Should I let my commercial tenants sublet? The pros and cons

Should I let my commercial tenants sublet? The pros and cons

by | Jun 8, 2021 | Commercial Real Estate

When you are crafting your lease agreement to use for your commercial real estate, you have many important decisions to make. One is should you contractually forbid any type of subletting? Should you allow it only with your specific written permission? Or should your lease agreement remain silent on the issue, and let the cards fall where they may?

The disadvantages

In commercial real estate, much like in residential real estate, there are advantages and disadvantages associated with having both a tenant and a subtenant. One of the immediate concerns you may have when your tenant decides to sublease is your lack of control over the process.

Commercial real estate is a huge investment on your part. You probably vetted your current tenant very closely, and it could concern you to have some entity in your space that you know nothing about.

In addition to the obvious concerns with subletting, such as property damage, you should also consider the impact on your space’s status. Will the type of business the subtenant operates be conducive to creating an environment where other businesses will choose not to rent your other nearby spaces? For instance, will the subtenant create nuisances of noise, noxious odors or utilize hazardous materials in its ops?

The advantages

If you request that your tenant obtain your written permission before they sublet, then you have the opportunity to have the new entity sign a commercial sublease agreement. Once you establish a contractual relationship with the new tenant, you will be legally allowed to go after either one of them for unpaid rent or property damage, not just your original tenant.

This means that, if you need to go through the expense of a lawsuit, you can recuperate more of your losses by going after the entity that is most likely to be able to give you the restitution that you are entitled to (assuming your lease also includes appropriate language in respect to collection costs, including but not limited to attorney’s fees).

But, if you allow your tenants to sublet without landlord permission, you might be able to avoid the need for a lawsuit altogether. For instance, if your tenant is about to become insolvent, and won’t be able to make their rent payments, they could find a subtenant to take over their contractual obligation to you. That way, you will not be forced to take legal action in order to receive rent from the property.