Many small-business owners prefer to keep overhead to a minimum. To do this, some will either work from home until business growth supports an office or will rent the smallest space they can find. Others may rent a portion of office space, retail space, or even industrial space from an existing business, effectively sharing the facility in a legal arrangement known as subleasing.

Sublease Defined

The dictionary defines a sublease as a lease by one tenant or lessee to another. The person or entity subleasing space from the primary tenant is referred to as a subtenant or sublessee. The original tenant, or first lessee, retains some or all rights under the original lease or master lease. The master lease agreement between the landlord and the original tenant becomes a part of the sublease. This arrangement is sometimes called a sublet.

Owner Occupied Building

If a business or its owner owns its place of business, the business can freely rent all or a portion of the available space. For example, a consulting firm that owns a three-office office condo can rent one of the offices to a one-person accounting firm. A chiropractor who owns an office may rent a room to a massage therapist to set up and provide massages. How integrated or separate you want the adjoining spaces to be is solely up to the owner and, to a lesser extent, the prospective tenant.

First Business Leases –- Full Sublet

Complexity can arise when the primary business owner is renting the space. The business lease must allow subleasing. Some leases do not allow companies to wholly sublet to another business; others will not allow subleasing without advance written approval by the landlord. In a complete sublease, where permitted, the subtenant essentially replaces the original tenant. Therefore, landlords typically perform the same checks on a proposed subtenant as were conducted on the original tenant.

First Business Leases – Partial Sublet

Most, but not all, commercial leases do not expressly disallow a company to sublease a portion of the space it occupies. Since the original business tenant is still fully responsible for the primary lease and continues to operate the business at that location, the landlord’s risk is significantly less than in a full sublet. Some leases do require the tenant to obtain permission to partially sublease or to inform the landlord in writing in advance.

Lease and Insurance

Since the master lease governs the primary rental terms, you can have a broker draw up a sublease or find a sublease template online if you plan to sublease part of a space you rent. You may wish to have an attorney review it. If you do rent a space in an existing business, make sure your insurance covers the subtenant or that the subtenant has adequate insurance. Typically, general liability and damage protection are tied to the premises.