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Subletting can be a good option for landlords

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Owners of buildings that remain for office use will have to consider how to best manage their space – and tenants – in these uncertain and economically weak times.

The Broll Property Group reveals that some tenants are downsizing while others are increasing space usage to accommodate social distancing. Many tenants are opting for shorter leases, of one or two years. A spokesperson says landlords can address unused space by being more flexible and negotiable on lease terms, offering incentives such as six-month rental holidays on unused space or offering “very reduced” rentals for a certain period.

They could also consider utilising space for hot desking and/or flexible workspace. Another option is to sublet unused space. If the various legalities are considered and the landlord is in agreement, Galetti Corporate Real Estate associate director Justin Thom says this is a good path to take.

“Offices are sitting at around 50% capacity with many working from home. This is set to continue as we continue to practice social distancing. Furthermore, many companies have had to downsize”.

“The pressure on landlords and tenants is immense and finding alternate avenues to manage space is crucial,” he says, adding: “Generally, the occupier can get the space for less than taking up new space, and is not bound by the long-term obligations, thus giving them the opportunity to correctly plan for the coming months/years ahead”.

As many landlords will not allow subletting, Jacqui Savage, national rentals manager for the Rawson Property Group, recommends tenants reach out to their rental agent or landlord and be open and honest about their financial situation. Those considering subletting have factors to consider, Thom says.

“If the building is not yours, it’s vital that you disclose your intent to sublet to your landlord. “There is a general clause that stipulates that you cannot profit from subletting but in the current climate this will most likely not be the case.”

He says the following points should also be considered:

Lease expiry date: Unless the landlord agrees to a longer term, your lease expiry must coincide with the sub-tenant’s lease period.

Damages: Ensure that you are adequately covered for damages as the sub-tenant is bound by the terms of your lease.

Use of property: If you’re using the property as a warehouse, for instance, make sure the sub-tenant uses the premises in the same way.

Re-stacking or relocating: Should you wish to opt out of your lease, be sure to consult a professional who can take you through the cost benefits.

Breach of contract: Should a relationship turn sour both the landlord and the tenant would need to place the sub-tenant in breach and sue for performance and/ or damages.

Values and synergy: Sub-letting is more than just the division of office space to reduce costs, it’s about the merging of teams and cultures too. When selecting a sub-tenant, consider their values, philosophies, culture and line of work.


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