Commercial Sublease Agreement

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A commercial sublease agreement is a form that allows the sublessor to rent out a specific part of a building where they are a tenant. This agreement is binding with the original landlord - the party who exercises ownership. Customize this commercial sublease agreement template on Lawrina and download the prepared document in PDF to your device.
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Sublease Agreement
This agreement is signed by a subtenant who will be partially renting the property.
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This is a commercial sublease agreement template detailing the subleasing of a commercial property by the sub-lessor to the sub-lessee. In essence, a sublease agreement can be used to rent out a retail space, a shop, an industrial space, or an office space. 

However, a residential sublease agreement is different from a commercial sublease agreement; the former is used for residential properties such as apartments, condominiums, and houses. 

Potential tenants can use the commercial sublease agreement template to sublease the entire property when an individual or corporation is still under a lease.

What Is a Commercial Sublease Agreement?

A commercial sublease agreement, also known as a commercial real estate sublease, is a form that allows the sublessor to rent out a specific part of a building where they are a tenant. This agreement is  a binding contract with the original landlord - the party who exercises ownership. 

Under the master lease, a landlord rents a specific place to a tenant (sublessor), who, in turn, sublets it to another third party (sublessee). In this case, the sublessee would be granted the right of possession (not ownership) for a specific period of time, as described in the agreement. 

In every standard commercial sublease agreement, the property is subleased by a tenant (not the landlord) to another third party. And this is why it is known as a sublease and not a lease.

Parties of the Commercial Sublease Agreement

There are three parties involved in a commercial sublease agreement, and they are known as;

  • The Owner –– The landlord or party who manages the property. They exercise the right of ownership over the property. 

  • The Sublessor — The party given the right to possess the property by the landlord or owner. The sublessor is the party subleasing the property in their possession to another.  They review the application of the sublessee, handle negotiation with the sublessee, and accept responsibility for the sublessee under a commercial sublease agreement. The sublessor must obtain the landlord's consent before subletting a leased property.

  • The Sublessee — The party given the right to possess the leased property for a specific duration in a commercial sublease agreement. The sublessee is the party who will obtain possession of a subleased property from a sublessor. 

Key Terms

When creating a commercial sublease agreement, there are a few things to keep in mind.

  • Information about the parties: A commercial sublease form should typically have information about the parties involved in the legal arrangement. The agreement should include the parties’ full legal names, contact information, and addresses. 

  • Premise description: The subleased property should be described in the agreement, including essential details such as the property’s address, size and type of property, etc. If only part of a property is being subleased, then it should be clearly stated in the agreement. 

  • Fee payment: Every lease comes at a fee. Therefore, the rent amount must be defined in the commercial sublease form, as well as its mode of payment, due date, the penalty for late payment, and operating costs such as utility bills, etc.

  • Duration of lease: The agreement must describe the period in which the subleased agreement would be effective. It must further state the starting date of the agreement. 

  • Rights: In a simple commercial sublease agreement, the rights of both parties must be clearly defined. For example, the agreement must define whether the sublessee has the right to assign or sublet the property to another party.

  • Remedies and default: In the event of a default in a term, the agreement should prescribe the remedy (ies) available to each party. 

  • Liability/Indemnity: A commercial sublease form must also specify which party incurs the liability from property damage or injury. 

Why Is a Commercial Sublease Agreement Important?

A commercial sublease agreement is essential because it legally protects the sublessor. Plus, it cuts down costs on a property, as subleases are normally cheaper than leases. 

What Should This Agreement Contain?

You will find the following information in our commercial sublease agreement template.

Contact Information:

    • The landlord's name and the landlord's address;
    • The name and address of the owner of the original lease; and
    • The full name and address of the subtenant/sublessee.

Details of the Property:

    • The leased property's description and address.
    • The duration of the sublease, which includes renewal terms and periodic tenancies.
    • The start and end dates of the sublease, the rights and obligations of the parties, and additional or other miscellaneous clauses, which include rules for improvements or alterations.
    • The payment to the sublessor by the sublessee each month (utilities accompany the original lease).
    • Where necessary, a security deposit amount is written into the commercial sublease agreement.

How To Write a Commercial Sublease Agreement

A valid sublease agreement and the landlord's consent are necessary to sublet a commercial space. Notably, subleasing does not nullify a lease, as the tenant remains ultimately responsible for rent and the maintenance of the property. 

To create a valid commercial sublease agreement template, the following information must be provided.

1. Parties

Below are the parties to a sublease agreement, and these details must be included in a commercial sublease agreement templates:

  • Landlord: The property owner or manager's full name and address.

  • Sub-landlord: The original tenants that entered into an original lease agreement with the landlord.

  • New tenant: The full name of the sublessee, that is, the new subtenant of the property.

2. Description of Leased Premises

For the description of leased premises, the commercial sublease agreement template must include the following: 

  • Premises: The full address and description of the leased property.

