Pros and Cons of Subletting Your Commercial Property
Category Advice
As a commercial property owner, you are likely constantly concerned about the consistency of your cash flow and the overall success of your investment. Making sure that your property is run in such a way that a good return on investment is guaranteed is vital.
Subletting your property comes with both advantages and disadvantages, depending on your specific situation and your current and future goals. In our latest blog, we dive into some of the key pros and cons of renting out sections or the entirety of your commercial property.
Pros of Subletting Your Commercial Property
Additional Income
By subletting, you have the potential to generate additional income as a result of renting out a portion of your space to another business or an individual. This extra income can help offset some of your own rental costs or provide extra revenue to feed back into your own business.
Flexibility
Subletting can allow you some flexibility in your lease terms. For instance, if your business experiences changes in the amount of space it needs or suddenly requires a downsize, you can choose to sublet the excess space rather than breaking the lease altogether.
Cost Sharing
If you are looking to offset some of the monthly costs of maintaining your commercial property, subletting can offer you a way to share the ongoing utility and maintenance expenses with the subtenant, which helps reduce your overall financial burden.
Diversification
Having multiple tenants occupying a commercial property can also help you diversify your income stream. This reduces the risks associated with relying on a single tenant for your cash flow.
Exit Strategy
You may encounter a situation where you need to exit your commercial lease early. Subletting can serve as an exit strategy in the event that you need to vacate the property before your lease term ends without incurring certain financial penalties.
Potential Tax Benefits
Depending on your location and the tax laws that apply to your jurisdiction, you may be allowed to deduct certain expenses associated with maintaining the sublet space from your taxable income.
Cons of Subletting Your Commercial Property
Landlord Approval
One of the key setbacks you may encounter has to do with landlord approval. You can't take advantage of any of the perks above without a thumb's up from your landlord. This can be a time-consuming process and may not always be granted, depending on the terms of your lease and the landlord's personal preferences.
Responsibility for Subtenants
As the primary tenant, you will typically be responsible for the actions of your subtenant. These responsibilities include ensuring that they adhere to the terms of the lease and maintain the sublet space accordingly. In that sense, you will be functioning like a landlord yourself.
Risk of Non-Payment
There are financial risks to subletting your commercial property. If the subtenant fails to pay rent or other ongoing expenses, you are responsible for covering those costs to the landlord. You may have to pursue legal action to collect unpaid rent from your subtenant.
Complexity
As the main tenant, managing other tenants can be a complex process. You'll need to handle multiple lease agreements, rent collection, maintenance issues, and potential disputes with subtenants.
Legal and Financial Risks
Subletting involves legal and financial risks. If you don't draft your sublease agreements carefully, or if you fail to comply with the terms of your primary lease, you could face legal consequences or financial penalties.
Looking for a Rental Agent? Call us!
Subletting your commercial property doesn't have to be as stressful as it sounds. The right rental agent can make a huge difference to managing your subtenants and the administrative burden that often comes with it. Contact us today and let's help you navigate these tricky waters with ease.
Author: SAProperty.com
