Sublease

A sublease is a rental agreement where the original lessee(tenant) rents out the premises to another person called the sub-tenant or sublessee. The new tenant gets few rights as the sublessee. The original tenant (lessee) can only give those rights to the new tenant (sublessee) which he has got from the original landlord (lessor). He cannot pass on more rights of use on the property. The flow of rent is from the sublessee to the lessee and the lessor/owner. The risk of rent is always mainly borne by the lessee. In case the sublessee is unable to make full or timely payment to the original lessee, the lessor is still entitled to his timely rents and the risk is borne by the lessee.

Risks for Lessor

The lessor has to be cognizant of various issues while allowing sublease of his property. The original tenant, who will now be the sublessor. should thoroughly check and screen people before allowing to become a sublessee. Creditworthiness check can be one way. There can be damages chargeable to the lessee and he cannot do away with the responsibility of payment of expenses or damage. These eventualities have to be covered in detail n the sublease contract in case it is allowed. The sublease contract cannot charge more than the original lease contract and the sublease contract is more like a private contract between the lessee and the sublessee.

Things to Remember for Lessee

As a Lessee who will be a sublessor, it is important to take the permission of the landlord even with a provision in the contract. Local and national laws may require written consent even if it’s a common phenomenon. The liability of the sublessee also falls on the sublessor with all effects and appropriate screening is imperative for income level, criminal records, and other behavior.

Subleasing is a convenient and lawful way to use unutilized asset but in no way can be used to profit off the landlord’s property by subleasing at a higher rent.Sublease

Risks for the Sublessee

The landlord/lessor has to allow the arrangement for it to become legit. There has to be written permission to sublet unless it specifically disallows it. This can also become the ground for eviction if you are a sublessee and have taken the premises with the lessee who has left without any information. Thus, it is important to be fully aware of the lease arrangements and conditions before getting into a sublease agreement as a lessee.

Example of a Sublease

Sublease is useful and a great method to minimize your living expenditure if you are not going to be using your accommodation or premises for a certain period of time. Renting out apartments to students or commercial space like godowns when not in use are a few examples.

Laws

There are various laws for subleasing in different countries. In general, in the U.S if the lease doesn’t mention subleasing, it is usually allowed. The landlord needs to approve the sublease contract as well the sublessee. Many states and local municipalities allow subleasing in spite of having a no subleasing clause in the contract. San Francisco allows subleasing of occupants subject to certain screening standards as set by the landlord.

References:


Last updated on : January 16th, 2018
What’s your view on this? Share it in comments below.

Leave a Reply

Specialized Factoring
  • Finance /Capital Lease
    Finance / Capital Lease
  • Lease Finance vs Term Loan
    Lease Finance vs. Term Loan
  • Internal Source of Finance – Retained Profits, Sale of Assets, Reduction of Working Capital
    Internal Source of Finance
  • Mortgage Debentures
    Mortgaged Debentures
  • Subscribe to Blog via Email

    Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 122 other subscribers

    Recent Posts

    Find us on Facebook


    Related pages


    fixed cost vs variable cost examplesadvantages and disadvantages of benchmarkinginventory management economic order quantitywhat is double entry bookkeeping definitiondefinition of debits and creditsmeaning of zeroed incalculating dividend growth rateabc analysis for inventory controldisadvantages of factoring accounts receivableoperating levergeprinciple of maximizationsignificance of profitability ratiosconvertible bonds explainedadvantages and disadvantages of npv methodindicators of impairment of fixed assetsconventional budgetingmovable assets meaningdisadvantages of npv and irrhow to calculate average collection period of accounts receivableifm notesconcept of discountingirr arrhow to calculate irr manuallywhat is the difference between a shareholder and a stakeholdersimplified straight line depreciationdifference between recourse and nonrecourse factoringmeaning of redemption of debentureswhat are loan covenantswhat is accrual accounting vs cash accountingbonds and debentures meaningtotal debt to equity ratio interpretationfactoring accountingfinancial motives for mergers and acquisitionsvarious capital budgeting techniquespresent future value formulasundries definition accountingcapital budgeting and investment decisionspreferred shares cumulativeadvantages of payback period methodnpv and waccgordon growth terminal valueinvestment alternatives to stock marketreceivables turnover ratio calculatorwhy buy a zero coupon bondquick assets divided by current liabilities is theirr mirrpayback formulaadvantages and disadvantages of bank loanshow to calculate gearing ratio from balance sheetnoplatdegree of operating leverage accountingcapitalization vs expensecost of common equity capital calculatorcost of capital irrdividend growth model assumptionsdividend payout rate formuladiv payout ratiodisadvantages of trial balanceinventory turn definitiondrawbacks of ratio analysisdefine utilities expenseadrs financedisadvantages of flexible budgetcost pools and cost driverscalculate discounted paybackinterpreting debt to equity ratioshortcomings of irrmandatory exchangeable bondtrue lease vs finance leasetypes of accounts in accountancysemi variable costs definitiondefine macroenvironmentthe balance sheet category intangible assets includes