Sublease

A sublease is a rental agreement between someone who has leased a house or apartment, and another person who wishes take over. Typically, a sublease is created when a tenant finds that he cannot continue meeting the terms of the lease as agreed. In this scenario, the tenant may lease the dwelling out, while remaining liable to the property owner, under the original lease. The new tenant is known as a “subtenant. To explore this concept, consider the following sublease definition.

Definition of Sublease

Noun

  1. A legal agreement in which a person who is renting a house or apartment, rents it to someone else.

Verb

  1. To grant a sublease, or to engage in subleasing a dwelling to another.

Origin

14th century     Middle English

What is a Sublease

A sublease is a lease agreement created by a tenant who has leased all or part of a property from his landlord. It is up to the landlord whether or not a tenant is allowed to create a sublease. The landlord can give the tenant written permission to create a sublease, but only if no clause exists within the original lease agreement prohibiting it. If such a clause exists, the landlord and tenant can revise the lease agreement to allow subleasing.

A sublease is not a new lease between the property owner and a new lessee – it is a lease between the original tenant and the new lessee. No matter what, the landlord still expects payment for from the original tenant. The subtenant makes his payments to the original tenant.

Reasons for a Sublease

The reason why a tenant may want to create a sublease in the first place is because a situation has arisen that keeps him from continuing to fulfill his lease agreement. For example, suppose Mary is renting an apartment in New York City, after agreeing to a 24-month lease. After just six months, she receives a job offer in California. Mary may want to sublease her apartment to another tenant for the remaining months on her lease agreement.

By subleasing the apartment, Mary can accept the job offer and move to California, without breaking her lease, and suffering whatever financial penalties are specified in the contract. This can be beneficial to Mary’s landlord, as he will not have to search for a new tenant, possibly missing out on a month or more in rent. Many property owners will not allow their tenants to sublease, as it removes his control over the tenant in his property.

In creating a sublease, Mary also keeps some control over the apartment. If the California job offer falls through, or if she finds that she’s not a great fit for the position, she can give her subtenant notice to move out of her apartment, then move back to New York.

Residential Sublease Agreement

A residential sublease agreement is a legally binding agreement drafted between a tenant (the person who originally leased the residence from the owner), and a subtenant (the person who rents the residence from the tenant). An example of a sublease that can be considered a residential sublease agreement, is one that explains the rights of a subtenant and sublandlord. The agreement should also detail the responsibilities of both parties. All of these rights and responsibilities begin once the agreement has been signed by both parties.

A residential sublease agreement may be drafted when someone who has leased a home or apartment needs to move out, either permanently or temporarily, but he has not reached the end of his lease. If it is permissible, he may find a new tenant, and enter into a residential sublease agreement with him or her.

A tenant may also sublet only a portion of the property, such as a bedroom. In such a case, the original tenant remains responsible for taking care of, and making rental payments on, the entire property. This roommate-type sublease still requires permission from the landlord.

Properties that can be sublet under a residential sublease agreement include:

  • house
  • condo
  • apartment
  • duplex
  • townhouse
  • basement suite
  • room on the premises
  • garage

Commercial Sublease Agreement

A commercial sublease agreement is the business version of a sublease agreement.  The difference here is that, instead of subletting an apartment or home, the tenant is subletting commercial space so that they have a place to set up shop for their business. For instance, a jeweler may rent out space in a strip mall for his business, and for this purpose he would have to sign a commercial sublease agreement.

A commercial sublease agreement contains more business-specific responsibilities, in addition to the general terms. These may relate to such things as business equipment included in the lease, insurance on the building and/or equipment, and other responsibilities.

A business may want to create a commercial sublease agreement if it operates as a seasonal business and wants to save money during the off-season. In that case, it will only use the space during the seasons that are appropriate to the business and will rent the space out during the seasons that are not.

An example of a sublease common in seasonal situations, might be that of a business specializing in Halloween products. This retailer might rent store space during the fall months, and sublet that space to another business for the remainder of the year.

Alternatively, someone might enter into a commercial sublease agreement on a larger business space – perhaps a building with multiple retail spaces – then sublease out each individual shop.

