How to Sublease Office Space
Thinking about subleasing your office space? Here is what you need to know.
There are several reasons why your company might choose to sublease office space to another business. Perhaps your company has outgrown the current space, is relocating to another city, or unexpected circumstances require your company to downsize to a smaller office.
Whatever the reason, if your lease has not yet expired, subleasing your commercial space could be less expensive than breaking your lease, and a potential solution to offset costs. However, there are some steps to consider before you start your search for a subtenant.
Five steps to successfully sublet your office space:
Review your current lease
Before you start the process of searching for potential subtenants, ensure your lease allows subleasing. Review your lease thoroughly, as some leases expressly prohibit it. If your lease allows for subleasing, make sure you understand the terms under which it is permitted. You might want to have your legal counsel, or a commercial real estate expert, review the lease as well. Some considerations, which should be spelled out in your lease, include the below:
Does your landlord have the right to cancel or terminate your lease instead of allowing you to sublease?
Possibly. Some Landlords will have the right to terminate your lease and will want to do so if they have a waitlist of potential tenants for the building.
Do you have a cap on how much rent you can charge your subtenant?
Most likely, yes. Most leases will specify that you cannot profit from your sublease. Further, any profit from a sublease might be required to go directly to your landlord. Therefore, you will need to price your sublease very close to your current lease rates, even if it is below market.
Are you allowed to sublease your entire space or just a portion of it?
Both are common. Your lease will stipulate how much of your office you can sublease, which may impact your ability to sublease based on you layout/floor plan. We will address this further below.
Does your landlord need to approve the business you select as a subtenant?
Yes. Your landlord will most likely have the right to give the final approval on any potential subtenant you find, so waiting until the end of the process to involve them is not a good idea. There may be certain types of uses that are prohibited in your unit due to bylaws or exclusivity clauses; discussing this with your landlord prior to selecting a subtenant will save you time – and headaches – down the road.
Plan for the future of your business
Depending on your plans for the future and your reasons for subletting, the terms you will want for your sublease will vary. For example, if your company plans to temporarily sublease a portion of the space until your company grows large enough to occupy the whole space, then a sublease with a shorter term will give you more flexibility. If you do not intend to occupy the space, then you may want a longer term, or a term that runs until the end of your lease term with your landlord. Thinking about the future of your business is a key consideration.
Interview and engage a commercial real estate expert
Interviewing or receiving proposals from multiple commercial real estate experts and engaging your chosen agent to assist you is highly recommended in any commercial real estate transaction. They can expertly handle a variety of tasks; from marketing the available space, interviewing potential subtenants, and negotiating an agreement that is in your best interest.
We recommend engaging an expert who has a proven track record in leasing office space in your geographical area. If your office is located in Surrey, Langley, or Abbotsford then that would include the office experts at Frontline Real Estate Services. Please feel free to contact us, we would love the opportunity to earn your business.
Review your floorplan
If you are looking to sublease only a portion of your current office space while continuing to occupy it, then you’ll need to consider what areas make sense to sublease as well as details like the use of common areas and parking spaces. Making sure the space that is being offered for sublease will be practical for another company’s use without impacting your productivity is an important step to ensuring a successful relationship between you and your subtenant.
Carefully screen your subtenant applicants
This final step is arguably the most important. First, make sure you are not considering subleasing to a company that is a competitor to your own. Second, make sure your subtenant will be able to pay their share of the rent: remember, even if they don’t pay their rent to you, you still owe the full rent to your landlord. Reviewing the covenant, business model, financial health, and track record of your potential subtenant is very important. Finally, you will be entering into a sublandlord-subtenant relationship with this business, so make sure you pick someone you don’t mind seeing every day, especially if you will be sharing the space. As a perk, you may find there is an opportunity to sublease to a business that is complementary to yours, enhancing a beneficial and successful subtenant relationship.
If you have questions regarding your option to sublease or sublease opportunities in the Fraser Valley, don’t hesitate to reach out to us.