Subletting in Commercial Real Estate

How Does Subletting Work in Commercial Real Estate? 

A sublease, or sublet, occurs when a tenant assigns part or all of their lease to a new tenant. In general, most commercial leases permit subletting, but not all do. Many commercial landlords will charge a fee for subletting in order to compensate for the additional risks and hassles that may occur due to dealing with an additional tenant.

Subleasers Typically Pay Original Tenants

While situations and rental contracts can vary, in most cases, the subleaser usually pays the original tenant rent, as they are still responsible for paying the landlord. In general, if the subleaser does not pay their rent on time, the original tenant will remain obligated to pay. For this reason, it’s important for both landlords and tenants to do a careful background and credit check on potential subleasers.

Landlord Approval is Generally Required

If you’re a commercial tenant who wants to sublease part or all of your space to new tenant, you should make sure to get your landlord’s approval, in writing, first. Otherwise, the landlord could potentially evict your subleaser— and the subleaser could sue you for any financial damages that occur as a result of the eviction. In addition, whether the sublease is approved or not, original tenants are generally responsible for paying for any damages that the subleaser makes to the property (if the subleaser does not pay them, first).

Subletting vs. Assigning a Lease

For tenants who want to stop paying their lease, but don’t want to take on the risk of subletting their property to another party, assigning a lease can be an attractive option. Assigning a lease simply means legally transferring the remaining part of lease to another party. Many commercial leases allow the assigning of leases, but not all do. Tenants who assign their lease to a third party give up all rights and obligations to that party, meaning that the new tenant will pay the landlord directly and be responsible for any damages to the property. Just like in the case of subletting, tenants should make sure to receive a copy of the lease assignment to make sure that they are fully released from liability.

See: Lease Renewal, Lease Assignment


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