If you’ve been in the market for commercial real estate space, you know the difficulties that come with finding and securing the right space for your budget. Outside of a long-term rental commitment with a landlord, your options are limited between subleasing office space or a shared office space.
Most commercial real estate leases involve the tenant renting space from a landlord or property owner, but subleasing extra space complicates the agreement a bit. Tenants become responsible for the subtenants, meaning they pay for their space and you pass along your portion of the rent to the tenant. Prime candidates for subleasing office space include sole proprietors, freelancers, and startups seeking an affordable alternative to full-blown commercial real estate leases.
But there are plenty of aspects of an office sublease that should be taken into account before you take on someone else’s lease – and start saving a significant portion of your rent.
What is The Difference Between Subleasing and Subletting?
When someone subleases a property, they don’t pay rent to the landlord directly – just to the tenant. Whether this means taking over another company’s space entirely or occupying unneeded square footage, you’ll be beholden to the tenant rather than the landlord themselves.
Subletting is the opposite. When a company finds themselves with excess space or not enough space, finding a suitable tenant to take over part – or the entirety – of the square footage is a more affordable and opportunistic alternative to voiding or terminating a lease agreement.
Why Sublease an Office Space?
There are plenty of benefits to subleasing an office space, but before you take the leap to subleasing from an existing tenant, consider your options and the benefits you might realize for your business:
- Financial Benefits: Office subleases tend to be cheaper than a traditional lease agreement, meaning the financial benefits of securing a sublease could outweigh the lack of stability and longevity that can come from a sublease agreement. Studies show that companies can save anywhere between 15-40% of the total cost of a lease agreement by subleasing an available space. And if you’re subleasing a large, vacant office space, it’s possible to cut even more costs by only leasing the square footage you need and sharing the rest with other subtenants.
- Decreased Move-In Time: Unless your company has significant and unique build-out needs, it’s likely that your sublease will be already built to your needs, up-to-date with its repairs, and well-maintained. Infrastructure, furniture, and utilities will already be ready to go, so you won’t experience the lengthy and tedious buildout process that comes with a long-term commercial real estate lease agreement.
- Free or Discounted Amenities: Because the tenant is already on the hook for utility costs on the property, you’ll get access to the building’s internet connection, printing facility, and other amenities as part of their existing agreement. If they clear out entirely, it’s less likely that you’ll reap these benefits, but with some savvy negotiations, you may be able to get a steep discount on their utility costs.
- Shorter Leases, Fewer Requirements: The standard medium-term lease lasts 3-5 years and longer leases can last for decades (with beneficial financial aspects for tenants willing to commit to those agreements, of course). But if your industry is in a volatile state or your company is in the startup phase, it’s wise to consider short-term options until things stabilize – and a sublease is the perfect way to gain a temporary space without the high-priced investment that comes with a traditional lease agreement. And because you’ll be subleasing through the tenant, there are fewer financial requirements that come with an agreement through a landlord, making things easier during the initial startup phase.
What’s at Risk with Subleasing?
Subleasing is certainly cheaper, more efficient, and more streamlined than a traditional commercial real estate lease, but it’s not always the best option. Before diving into a sublease agreement, it’s important to keep the following in mind:
- You May Not Be Able to Renew at the End of the Agreement: The short-term arrangement of a sublease is an attractive option for businesses looking to secure a foothold in a professional space, but the terms of the original tenant’s lease might not afford you an option to extend your stay in the property. Your sub-tenant or landlord may not choose to renew the lease and advertise the space to a more viable, long-term tenant, leaving your company in a lurch under short notice.
- Privacy May Not Be an Option: Depending on the size of the space, you may be sharing the property with other tenants – and even the original tenant themselves. You’ll experience extra noise, more foot traffic from visitors and employees, and a less professional feel than having your company’s name on the door.
- Damages Won’t Be Your Responsibility – and That Could Complicate Things: While no tenant wants to damage a space they occupy, accidents can happen. Depending on the structure of the sublease, you may be on the hook for damages incurred during your stay. Most sublease agreements require a security deposit, either between the tenant or the landlord in a separate agreement. More importantly, if you don’t make a careful assessment of the damage when you take possession of the property at the outset, you might get stuck with a more considerable damage bill that you didn’t necessarily cause.
- There’s a Lot of Research to Do: Subtenants will want to review the initial lease agreement, as you’ll have to adhere to previous arrangements made without your consent or input. You’ll likely have little flexibility in making any improvements, upgrades, or repairs to the space you’ll be occupying if they fall outside of the original lease agreement, so you and your team will want to carefully (and professionally) review the terms of the lease agreement before taking over. In addition, it wouldn’t be a bad idea to find out why the tenant is subleasing the space to begin with. Legal troubles, business downturn, or a simple excess of space are all possibilities, so finding the right tenant is an important aspect of the subleasing process. You’ll be paying them directly for the cost of the space, so making sure they’ll be around to help you when needed is an important consideration to make.
Should You Sublease Office Space?
There’s plenty to consider when thinking about a sublease on a piece of commercial real estate, but when equipped with this guide, you should have enough to work with in order to weigh the pros and cons associated with this type of agreement. The important thing is to ask plenty of questions of the tenant, discuss your options with your legal team and the landlord themselves, and carefully analyze the space itself to ensure it’s what’s right for your company at this time. But if you find the right fit, a sublease is a wonderful way to save money, time, and complications compared to a traditional commercial real estate lease agreement while you build your company and continue to grow.