Where there are leases, there will be conditions. Even though tenants agree to rent, care and pay for a property, they can’t always stay for the entire lease period. Whether they’re relocating for a job, taking an extended vacation or need to spend time away on short notice, tenants have to find a solution for their rental. Rather than eat the costs of several months of rent, you can allow them to sublet.
Subletting provides an organized solution that’s a win-win for you and your tenants. You’ll avoid a property vacancy, and the occupant won’t have to pay for a space they aren’t even using. Even the subletter will likely be grateful for the temporary arrangement.
But, before you start permitting subleases, you should be fully prepared. This guide will help you understand what landlords need to know about subletting.
What Is Subletting?
Subletting allows tenants to lease out their rental to a new occupant. The secondary renter is referred to as a subletter, who becomes responsible for fulfilling the requirements set in the original lease. Subletting is the best solution for a tenant moving unexpectedly, due to a job offer or other unforeseen circumstances. It allows for a lot of flexibility, which your tenants will appreciate.
Depending on what you are willing to allow, subletting can apply to different types of property. Tenants can sublet entire properties or a portion, such as single or multiple rooms within an apartment or house. They may also choose to rent out a full floor. It doesn’t only apply to living spaces, either — tenants may sublet garage or storage space. Ultimately, the decision on what is and isn’t suitable is up to the landlord.
Typically, subletting lasts for the remaining timeframe of the lease. Once the contract is up, and if the tenant doesn’t wish to renew it, the landlord can offer the space to new applicants. If the tenant wants to move back in later, the period may last longer as long as both parties continue to assume their responsibilities. Specify any and all arrangements in writing in the agreement.
What Is a Sublease Agreement?
A sublease agreement is between the tenant — or sublandlord — and subletter. While the original lease should still apply, the sublease will legally bind all three parties — the landlord, the original tenant and the subletter — in one contract, making the new arrangement valid. It’s essential to be thorough in detail, just as you would be in a regular lease. Since the subletter is under the tenant’s supervision, the sublease will make their responsibilities and obligations clear.
Things to include in a written sublease agreement include:
- Tenant and subletter responsibilities: Outline any obligations the two parties must fulfill during the sublet term. This includes payment, damages and any actions or inaction that could bring on penalties or eviction.
- Term: Define the period over which the sublease is valid. Use specific dates, just as you would in a regular lease.
- Policies: Explain policies that your subletter should know, such as maintenance and utilities. You should also set limits for what is allowed or not, such as pets, further subletting and commercial uses of the property.
- Prerequisites: If you require a security deposit for damages and renter’s insurance, establish that either or both are necessary for the subletter. Include the specifications of each, such as deposit amount, minimum coverage and type of policy.
- Master lease: Attach a copy of the master lease to the sublet agreement. Unless otherwise specified, all of the details in the original contract should apply to both the sublandlord and subletter.
Once you’ve written out a thorough agreement, have a lawyer or property management team review it to ensure you’re fully covered in any situation.
Additionally, be sure to include a sublet clause in standard lease agreements. The stipulation should require a tenant have written permission from the landlord before subletting any property. It’s also smart to retain your right to approve or deny applicants during the screening process, so you don’t end up with an irresponsible subletter.
How Does a Sublease Work?
When your tenant needs to move out early or will be out of the area for an extended period, you can create a sublease agreement. As long as you have outlined the grounds for subletting in the lease, the process should be relatively straightforward.
First, the tenant should ask permission to sublet their rental. Once you give them the go-ahead, they will find a new tenant. In some cases, they may already have someone in mind who needs a short term arrangement. Otherwise, they’ll need to conduct applicant screening processes. While it isn’t your direct responsibility, provide them with your requirements and expectations or tips on how to screen renters effectively.
Even if your tenant considers an individual qualified, you may not feel the same. If you retain your rights in the lease, you can evaluate their subletter choice and approve or deny the applicant. It’s essential to make sure the subletter is a responsible renter before entering an agreement. You don’t want to have to deal with damages or careless behavior, and neither does your sublandlord.
After you’ve agreed on a candidate, you need to create the sublease. It will hold your tenant — who takes on the position as sublandlord — and the subletter accountable for their responsibilities. It will also bind the third party to the master lease so they are also subject to the same policies as the original tenant. The sublandlord will remain responsible for rent payment and property conditions. Every party signs the sublease.
How Do Payments Work When Subleasing?
Regardless of how you organize payment, you need to detail your policy in the sublease. A clear plan will prevent any disputes or confusion once the responsibility changes hands. It will also protect you in the event of a legal issue.
As the sublandlord, your tenant will take on the responsibility of collecting rent from the subletter and referring the payments to you. If the tenant is incapable of serving as the middleman or would prefer not to, you can choose to allow the subletter to pay you directly.
However, even if they aren’t directly dealing with payments, the sublandlord is still responsible for making sure the subletter fulfills the agreement. Should the subletter miss or refuse to send payments, the sublandlord has to come up with the money. Including this policy in the sublease ensures you receive compensation and motivates your tenant to choose a trustworthy applicant during the screening process.
There is a chance some tenants may try to make extra income by subleasing a rental. They might ask the subletter to pay a surcharge equal to a small percentage of the rent. To prevent this situation, include a clause in the sublease that states all payments that exceed the original tenant’s rent go to the landlord. It’s a standard inclusion and prevents scams and ripoffs.