Some additional reasons to take advantage of a commercial sublease agreement include:

  • Small business that wants to share space with other businesses, in order to save money on rent.
  • The lessee finds he is unable to keep up with the commercial lease, but is still bound by its terms for the remaining months of the lease.
  • The company regularly works with consultants or contractors, and wants to share rent expenses with them. This allows them all to save money, while allowing everyone to work out of the same office space, at a fraction of the cost.

For example:

Delores, a hair stylist, rents a shop, and starts her own business. In order to make it more feasible, she divides the space into several booths, complete with chairs, counters, and mirrors, then rents each space out to other hair stylists. This is technically a commercial sublease, though the spaces are contained within the shop she rents.

How to Sublease

Those who are interested in subletting a residence or commercial space may not know where to start. First, it is important to double-check the laws of the state, and ordinances of the city or county in which the property is located. Some cities and states do not allow homes, apartments, or even single rooms to be rented out for less than 30 days, if the lessee is not living on the premises. Violating such a law can result in large fines.

Once it has been determined that the property can legally be subleased, the lessee must also have permission from his landlord to sublet the property. Most rental agreements include a clause that bars the tenant from subletting without the landlord’s written approval. The next step is to locate a suitable tenant, who will be reliable and trustworthy. Because the original tenant continues to remain responsible for the condition of the property, as well as the lease payments, this is very important.

In the sublease agreement, the original tenant must specify that the subtenant pay rent to him, and also that the subtenant is subject to the same lease terms contained in the original lease agreement. Attaching a copy of the relevant terms in the original lease helps to avoid confusion. Tenants who are not sure how to word a sublease agreement should consult with an attorney who specializes in these matters. They may also download a template online that can be customized to their needs.

Sublease Example Involving a Carwash and Non-Payment

In 1979, Jakob Schneiker signed a lease on a carwash, that included both the structure and equipment he would need. The monthly rent payments were $600, and the lease was to run through May of 1983. In 1980, only a years later, Schneiker decided to get out of the carwash business. He subleased the premises and equipment to Darrell Gordon and Gary Peterson, for monthly payments of $1,900. The sublease specified that the premises was to be used for a carwash, and that the property and equipment were to be kept in good repair. The sublease was set to expire at the same time as the original lease.

Gordon and Peterson violated their lease in several ways. First, they stopped making payments after July of 1981, but didn’t return the keys to Schneiker until November. When he received the keys, Schneider went back to the carwash, which he found to be so badly damaged and neglected, that it could not function as a carwash. The repair bill topped $6,000, and dropped the rental value of the property to less than $600 per month.

Schneiker could not afford to make the necessary repairs, so he surrendered the property to the owner. Gordon and Peterson ended up suing Schneiker, claiming that he hadn’t told the truth about how much money they could make from operating the carwash. Schneiker, of course, counter-sued for the damages that Gordon and Peterson had caused to the property, as well as for the rent payments they didn’t make.

The trial court dismissed Gordon’s and Peterson’s lawsuit, and partially awarded Schneiker’s claim for damages. Although Schneiker remained liable to the property owner for the remainder of his lease, the court ruled that his sublease with Gordon and Peterson ended when he terminated that original lease. The two could only be ordered to pay the rent up until that point, plus the repair bills.

Schneiker appealed the ruling, asking for the entire amount of rental payments due through the end of the sublease, though the appellate court agreed with the trial court. Schneiker then took his case to the Colorado Supreme Court to decide the issue of whether a sublessee remains on the hook for future rent payments in such a situation.

The Supreme Court of Colorado ultimately determined that Gordon and Peterson were responsible for paying Schneiker the $1,900 per month rent payments for the remaining months on the sublease, less the $600 per month that Schneiker was responsible to pay under the primary lease agreement.

Related Legal Terms and Issues

  • Lessee – A person or entity that has possession of a property, under the terms of a lease.
  • Lessor – A person or entity that conveys possession of a property, under the terms of a lease.
  • Sublandlord – A tenant who enters into a lease with a landlord, then later subleases that landlord’s property to a subtenant.
  • Sublet – To lease a property to a subtenant.
  • Subtenant – A person who leases property from a tenant.

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