What is a Sublease

A sublease is the renting of property by a tenant to a third party for a portion of the tenant’s existing lease contract.

BREAKING DOWN Sublease

A lease is a contract between a property owner and a tenant which transfers the owner’s rights to the exclusive possession and use of the real estate property to the tenant for an agreed upon period. Furthermore, the lease sets forth the length of time the contract is to run and the amount of the tenant’s rent. In legal terms, the tenant’s legal right to possess the property is deemed tenancy. Subleasing occurs when the tenant transfers a part of their legal tenancy to a third-party as a new tenant.

Subleasing can be established unless the original lease forbids it. However, in most cases, the owner must be notified and give his or her approval to any subletting arrangement created by the tenant. Control over the subletting process could be written into the original lease so that the owner keeps the ability to have some say in who uses and/or occupies their property.

Any tenant who sublets property must remember that subleasing does not release them from their original contracted lease obligation to pay rent or their responsibility for the cost of repairs due to any damage of the property.

The new third-party tenant is subject to the same rental terms stated in the original tenant’s contract. The original tenant cannot give ownership rights to the third-party tenant that they were not given to them by the original lease.

Subleases can be executed for both residential and commercial properties.

Example of a Sublease

Because a lease is generally for a predefined term, situations can arise that make it difficult or impossible for the original tenant to complete the lease term. For example, if Sebastian is renting an apartment in Chicago with a 12-month lease and in month four he receives a job offer in Boston, he may decide to sublease his apartment to another tenant for the remaining eight months. The sublease means that Sebastian can accept the job and move - he doesn't have to pay expensive fees to get out of his lease or pay rent on two apartments. The landlord also benefits because he receives all 12 rent payments and doesn't have to find a replacement tenant. The sublease arrangement also means that Sebastian retains an interest in the apartment, so if he decides to move back to Chicago, he may be able to renew his lease and get his old apartment back.