How to Calculate the Rent for a Sublease Office Space

by Jill Harness ; Updated November 21, 2018
Office Building Exteriors

It's all too easy to lease an office space only to find out that you didn't need quite as much space as you once expected or that you need so much more space that you'll need to move into a new building. Whatever the reason, if you have more space than you need, it can be a good business decision to recoup some of your rent by attempting to sublease the office space.

Why Sublease Your Space?

Most businesses lease their office space in terms lasting one, two, five or 10 years. These leases tend to include large fees if the lessee breaks these terms and vacates the property early. If you need to vacate a space before the lease expires, it may be beneficial to sublease your office space rather than breaking the lease and paying a penalty, even if you sublease the property for less than you are paying and still end up taking a loss.

Alternatively, if you have space you don't need or don't use, you might make a little extra income by subleasing the area rather than letting it go to waste. Even if you think you might need the space later, a short-term commercial space rental can help prevent you from wasting money on unused office space until you are in a position where you need the full amount of space in your office.

Deciding Whether to Sublet

First, determine if the idea is even possible. Check your lease to make sure you can sublease all or part of your property. Some leases allow for subleasing but only for the whole property, not a portion of it. If leasing a portion of your office, make sure the area you are considering subleasing is something people would want to rent and if it's logistically feasible given building entrances, parking, etc.

Realize that you will be responsible for the damages if the sublessee destroys the property. If the sublessee stops paying rent, you'll still be responsible for the rent. If you do sublease, be sure to charge a damage deposit equal to one month's rent and consider getting commercial sublease insurance. These can at least help offset some problems that may arise from subletting.

Be sure to evaluate your company's need for privacy. If you are leasing an open plan office and you work in the medical field, you probably can't get away with subleasing office space where people's private medical information may be seen by those outside of the company. The same applies if you are in the legal field or any other industry that handles sensitive information.

Video of the Day

Brought to you by Techwalla
Brought to you by Techwalla

Also, consider how the move will look to employees and customers. Subletting can make it appear that you are having financial troubles. You do not want to lose employees who require steady employment and may feel their job is threatened. You also won't want to scare away customers who want to know that your company is stable. While you may be able to effectively communicate this to your employees, it's a lot harder to express to customers.

How to Sublease Office Space

If you are sure you are ready to sublease, be sure to carefully screen tenants. You need to make sure a company will not only take care of the property but also pay in a timely and reliable manner. You'll also want to make sure that you can handle sharing a space with the company if you are still occupying part of the office.

It is worth noting that most leases that allowing subleasing require the landlord to approve the sublessee, and you may even have to pay for this approval process, so you want to make sure you find a tenant that your landlord will approve. Also, some leases prohibit subleasing to companies already in the building or to companies in similar industries as those already in the building. Make sure you carefully review all subleasing provisions in your lease before advertising your listing, as you do not want to waste time negotiating with a potential sublessee who cannot legally move into your building.

The subletting process can be made easier by working with an experienced real estate broker who can review all the clauses of your existing lease, advertise the listing for you and screen potential tenants for you. Of course, this service does not come cheap, so carefully weigh the value of these services against what you will pay the real estate broker if you believe you can handle the job yourself.

Once you've chosen the right tenant, you'll need to agree on the terms of the lease with your new sublessee. This should include details like a damage deposit, utilities, shared amenities, parking, branding, potential renovations and the overall office working environment. Create a contract and have your lawyer look it over before having the other company sign.

Restrictions on Subleasing Rent

Most companies looking to sublease office space expect to pay a reduced rent. That means that you'll probably have to charge less than you're paying per square foot unless you're paying far less than market value. On top of this, many leases prohibit those who sublease their space from making a profit. So, generally speaking, you should expect to charge less than what you are paying.

On the other hand, some leases actually prohibit the company subleasing a space from charging less than what they are paying the landlord. This problem can be averted by offering space at the same price per square foot that you pay and then offering to throw in additional "free" office space as part of the short-term retail lease, leaving you with an average price per square foot that is still lower than what you pay.

To further complicate things, some lease agreements prohibit advertising the price of a sublease, so in this case, you will have to state in the ads that those interested should inquire about pricing, or you can simply state that the price is negotiable.

Calculating the Cost

Once you have taken into account the restrictions on sublease pricing listed in your lease agreement, you need to figure out how much you would like to get for the space. The best thing to do is to compare what you are paying to the average commercial rent per square foot by zip code. If your lease prohibits you from earning a profit on space you have subleased out, and you pay far less than the average market rate, you might be able to charge exactly what you pay. If your lease prohibits you from charging less than what you pay, and you have to throw in "free" space in order to sublease out the property, you'll probably want to charge the same as you are paying as well, knowing it will average out to less.

Of course, the length of time for which you are subletting the property will also make a difference. The shorter the time on a sublet term, the fewer the tenants who will be interested because few companies want to move into a space only to have to move out again within a year. If you have five or more years left on your lease, you may be able to get away with charging between 70 and 90 percent of the market value for your space. That number will go down as the lease term becomes shorter and shorter. If you have a year or less, you will have to charge a dramatically reduced rate in order to appeal to potential tenants. If your lease prohibits charging less than what you pay for rent, this might become impractical even with the option of including bonus "free" space for the sublessee.

About the Author

Jill Harness is a blogger with experience researching and writing on all types of subjects including business topics. She specializes in writing SEO content for private clients, particularly attorneys. You can find out more about Jill's experience and learn how to contact her through her website, www.jillharness.com.

Cite this Article A tool to create a citation to reference this article Cite this Article

Here's a Calculator to Help You