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Subleasing in Real Estate: How Does it Work?

Saad Dar

Writer and Editor at Baselane 14 April 2022 3 Min Read
Subleasing in Real Estate: How Does it Work?

You’ve done the work and found a reliable tenant for your rental property. Now, they want to sublease their apartment before the lease is up. Subleasing is a way to avoid vacancies, but there are some risks to consider. In this article, we’ll cover everything you need to know about how to handle subleasing as a landlord.

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1. What is Subleasing in Real Estate?

Subleasing is when your existing tenant enters into a contract with a third party to occupy all or a portion of their rental space. For example, if your tenant has a one-year lease but gets a job in another city three months into the lease term, they could find someone else to rent the apartment from them.

The new tenant (the sublessor or subtenant) will take on, all or a portion of, the original tenant’s (the sublessee) obligations under the sublease agreement. However, the first tenant typically remains liable under the original lease if the subtenant stops paying rent, damages the unit, or breaches the lease agreement.

2. Is Subleasing Legal?

While subleasing is legal, the logistics will ultimately depend on your state laws. For example, subleasing in California requires a tenant to obtain the landlord’s permission to sublease. Whereas in Colorado, the landlord can deny a tenant’s request to sublease, but this policy must be in the lease agreement.

When your tenant subleases, they take on additional responsibilities as the subtenant now has legal tenancy while occupying the property. For instance, if the subtenant doesn’t pay rent on time or damages the apartment, the primary tenant is responsible.

Some states even have time limits on sublease approvals. In Virginia, a landlord has ten days to approve or deny a sublease request. If no reply is given within ten days, permission to sublease is automatically granted to the tenant.

3. How Does Subleasing Work?

Setting up a sublease is different from a traditional rental lease because it adds another layer of complexity to the tenant-landlord relationship. Subleasing an apartment transfers the property to someone else and can be done without a landlord’s intervention.

These are the steps to follow for a subleasing arrangement:

  1. Research local laws: Check state laws for subleasing terms, conditions, and fees.
  2. Landlord approval: Include a clause in the lease agreement that requires your written consent before subleasing.
  3. Draft a sublease agreement. Once your tenant finds a suitable sublessor, have them sign a subtenancy agreement that includes:
  • A move-in and move-out date
  • What utilities the sublessor is responsible for
  • What furniture or belongings (if any) will remain in the unit
  • A security deposit in case the sublessor damages the property
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4. What are the Risks of Subleasing?

Subleasing can be a risky endeavor. Therefore, it’s vital to ensure that your tenancy agreement covers subleasing so that you know what to expect. At the very least, there should be a clause outlining the subleasing rules. That way, you can avoid:

  • Inconsistent screening procedures: The original tenant may find someone to cover the rent but is less concerned with a subtenant’s qualifications. You should require tenant screening for all occupants, or you’ll have no information about the person subleasing your property.
  • Subtenant may not be reliable: If the subtenant stops paying rent, tracking down the primary tenant for late rent payments can be challenging.
  • Property damage: The subtenant could cause rental damage because they may be unaware of the rules or know they aren’t liable.
  • Lease violations or eviction: The subtenant could violate the original lease terms, including disturbing neighbors or having a pet when you have a no-pet policy.

In most states, a landlord can’t evict a subtenant, and in Florida, the original tenant must be the one to evict the subtenant. If you have issues with collecting overdue rent, the only recourse is to file for eviction against your original tenant, which can be tricky – particularly if they’re out of state. Using online rent collection is one of the easiest ways to avoid chasing down rent payments.

5. How Do I Create a Subleasing Contract?

Creating a subleasing contract is relatively straightforward. Not every contract will look the same, but there are essential terms of a sublease agreement you should include:

  • Location and description of the property
  • Name, address, and contact information of the original tenant
  • The start and end dates of the sublease
  • The terms and conditions of the original lease
  • The amount and frequency of rent payments
  • Security deposit and fees for nonpayment and lease violations
  • Tenant screening for credit reports, rental history, and background checks
  • Proof of renters insurance

There are also sublease clauses landlords can use to protect legal rights, profits, income channels, and property values. For instance, it’s common for sublease agreements to include arbitration and mediation clauses outlining a subtenant’s right to sue.

6. Is Subleasing Right for Me?

Subleasing isn’t for the faint of heart, but it can benefit the landlord and tenant when done right. The key is to follow the sublease terms and screening procedures, understand the tenant’s relationship with the sublessor, and check the original and sublease agreement.

If you don’t want to sublease, you could encourage a tenant to “buy out” their lease with an early termination option. For example, you might require a 60-day notice and a fee equal to 1-2 months of rent. This helps cover the costs of vacancies and finding a new tenant.

FAQs
Who can sublease a real estate property?

Anyone can sublease a rental property as long as they are subject to the lease agreement and have permission from the landlord.

What are the benefits of subleasing a property?

The benefits of subleasing a property are:

  • Avoid unexpected vacancy
  • Tenant finds the sublessor
  • The tenant is responsible for the subtenant
What are the risks of subleasing a property?

The risks of subleasing a property are:

  • Inconsistent screening procedures
  • Subtenant may not be reliable
  • Potential property damage
  • Lease violations
  • Late rent payments

Saad Dar

Writer and Editor at Baselane

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