What’s the Difference Between Subletting and Assigning a Lease?
Subletting isn’t the only way to solve the vacancy left by an early move-out, but it may be the most convenient. Another method of filling the space is by assigning a lease. There are a few major differences between the assignment of a lease and sublease.
When you opt for assignment, you transfer the master lease held by the original tenant to a new occupant. By doing so, you end the relationship with the original leaseholder and transfer all payment responsibilities to the assignee. They then carry out the rental for the remainder of the lease period. However, it’s important to note the original tenant can still be held accountable for property maintenance if left unspecified in the agreement.
While assigning a lease may seem like a more straightforward option, subleases are much more flexible arrangements. For one, they keep the relationship with the original tenant open in case they can move back into their rental. Subleasing is attractive to renters, and you won’t have to enter an entirely new lease or prepare other properties.
Subleases also put the responsibilities of finding a new occupant, keeping up with maintenance and ensuring timely payments on the original tenant. In an assignment, you have to take on those tasks, spending time and money. There won’t be a middleman to mitigate the risks of potentially ending up with a disrespectful tenant.
With subleases, you can also dictate a period over which the agreement lasts. If your tenant has a long term lease and wants to sublet for several months in the middle, a sublease will allow them to do so. Assigning the lease would not, as it ends the original agreement and transfers it to the new tenant.
The Benefits of Subletting
While there are a lot of fine details to consider, subletting can be beneficial to your business. Having the option available could be what makes or breaks a tenant moving in. Applicants could have a job position, belief system, academic field or humanitarian cause that requires them to spend extended periods away from home or move frequently. By providing flexible agreements, you’ll be more attractive to potential applicants
Some of the other benefits of allowing tenants to sublease are:
1. Steady Income
As a landlord, one of your most significant needs is keeping a consistent source of income. When your rental properties have vacancies, your income may fluctuate unexpectedly — especially when tenants need to leave mid-lease. An unanticipated move can leave you with a lower monetary yield than expected for the quarter, putting you in a tight spot.
If you want to ensure payments keep coming in regularly, permitting subletting is an excellent way to do so. Subletters will help fill in any gaps in rentals without the tenant having to terminate their lease early. If the original tenant can’t move back in after the sublease ends, the secondary occupant may keep the unit and take on a full lease. Also, allowing a subletter in will give you time to find a new renter if they don’t intend to continue renting the space.
2. No Turnover
Every time you end a lease with a tenant and enter an agreement with a new occupant, you have to prepare the apartment. That means thorough cleaning, repairing any damages and making any necessary upgrades. Once you’ve finished with the property, you need to advertise the space and screen all of the applicants that show interest. You need to do all this before you can accept a new tenant, and make sure you choose a responsible renter.
However, with a sublease, you won’t have to end the original agreement, and the tenant takes on the role of sublandlord. So, all of the aspects of preparing the space and finding a subletter are up to the tenant. This will save you time and money, and if you have a reliable occupant, it’ll be a smooth transition.
3. Maintaining Relationships With Tenants
In some cases, tenants relocate or travel temporarily and want to continue renting their unit once they return. Terminating their lease would mean losing contact with their landlord, having to go through the initial leasing process over again and potentially losing their apartment. Without a failsafe, they won’t be guaranteed a unit and risk returning to find their landlord has no vacancies.
Subleasing allows your tenants to keep their lease agreement without having to terminate or pay for a rental they aren’t using. You can maintain a relationship with the original occupant and keep them on as a lessee, which can motivate them to renew later. By being flexible and attentive to their needs, you may be able to keep a reliable tenant around for a long time.
4. Property Protection
When it comes to renting out properties, safety is crucial to maintaining a good reputation and keeping your tenants feeling secure. If there are any instances of attempted robberies or trespassing, your occupants might not want to renew their leases. A record may even prevent apartment hunters from applying. One of the best ways to prevent criminal activity is by filling your rentals with tenants as frequently as possible.
Vacant spaces are more likely to attract criminal behavior. So, by keeping rentals occupied, you’ll be helping decrease your tenants’ risk of being targeted. Subletting units while the original leaseholders are away will help fill any gaps that might occur.
With these advantages, subletting is an excellent business opportunity for any landlord. While there are a lot of rules and regulations to consider, you can look to outside help to ensure all your property stays well-managed.
Let American Heritage Property Management Help You
Once you’ve learned how a sublet works and have decided to allow them for your tenants, you need to ensure you can manage everything. It can be a challenge, but with the help of American Heritage Property Management, you can begin benefitting from subleases without any of the stress.
At AHPM, we’ve been providing full-service property management for our clients since 1981. Our experienced professionals take care of everything from tenant screening and selection to preparing lease agreements to overseeing daily operations. Our licensed maintenance division will even handle repair needs 24/7.
With over 3,000 units in our care across Central Pennsylvania and the Baltimore Metro area, American Heritage Property Management is known as a trustworthy company. We provide access to an in-house network of real estate agents, insurance providers, mortgage representatives and settlement officers. By partnering with us, you’ll have all the tools you need to introduce subletting in your properties successfully.
To get started on improving your rental management, contact us for more information.