Thinking of Subletting or Subleasing? Here Are The Pros and Cons

Subletting or subleasing a residential property is a distinct process from acquiring flatmates or housemates. It’s crucial to understand the rules before deciding to sublet your accommodation, as this knowledge empowers you to make informed decisions.

Landlords also need to take proactive steps to fully comprehend the advantages and disadvantages of allowing a tenant to sublet their property. This preparation and knowledge will equip them to handle any situation that may arise.

Most tenancy agreements include a subletting clause that prohibits the practice without the landlord’s permission.

Commercial leases differ from residential leases, and there is a significant amount of subleasing occurring, particularly in large commercial spaces such as warehouses and offices.

What is Subleasing?

In the UK, subleasing is commonly referred to as subletting, and in this property blog, we use both terms to explore the pros and cons for landlords and tenants of commercial and residential properties.

The landlord owns the property and leases it to a tenant. There is a lease or tenancy agreement in which both parties agree to the terms by signing it.

Subletting occurs when a tenant wishes to lease part of the property they are renting from the property owner.

When a signed sublease agreement is in place between the tenant and sub-tenant, it becomes a legally binding document. This provides a sense of security and protection for all parties involved.

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 with whom they signed the sublease agreement.

Pros For Subletting

From a landlord’s perspective, the positive reasons to allow subletting include:

• No vacancy
• The rent rate can be higher than average
• Tenant finds subtenant
• Tenant is responsible for the subtenant

Short-term sublease

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 upon its completion.

Long-term sublease

Long-term subleases are more the go with commercial property.

The tenant may have a five- or ten-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, more opportunities to do so are carefully considered and weeded out. Subletting part of a commercial property can ensure the price per meter is at the premium end of rent rates.

Tenants are de facto property managers or sublet landlords when they take on a subtenant. The property owners need to communicate directly with the tenant; however, they may prefer to maintain a good relationship with the subtenants to ensure the agreement’s terms are being adhered to and the property is maintained correctly.

Tenant pros for subletting include being in control of who pays the rent. Additionally, they continue to rent the property.

If the landlord permits subletting and the tenant is allowed to do so, they may charge the subtenant a higher rent than they would pay to the landlord to cover their property management fee. This will enable them to earn extra income from an asset they do not own.

Cons of Subletting

Thereare severalf negative reasonsto preventw the tenant from signing another lease agreement with a subtenant. Some of 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 if the subtenant fails to pay the rent and engages in antisocial 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 sufficient reasons to allow subletting if you genuinely believe it can benefit you. Many of your concerns can be lessened through 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

Summary

Subleases are more common and accepted in commercial leases; however, there are also benefits for residential landlords to allow them. What makes any lease work is the signed agreement, which includes terms and clauses that protect the landlord’s asset. Subletting works for tenants who are keen to secure a rental property in the long term, even when they don’t need it for a while.