Have you moved to a hybrid working model, and now have more office space than you need? Perhaps you need to relocate before the end of the lease, and are wondering what to do with your existing office? If either of these situations sounds like you, you’ll be wondering how to sublease your office.
Every week, we work with companies to help them decide how much office space they need and whether they need to relocate or refurbish their office. A common topic is what to do with any excess office space. One potential solution is subletting that space. To learn whether creating a sublet is a good option for you or not, read Should I Sublease My Office?
In this article, we’ll explain the process you’ll go through to sublease your office, from deciding if you should to finalising the contract. By the end, you’ll have a better understanding of how to sublease your office. You’ll be able to start the subleasing process and speak to the necessary experts.
Should You Sublease Your Office?
The first step towards subletting your office is deciding whether you should actually sublet it at all. While it may sound like a great idea at first, there are several challenges that mean it is not always financially viable to sublet your office.
The most common reason for companies wanting to sublease their office is to offset their leasing costs. Whether they have excess office space due to hybrid working or they need to move before the lease-end of their existing office, they are looking for ways to recoup some of the cost of leasing their office. however, this is not as simple as it sounds. Supply outstrips demand in the sublease market, so finding tenants can be difficult – especially at a rental rate that makes subletting viable.
Subletting isn’t your only option if you have too much office space. You could negotiate a settlement with the landlord for part of your office, or you could add more collaboration or focus areas to your existing office to help your staff be more productive. To learn more about whether subleasing your office is a good option for you or not, read this article.
Review Your Lease Agreement
Before you spend any significant time or money preparing to sublease your office, you should review your own lease agreement with your landlord to see whether they will allow you to sublet part of your space and if so, under what conditions. Many lease agreements prohibit subleasing by default. Unless you negotiated this clause with your landlord when you started your own lease, you may not be able to sublet at all. If you are allowed to sublease, there will likely be certain restrictions on the type of tenant. There may also be additional costs from the landlord if you are subleasing the space.
Lease terms vary hugely depending on the landlord, the type of office, and the location. We recommend you work with a qualified lawyer to review your ability to sublease your office before proceeding any further, to see whether if it's possible and if so, feasible.
Find a Tenant
While it may seem too early, you should start looking for potential tenants as soon as possible. Due to the real estate changes caused by the pandemic, available sublease space has increased by 80% since March 2020. As a result, the most difficult part of subleasing your space will be finding an appropriate tenant. You will want to do this before you invest significant money and time in the process.
The best way to start is by making enquiries within your own network. You could also work with an estate agent, who can use their own network in the same way. If necessary you could advertise your space on the open market, but this will require time and effort to market the space, and is difficult if the space is not ready.
You don’t necessarily have to have a committed tenant before you move forward. However, speaking to several realistic prospects will reduce the risk of you not being able to lease the space once you have prepared it. You should also gauge how much they are prepared to pay, as this will affect the feasibility of your project. With the current market situation, many subleases have substantial discounts compared to conventional leases, so you will need to make sure it is financially viable.
Prepare the Space
Unless you are planning to sublet a whole floor of a multi-floor space, or even sublet the entire space, it’s likely you will need to prepare the space. This not only means removing all your equipment and furniture, but also making the services independent. You will need to turn it into its own self-contained Cat A or Cat A+ space.
This will likely involve adaptions to the electrics, including power, data, and lighting. The air conditioning may also need to be reconfigured, as will the sprinkler system. If your office has a building management system (BMS), this will need to be updated. The sublet space will also need its own access to the toilets, lifts, and central services.
Depending on the layout and condition of your office, preparing the space for a sublet may require significant investment. This is why it's crucial to speak to potential tenants before making this investment, so you don’t risk investing in the space and then not being able to find a tenant.
Negotiation & Completion
The final stage is to negotiate terms and a lease agreement with your tenant. If there are several companies interested, your estate agent will be able to leverage that to get the best rental rates and terms for you.
You will require a qualified and experienced solicitor to draw up the initial lease terms with your tenant. This will likely require back-and-forth communication to reach the stage where both parties are happy with the terms. Once you have agreed on the terms, your solicitor can create a finalised lease agreement. This may need to be approved by your own landlord as well. Once these are signed, you have successfully subleased your space! Your tenant can then fit out the space and move into their new office.
Subleasing Your Office
In the right situation, subletting your office can be very beneficial. You gain a consistent source of additional income that helps offset your own office lease costs. However, subletting your office is undeniably challenging. It can be very difficult to negotiate with your own landlord to allow you to sublease, and you may struggle to find a tenant – certainly at the rental rate you had hoped for.
When subleasing your office, you should first check your own lease agreement to see if subletting is possible and feasible. Then you should find several serious prospective tenants before investing in preparing your space. As a result, you will ensure that the ROI of your sublease is as high as possible, and that there is little risk involved.
Now that you know the subleasing process, you can get started! You can review any subleasing clauses in your own lease and start making enquiries for potential tenants – either yourself or through an estate agent. If you need any assistance preparing your space, we’d love to help – reach out here.