Subletting or subleasing a residential property is different from getting flatmates or aka housemates. Before you choose to sublet your accommodation, it pays to know the rules.
Landlords also need to take steps to ensure they understand the pros and cons of allowing a tenant to sublet their property.
Most tenancy agreements have a subletting clause prohibiting the practice without the landlord’s permission.
Commercial leases are different from residential, and there is a lot more subleasing happening, particularly in large commercial spaces like warehouses and offices.
What is Subleasing?
In the UK, subleasing is called subletting, and in this property blog, we use both terms to explore the pros and cons for landlords and tenants of commercial and residential property.
The landlord owns the property and leases or lets it out to a tenant. There is a lease or tenancy agreement in which both parties agree to the terms with their signature.
Subletting is when the tenant wishes to lease part of the property they are letting from the property owner.
When there is a signed sublease agreement between the tenant and sub-tenant, it is a legally binding agreement.
However, if the landlord did not agree to the sublease, then the sub-tenant can not sue or take other legal action against the landlord. However, they may have cause to take legal action against the tenant they signed the sublease agreement with.
Pros For Subletting
From a landlord’s perspective, there the positive reasons to allow subletting include:
- No vacancy
- The rent rate can be higher than average
- Tenant finds subtenant
- Tenant responsible for the subtenant
In areas where it’s hard to find tenants, subletting is an option for landlords. For example, the short sublease works well for extended vacations. The tenant takes a sabbatical or extended holiday and returns to the property when it’s ended.
Long-tern subleases are more the go with commercial property.
The tenant may have a five or 10-year lease and sublet part of the building for as long as the subtenant wants it or for the same term as their lease agreement with the landlord.
Property investors are keen to secure maximum rental income to improve their yield – i.e., ROI on their investment asset. Therefore all opportunities to do so are carefully considered and weighed up. Subletting part of a commercial property can ensure the price per meter is at the premium end of rent rates.
Tenants are defacto property managers or sublet landlords when taking on a subtenant. The property owners need to communicate with just the tenant; however, they may prefer to have a good relationship with the subtenants to ensure the agreement’s terms are being adhered to and the property is maintained.
Tenant pros for subletting include being in control of who pays the rent. Plus, they get to keep renting the property.
If the landlord permits subletting and the tenant is permitted to do so, they may charge the subtenant more rent than paying the landlord to cover their property management fee. This allows them to earn extra income from an asset they do not own.
Cons For Subletting
There are a lot of negative reasons to disallow the tenant to sign another lease agreement with a subtenant Some the cons for the landlord include:
- Unreported maintenance
- Property damage
- Breaching of sublease terms
- Failure to pay rent
For tenants, subleasing can also be a headache should the subtenant fail to pay the rent and engage in anti-social behavior that upsets the neighbors.
Plus, the subtenant may have a worse outcome with harsher lease terms than if they were the tenant with a direct relationship with the property owner or property manager.
Subletting Can Be A Win-Win
There are enough good reasons to allow subletting if you believe it truly can benefit you. Many of your concerns can be lessoned as clauses in the agreement with the tenant. For example;
- Landlord consent is required for subletting
- Insurance – tenant and subtenant to have rent insurance
- Landlord to vet and approve subtenant
- Rent paid directly to the landlord not via the tenant
- Prohibit tenant use of Short-term let platforms like AirBnB, VRBO, HomeToGo
Subleases are more common and accepted in commercial leases; however, there are pros for residential landlords to allow them too. What makes any lease work is the signed agreement which includes terms and clauses that protect the landlord’s asset. Subletting works for tenants keen to secure the rental property long term even when they don’t need it for a while.