:max_bytes(150000):strip_icc()/Subleasedocumentwithkeyandmoney-d7a8682bbe344e5dac5d1e8d57eeb014.jpg)
James Chen, CMT is an expert trader, investment adviser, and global market strategist.
Updated September 02, 2024 Reviewed by Reviewed by Somer AndersonSomer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas.
A sublease is the re-renting of property by an existing tenant to a new third party for a portion of the tenant’s existing lease contract. The sublease agreement may also be called a sublet.
Subleasing may or may not be permitted in the terms of the original lease, and may be subject to additional restrictions by jurisdiction. Even if a sublease is permitted, the original tenant is still liable for the obligations stated in the lease agreement, such as the payment of rent each month.
A lease is a contract between a property owner and a tenant that transfers the owner’s rights to the exclusive possession and use of the real estate property to the tenant for an agreed-upon period. The lease states the length of time the contract is to run and the amount of the tenant’s rent. In legal terms, the tenant’s legal right to possess the property is deemed tenancy. Subleasing occurs when the tenant transfers a part of their legal tenancy to a third party as a new tenant.
Subleasing can be established unless the original lease forbids it. However, in most cases, the owner must be notified and must approve any subletting arrangement created by the tenant. Control over the subletting process could be written into the original lease so that the owner has some control over who uses and/or occupies their property.
A tenant who sublets property must understand that subleasing does not release them from their obligations on the original contracted lease. The tenant is responsible for paying rent and for repairs or damage to the property. That means that if a new subtenant does not pay rent for three months, the original tenant that subleased the property is liable to the landlord for the overdue rent amount and any late fees. In turn, the subtenant is liable to the original tenant for the unpaid rent.
The laws of many states and local municipalities affect a tenant’s right to sublease. These laws may allow an individual to sublease under certain conditions even if their contract with the landlord forbids it. For example, in New York City, a tenant who lives in a building with four or more units has the right to sublease, as long as the landlord consents—or if they deny the sublet on unreasonable grounds, Any lease provision restricting a tenant’s right to sublease is void as a matter of public policy.
In San Francisco, a tenant can replace a roommate with another, even when prohibited by a written lease, as long as the replacement meets the landlord's application screening standards. For example, a landlord might demand a certain credit score where a tenant is concerned. Subleases can apply to both residential and commercial properties.
When subleasing, it's standard for only the original tenant's name to be on the lease—even if the sublessee pays the landlord directly.
A sublease differs from a standard lease primarily in the parties involved and the structure of the agreement. In a standard lease, the lease agreement is directly between the landlord and the tenant, establishing the tenant as the primary occupant responsible for rent and adhering to the lease terms. In a sublease,, there are three parties: the landlord, the original tenant (sublessor), and a new tenant (sublessee). The original tenant remains responsible to the landlord, while the sublessee pays rent to the sublessor and occupies the property under the terms agreed upon in the sublease.
Another key difference lies in the responsibilities and liabilities. In a standard lease, the tenant has direct obligations to the landlord including paying rent, maintaining the property, and complying with lease terms. In a sublease, the original tenant retains these responsibilities to the landlord, even after subletting the property. This can create a layered relationship where the sublessor must ensure that both they and the sublessee fulfill their respective obligations.
Last, the duration and flexibility of the agreements differ. A standard lease typically runs for a fixed term agreed upon by the landlord and tenant, with renewal options specified in the contract. A sublease, however, is often more flexible, potentially aligning with the remainder of the original lease or being arranged for a shorter period. The sublease agreement may also include specific clauses that differ from the original lease depending on the sublessor's needs.
Subletting can expose the original tenant to several risks, the most significant being financial liability. When a tenant sublets their rental property, they remain legally responsible for the terms of the original lease including the payment of rent. If the subtenant fails to pay rent on time or at all, the original tenant must still cover the shortfall. This financial responsibility extends to any damage caused by the subtenant.
Another risk involves the potential for legal complications. Many leases require the landlord's explicit permission to sublet, and failing to obtain this permission can lead to serious consequences including eviction. Even if subletting is allowed, the original tenant must ensure that the sublease agreement complies with local laws and the terms of the original lease.
The quality of the subtenant is another critical risk factor. If the original tenant does not carefully vet the subtenant, they may end up with someone unreliable or disruptive. A problematic subtenant could cause issues with neighbors, fail to take care of the property, or violate lease terms. Though the financial terms were discussed above, this may also lead to non-financial complications.
Lastly, subletting can complicate the original tenant's ability to return to the rental property. If the subtenant refuses to leave at the end of the sublease, the original tenant may have to engage in costly and time-consuming eviction proceedings. That is because, at the end of the original tenant's lease, the subtenant must leave the premises as the original tenant no longer has a claim on the property through the original lease.
In theory, subleases are limitless. For example, someone who is subleasing a property could in turn lease that property to someone else, and so on. Again, this is all dependent on the conditions on each lease/sublease.
Subletting also poses several risks for the subtenant, starting with the potential lack of legal protection. Since the subtenant does not have a direct contractual relationship with the landlord, their rights are limited compared to those of the original tenant. If the original tenant violates the terms of the primary lease, the subtenant could find themselves unexpectedly evicted, even if they have been fully compliant with their sublease agreement.
Another significant risk involves the possibility of unexpected lease termination. If the original tenant decides to end their lease early or is evicted by the landlord, the subtenant may be forced to leave the property with little notice.
The condition of the rental property is another area of concern for the subtenant. Since the subtenant typically does not conduct the initial walk-through with the landlord, they may not be fully aware of the property’s existing condition or any outstanding maintenance issues. If the landlord refuses to address these problems because the subtenant is not their direct tenant, the subtenant could end up living in substandard conditions with limited recourse.
Because a lease is generally for a predefined term, situations can arise that make it difficult or impossible for the original tenant to complete the lease term. For example, if a tenant is renting an apartment in Chicago with a 12-month lease and, during month four, that tenant receives a job offer in Boston, the tenant may decide to sublease the apartment to another tenant for the remaining eight months. The sublease means that the original tenant can accept the job and move and does not have to pay expensive fees to get out of the lease or pay rent on two apartments.
The landlord also benefits because they receive all 12 rent payments and are saved the expense and effort of finding a replacement tenant. The sublease arrangement also means that the original tenant retains an interest in the apartment. Thus, if the original tenant decides to move back to Chicago, they may be able to renew their lease on their old apartment.
Subletting occurs when a tenant, who has a lease agreement with a landlord, rents out all or part of their rented property to another person, known as the subtenant. The original tenant, or sublessor, remains responsible for the lease with the landlord, while the subtenant occupies the property and pays rent to the sublessor under the terms of a separate sublease agreement.
In many cases, tenants need written permission from their landlord to sublet. Most lease agreements include a clause that outlines the conditions under which subletting is allowed. Check with your landlord if you're not sure.
Many times, people may sublet to people they already know like family or friends. However, you could also take more traditional methods to find a subleasor. Finding a suitable subtenant involves advertising the property, conducting interviews, and thoroughly vetting potential candidates. This process should include background checks, credit checks, and references to ensure the subtenant is reliable, financially stable, and likely to adhere to the sublease terms.
In a sublease, the subtenant is responsible for paying rent to the original tenant, who in turn remains responsible for paying rent to the landlord. If the subtenant fails to pay, the original tenant must still fulfill their rent obligations to the landlord.
A sublease is an agreement where an original tenant rents out their leased property to a subtenant, while remaining responsible to the landlord for the terms of the original lease. This arrangement creates a layered relationship, where the subtenant pays rent to the original tenant, but has no direct legal connection with the landlord.
