What Does It Mean to Sublease?
Long-term leases are the most common type of rental agreement, providing renters with housing security for a designated amount of time -- usually 12 months. However, at any point in time, a tenant may need to leave for a variety of reasons, requiring them to either break their lease or continue paying for a space they are no longer using.
One possible alternative to breaking a lease or throwing away money on an unused rental is to sublease your space. Subleasing is risky, because the new tenant has less of a commitment to maintaining the rental and keeping up with payments. However, subleasing can be a convenient arrangement if you’re able to find someone responsible and trustworthy.
In this blog post, we’ll explain what a sublease is, how it works, the difference between subleasing and subletting, and what it takes to sublet successfully. We’ll also discuss when subleasing might become necessary, when subletting is simply a better option, and how state laws affect these rental agreements.
What is a sublease agreement?
Subleasing is when the current tenant of a property rents out their unit to a third party for a portion of their existing lease. In most cases, the third party, also known as a subtenant, replaces the primary tenant for the remainder of their rental contract. However, the third party can be added to the original or master lease as an additional roommate.
A sublease agreement may or may not be possible depending on where you live and the original terms of the lease. Some rental agreements strictly forbid it, while others are more lenient. It’s important to note that even when a sublease is allowed, the primary tenant is still liable for the terms of the original lease, such as payment and pet policies. To avoid rental disagreements, the subtenant should follow the same rules as the primary tenant.
What is the difference between subleasing and subletting?
In some cases, a sublease is referred to as a sublet. The main difference between the two is who manages the rental agreement. A sublease is a rental agreement between the primary tenant and a subtenant, while a sublet is a rental agreement between the rental owner and a subtenant. Here are some key differences between the two:
- Subleases can only last for the duration of the original lease. Since sublets are negotiated directly with the property owners, sublet agreements can continue after the initial lease contract expires.
- In a sublease, the tenant who signed the original lease agreement is responsible for rent payments. In a sublet agreement, the responsibility of paying rent falls directly on the subtenant.
- Subleases are best suited for tenants who need a roommate, travel frequently, or don’t stay in the apartment for extended periods. Subletting is best suited for property owners who are dealing with a tenant who is struggling to pay rent or needs to break their lease.
How does subleasing work?
A traditional, fixed-term lease is a contract between a property owner and a tenant where the tenant is allowed to live in the rental for a certain amount of time. A sublease legally transfers a part of a renter’s tenancy to a third party. Generally, subleasing is allowed as long as the original lease and local laws allow it. However, it’s always a good idea to get the landlord's permission before moving forward with a sublease. Subleasing can take place in one of two ways:
The subtenant becomes a co-tenant of the primary tenant
In this situation, the subtenant is added to the original lease agreement and is equally liable for the rental agreement as the original tenant. Both the original tenant and subtenant are considered legal co-tenants in this scenario.
The primary tenant becomes the landlord of the subtenant
In this scenario, the original tenant remains the only legal tenant to the rental owner while becoming the landlord to the subtenant. From a property owner’s perspective, the subtenant is a tenant’s guest and is not legally responsible for unpaid rent or damage caused to the property. All rental liability falls on the primary tenant in this scenario.
When might a sublease be necessary?
Several living situations warrant a sublease. You may consider subleasing or subletting a property in any of the following scenarios:
- A tenant gets a new job, requiring them to relocate before their lease is up.
- A tenant loses their job and can no longer afford to pay rent.
- A tenant gets married or decides to move in with a significant other before their lease is up.
- A couple separates and the tenant who decides to stay on the property can no longer afford to pay rent on their own.
- Two roommates decide they can no longer live together, forcing one to move out.
When is subletting a better option?
Although subleases are more common, they’re often more complicated than sublets. Subleases place a middle person (the primary tenant) between the property owner and the subtenant. This can be problematic for property owners because they’re limited in terms of tenant screening, ongoing communication, and receiving payment.
Since the formal agreement is between the primary tenant and the rental owner, there’s no legal way to hold the subtenant liable for outstanding rent or rental damages. If the primary tenant is unable or unwilling to assume the subtenant’s responsibilities, the property owner could end up getting the short end of the stick.