  • Term: The duration of the sublease, the renewal of terms, and periodic tenancies.

3. Original Lease

The details of the original lease, including the start and end dates, the rights and obligations of both parties, and any additional clauses, such as the rules for improvements or alterations, are included in a standard commercial sublease agreement.

  • Rent details: At every billing period, a cash amount is payable to the sub-landlord. The sublease commonly addresses the utilities in the same way as the original lease.

  • Security deposit: A commercial sublease agreement should stipulate the amount for the security deposit if required.

4. Commercial Sublease Agreement Terms

The commercial sublease agreement template should include the following details: 

  • Base rent: This is the minimum rent payable. It comes with the option for the landlord or sub-landlord to increase the rent during the lease term.

  • Holdover rent: After the commercial sublease agreement expires and a subtenant remains on the property, there’s a new rent rate. Sublease agreements usually prescribe a higher rent rate.

  • Remedies: The landlord may terminate the lease and evict the tenant if the tenant cannot pay rent.

  • Event of default: In the event of a default in the payment of rent, the sub-landlord can demand immediate payment of the debt or take action as stipulated in the sublease agreement.

  • Severability: The severability clause states that notwithstanding the invalidation of one or more parts of the agreement, the other conditions of the contract remain valid. 

The Risk of a Sublease Agreement

Certain risks are associated with having a sublease rather than an outright lease. When creating a commercial sublease agreement template, it’s important to have these points in mind.

1. Tenant Default or Non-Payment

The original tenant remains responsible for the payment of rent to the landlord, notwithstanding whether or not the subtenant fulfills their rental obligations. Management of risk can be done through a thorough screening process and clear contractual terms.

2. Property Damage or Negligence

Another risk associated with subleasing is potential property damage or negligence by the subtenant. While the sublessor can seek compensation from the subtenant, per every standard commercial sublease agreement, they are still responsible for maintaining the condition of the property and adhering to the terms and conditions of the original lease.

3. Lease Termination Issues

If the master lease is terminated, or subletting is prohibited, the third party cannot sublet such commercial space. Simply put, you can't create a commercial sublease agreement in places where it's not allowed or where the main lease has ended. When such situations happen, the sublessor should review the terms and conditions of the lease and get consent from the landlord before entering into the commercial sublease agreement.

4. Legal and Regulatory Compliance

The legal and regulatory requirements of a sublease agreement are essential, although they vary by jurisdiction. Regardless, utmost compliance is important, or you could face legal consequences.

To understand the clauses in the agreement, you can book the service of a legal or real estate professional. And as a sublessor, we recommend you possess a copy of the original lease.

When To Use a Commercial Sublease Agreement

A commercial sublease agreement can be used when a part of the commercial premise or the entire property will be leased. Sublease agreements are used to rent out part of the premises while the landlord owns the rest.

If the lease does not specify whether or not a space or property can be sublet, consent can be obtained from the property manager or landlord. 

Common Use Cases

A commercial sublease agreement is used when a tenant wants to rent out part or all of a commercial space they are renting to someone else. This could occur when:

  • Tenant wants to cut back on expenses;

  • Tenant wants to vacate the premises temporarily; or

  • Tenant seeks to share the commercial space with another business. 

In this case, the original tenant remains responsible to the original landlord, but the sublessee still takes on some rental obligations as specified in the commercial sublease agreement.

When Not To Use a Commercial Sublease Agreement

There are numerous occasions where it may not be suitable to enact a commercial sublease agreement. In such a case, it’s more advisable to seek other alternatives. Some of these instances are:

  • Where the original lease explicitly prohibits subletting;

  • Where the original landlord’s consent is not acquired;

  • Where the prospective sublessee is financially incapable of paying the rent or fulfilling their financial obligations;

  • Where the original tenant has the intention of returning to the property after a short while; and

  • Where there’s a business conflict between the sublessor and sublessee. 

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Frequently Asked Questions

What happens if the sublessee defaults on rent or other obligations?

For every commercial sublease agreement, if the sublessee does not pay the rent in due time, the landlord can begin eviction proceedings against the original tenant. If the sublessee owes several months of back rent, the original tenant will be held responsible for the debt, and the tenant must pay in full.

The original tenant is responsible for making sure the rental is in good shape, even though they do not live there.

Can I terminate a sublease before its expiration date?

A standard commercial sublease agreement can be terminated early, that is, before its expiration date, although some steps must be taken. Some are reviewing the terms of the commercial sublease form and negotiating with the landlord for an early termination.

If negotiation is impossible, you may invoke an early termination clause insofar as one exists in your commercial sublease agreement template. This clause typically outlines the circumstances under which either party can terminate the lease before its expiration date.

What are the main reasons you may want to sublease your commercial space?

The required timeframe is usually specified in the commercial sublease agreement. However, in the absence of that, the original tenant should give the landlord 30 to 60 days before the intended start of the sublease. Where adequate notice is not given, the agreement may be rendered null and void.

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