Subletting commercial or residential real estate involves transferring the leased property to a third party. This is a fairly common solution for making money. A tenant can lease a large office or retail space and transfer the premises to third parties for use at a higher cost. We tell you what you need to know about subletting, the conclusion of an agreement and other nuances.
What is a sublease in simple words
A sublease is the transfer of leased property to a third party. With the consent of the landlord, the tenant transfers part or all of the leased premises to the subtenant for the period specified in the contract.
In simple terms, one person leases the premises from the owner, which he then partially or fully leases to another person for the purpose of earning money.
What is the difference between renting and subletting
There is a significant difference between renting and subletting. In the first case, the property is leased by the owner, while in the second case it is leased by the tenant. That is, in the first situation the contract is between the owner and the tenant, in the second - between the sub-landlord and the subtenant. The subtenant is liable to the subtenant, while the tenant is liable to the property owner.
How to properly sublease premises
Such a concept as "sublease" is clearly described in Article 774 and Article 823 of the Civil Code of Ukraine. They also specify the procedure for subletting property and the peculiarities of concluding a contract.
In order to legally sublet the premises, the tenant must conclude an agreement with the subtenant with the consent of the landlord. The landlord must provide its consent in writing.
Quite often, the possibility of subletting the property is already provided for in the main contract (between the landlord and the tenant). The document may also contain conditions and certain restrictions on subletting. Even if there is such a clause in the contract, the tenant must still obtain written consent for subletting from the property owner.
Only when the landlord's consent is obtained, the contract with the subtenant is concluded. If the agreement is signed for more than 3 years, it must be notarized. Such a condition is also mandatory if the lessee and the lessor are individuals who are not business entities.
Do I need the landlord's consent to sublease
The landlord's consent to a sublease is mandatory. According to the law, the tenant cannot act completely independently without coordinating its actions with the property owner. Consent may be given not only by the owner of the property, but also by a person authorized and entrusted by him. Consent to sublease must be given in writing.
Most lease agreements already contain a sublease clause. It is important to study the document carefully, as some owners explicitly state that they prohibit subletting. There are also those who immediately provide in the contract the possibility to sublet the property, but this fact does not cancel the need to obtain the written consent of the owner.
How to draw up a sublease agreement correctly
If a tenant has decided to sublet leased premises, it must have two agreements as a result. The first is the main one (between the landlord and the tenant with the right to sublet the property). The second is the sublease agreement (between the lessee and the sublessee).
How the parties are named in the contract:
- Owner - "Landlord" (in the main contract);
- Lessee - "Lessee" (in the main agreement) and "Sublessor" (in the sublease agreement);
- Subtenant - "Subtenant" (in the sublease agreement).
A sublease agreement cannot be concluded if there is no main lease agreement. Also, the term of the sublease agreement cannot be longer than the term of the main document.
What other nuances are important to know when executing a sublease agreement:
- Since the sublease agreement is not the main agreement, its legal fate depends on the main agreement;
- if the main lease agreement is terminated early, the sublease agreement is terminated along with it;
- it is advisable for potential subtenants to study not only the sublease agreement, but also the main agreement to know its term and early termination terms;
- since the property owner and the subtenant are not bound by the contract, they cannot make claims and demands directly and interact only through an intermediary (the tenant);
- if the subtenant violates the terms of the agreement, the tenant has to answer for his actions to the owner of the premises;
- the sublease agreement can only be a paid agreement, and the value of the sublease must be specified in the document;
- the sublease agreement does not give a pre-emptive right to a new lease term.
A lessee who also acquires the status of a sub-lessor should understand that it will have to interact, including dealing with claims, with two parties at once: the lessor (owner) and the sub-lessee.
The sublease agreement terminates in several cases. These are termination or expiration of the main agreement, expiration of the sublease term specified in the document, or breach of a condition of the sublease agreement.
If the sublease agreement is terminated early due to the termination of the main agreement, the subtenant may apply directly to the property owner and conclude the main agreement with him as a tenant with the landlord. The subtenant then has a pre-emptive right to do so, but only until the end of the previously agreed sublease term. It is important that the subtenant can prove that it has not violated the terms of its contract.
What are the dangers of subletting
The danger of subletting lies primarily in the additional risks caused by the presence of a third party. If the subtenant violates the terms of the agreement or damages the property, the subtenant will have to answer to the landlord for this.
There are also nuances regarding payment. If the subtenant delays payment, the tenant will have to pay the landlord with his own money. If you plan to pay the rent from the funds that come from the sublease, it is important to make sure that the subtenant makes his payments on time.
There are nuances that may make a sublease transaction illegal and may result in the subtenant not being able to recover rent payments previously made by the subtenant. This may happen if the main agreement was subject to notarized registration, which entails the obligation to register the sublease agreement with a notary, and the condition was not observed.
It can be difficult to understand the legal nuances of subletting. The real estate agency "Mayak" has its own legal department. Specialists will help to properly draw up a sublease agreement that will protect the sublessor and the subtenant.