As a result, subletting is a more secure and transparent approach, because it allows the rental owner to deal directly with the secondary tenant. Sublets place the legal and financial responsibility to pay rent and maintain the property on the subtenant.
How does subletting work?
To sublet, the original tenant would let the property owner know that they'll need to vacate the unit for a particular reason and will bring in another tenant to replace them. Usually, the primary tenant already has someone in mind to take their place.
The rental owner would then either terminate the original lease with the primary tenant and create a new lease with the new tenant, or maintain the existing lease and simply add the new tenant to the rental agreement. The latter option eliminates the need for the primary tenant to pay early termination fees.
At the end of the lease term, the property owner can either renew the existing lease agreement with both the primary and secondary tenant or create a brand new lease agreement exclusively with the secondary tenant. In either case, the rental owner has the right to hold the secondary tenant liable for rental payments and property damages to the same degree as the primary tenant.
How to sublet your rental as a property owner: 5 tips for success
Whether you decide to sublet directly or allow your primary tenant to sublease a secondary tenant, here’s what you need to know about how to transfer tenancy successfully.
1. Make sure you’re allowed to sublet
Before signing a sublease or sublet agreement with a secondary tenant, it’s important to first make sure transferring tenancy is allowed in your state and your original lease. Property owners, state regulations, or other roommates may inhibit your ability to sublease or sublet your agreement.
Make sure to review your existing rental agreement, check local housing laws, and ask any other tenants living in the same unit how they feel about welcoming a new roommate. Some local regulations may require tenants to obtain the landlord's consent in writing before subleasing their unit. If your unit is located in a rent-controlled market, pay close attention to how much rent you’re allowed to charge.
2. Decide if you need a security deposit
Most lease agreements come with a security deposit, especially if the person you’re leasing to isn’t someone you know personally. However, if your subtenant is someone you trust, or if the duration of the sublease is shorter than three months, asking for a security deposit may not be necessary.
3. Create or amend the original rental agreement
Even when a sublease contract is signed for a short period, it’s best to put it into a written agreement. You should always look to protect your investment property and secure your interests as a rental owner, whether it be through a new rental agreement or amending an existing lease.
When drafting a written lease, keep in mind your insurance policy and utility bills. Not all home insurance policies cover damages caused by a subtenant. If your primary tenant was responsible for paying their utility bills, the tenant you are subletting to may need to open new utility accounts under their name. Both the tenant and property owner should be on the same page regarding how utility bills will be paid before moving forward with a new subletting arrangement.
4. Market your sublet
In some cases, the primary tenant has to leave immediately and doesn’t have a subtenant in mind. In other cases, they have a subtenant in mind that the rental owner doesn’t approve of. When either of these scenarios is true, the property owner will need to market their sublet to potential tenants.
Subletting an apartment in competitive markets such as New York or San Francisco isn’t difficult. High rental demand makes it easy to find tenants. However, if you’re located in a less competitive rental market, or need to find a tenant on short notice, you’ll need to market your sublet online through a personal network. Try asking those you know first, as this tends to attract more serious tenants.
5. Interview and screen potential tenants
Lastly, as with any rental agreement, it’s important to get to know your subtenant. Although financial verification may not be as extensive for a subtenant, it’s best to put them through a similar screening process as your primary tenants. This will help make sure you’re dealing with someone who will pay their rent on time and in full, as well as someone who takes care of the property during their tenancy.
How do state laws affect subleasing/subletting?
Different states have different laws governing subleases and sublets. In New York, for example, a tenant who lives in a building with four or more units has the right to sublease to a secondary tenant, as long as they obtain the landlord's permission. In San Francisco, a tenant is allowed to replace a roommate with a new tenant after they leave, even when it's prohibited in the lease, as long as the new tenant meets the property owner’s screening standards.
In other states, such as Texas and Arizona, subleasing is strictly prohibited. Subleasing laws are worth considering before investing in a specific area, especially if you prefer to deal with secondary tenants directly through sublets, instead of letting primary tenants sublease on your behalf.
The bottom line on subleasing and subletting
Tenants experiencing financial difficulties or job relocations can pose challenges for property owners who rely on their tenancy for a certain period. Subletting offers a practical and convenient solution to property owners facing such challenges. However, it’s important to carefully review state laws and check in with existing tenants to make sure subletting agreements are executed successfully.