have to pay for, or may share the cost of, things like internet, air-conditioning and alarms. Many subleased properties also provide access to shared areas such as bathrooms, storage rooms, meeting rooms etc. at a reduced cost or, if you’re lucky, free of charge!

The cons of subleasing

Man standing on the edge of a jetty to symbolise risk | commercial subleasing article

There aren’t too many risks when it comes to commercial subleasing. But, as with everything, there are some. Stay aware of…

1.Unfavourable lease terms

If the sublessor negotiated less than favourable terms with their landlord, they may try and pass these on to you. So, be sure to ask to see their original contract, and do your research by comparing your terms to other properties on the market.

2.Less flexibility to customise

Often, subleasing means that you share a space with an existing tenant. This can help reduce costs but may mean you have less room to move when it comes to personalising your space to suit your brand and business requirements.

3.Risk of sublessor default

Perhaps the most significant risk that you need to consider is the risk of your sublessor defaulting or breaching the terms of the original lease. If this happens, it will most certainly affect your lease as well.

You can mitigate your risks by ensuring your sublease terms include the rights to recover costs and damages.

Looking to sublease?

Tenant CS represents tenants, not property owners. We are independent and conflict-free and will help you source the perfect space. Ask us today how we can assist you with your next sublease; providing you with full market insights and alternatives, negotiating the commercial subleasing terms on your behalf, and more!

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The Author

Francois is a highly skilled tenant representation specialist, who brings a wealth of experience across various real estate markets.

Part of the tenant representation Sydney team, Francois has a Masters in the Science of Management from Montpellier Business School (France) and a Bachelor (Hons) in Business Studies from De Montfort University (UK).

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