Keep These Legal Matters in Mind Before You Sublease a Commercial Space
If you’re a business owner who wants to save on rent or generate additional income, subleasing a commercial space can be a viable option. But, in Australia, various legal matters need to be taken into account to ensure that every party involved is protected and compliant. So, before you sublease a commercial space, take ample time to understand the legal aspects of entering into a sublease agreement.
First, let’s ask: What is a commercial sublease agreement?
Essentially, a commercial sublease agreement is a contract that outlines the terms and conditions under which the existing tenant of a commercial property agrees to rent out part or all of the leased premises to another party. The sublease arrangement allows the original tenant to utilise unneeded space or reduce financial burdens by sharing the rental costs with the sublessee or subtenant.
Note that this agreement is separate from the original commercial lease between the head landlord and the original tenant. But while it’s an entirely separate documentation, it must still be consistent with the terms of that original lease.
What are the key legal aspects to keep in mind when subleasing?
Before you decide to sublease an office space or any commercial property, here are some legal matters you should keep in mind.
● Consent of the Head Landlord: In most cases, the tenant must secure the landlord’s written consent before subleasing any part of the premises. Your landlord may also request information about the sublessee and the intended use of the premises. Without securing this consent, the sublease may be considered invalid, and you could be in breach of the head lease.
● Payments: The sublease should clearly articulate the rent and outgoings amount payable by the subtenant, including how often and by what means payments will be made. One key detail: the subtenant’s rent and outgoings should not exceed what you (as the initial tenant) pay. And despite the arrangement, your obligation to fulfil payments to the head landlord persists. So, if the subtenant fails to meet payment obligations, the landlord may hold you responsible for it.
● Lease Period: Another key legal aspect is that the sublease’s duration must not outlast your original lease term. This ensures that the sublease agreement is bound by the duration of the original tenant’s rights to the property.
● Insurance and Other Relevant Duties: The commercial sublease agreement should outline the responsibilities of both the original tenant and sublessee regarding insurance coverage and other obligations related to the use and maintenance of the premises. That can help guarantee that you and your subtenant will be adequately protected during the sublease term.
● Liability and Indemnification: Typically, the original tenant bears liability for any damages or legal breaches attributable to the subtenant. If you want to mitigate such risks, incorporating an indemnification clause in the sublease is advisable. That way, you can obligate the subtenant to cover any damages or losses.
● Termination Conditions: Finally, the agreement must specify the conditions under which the sublease might be terminated. This includes scenarios where a breach of the original lease leads to its termination by the landlord, which would, in turn, nullify the sublease agreement.
Other tips to follow before you sublease a commercial property
1. Review the Head Lease Agreement
The original lease agreement between the tenant and the landlord should be the first point of reference. Seek the help of a commercial lawyer to review this agreement. It may contain clauses that either permit or restrict subletting and outline the conditions that must be met for subleasing to be allowed. Failure to comply with these conditions can result in the tenant breaching the lease.
2. Outline the Subtenant’s Rights and Obligations Clearly
Your sublease agreement should clearly outline the subtenant’s rights and obligations, including repair and upkeep of the property. This way, you can prevent disputes and ensure that your subtenant is aware of their responsibilities. What about a security deposit? If your original lease required a security deposit, you can require the same thing from your subtenant to cover potential damages or breaches.
3. Be Compliant with Relevant Legislation
Depending on the state or territory, there may be specific legislation governing commercial leases and subleases. For example, retail leases may be subject to additional disclosure obligations and protections under retail leasing legislation. Make sure to prepare for such compliance issues before subletting your space.
4. Draft a Sublease Agreement with the Help of a Commercial Lawyer
Your sublease agreement should be consistent with the terms of your head lease. It should cover important issues such as rent, security deposits, maintenance responsibilities, limitations on use, and conditions for termination to avoid confusion and potential disputes. Moreover, the sublease should not confer rights exceeding those in the head lease. These will likely be clearly stipulated when you seek the assistance of a lawyer with years of experience dealing with commercial leases.
Let our commercial lawyers on the Sunshine Coast help you.
Are you planning to sublease a commercial property or office space on the Sunshine Coast? Reach out to our seasoned team of commercial lease lawyers. They are experienced in dealing with commercial leases on the Sunshine Coast; they’re the best professionals to guide you through your decision to sublease. They will make sure your interests and rights as an original tenant are protected. With their legal guidance, you can prevent costly disputes and lease agreement breaches.
Send us a message or give us a call to set an appointment with one of our lawyers.
Disclaimer: This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm, or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers take no responsibility for any use of the information provided in this article.
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