You signed a five year commercial lease back when your company was expanding. Fast forward to today, and half your desks are empty because your team is working from home three days a week. You are still paying rent on that unused square meterage, along with outgoings and GST. Subleasing is the obvious answer to recoup some of that sunk cost.
Putting another business into your office or warehouse is rarely as simple as handing over a spare set of keys. You are effectively taking on the role of a landlord while still being a tenant yourself. If you rush the process or select the wrong business to share your space, you might end up with more daily disruptions than the rent relief is worth. Let us look at how to get this done properly, protect your main lease, and find a workable arrangement.
Review your current lease first
Before you take photos of the spare office and list it online, you need to read your head lease thoroughly. Most commercial leases in Australia contain strict clauses regarding subletting, assignment, or sharing occupation of the premises. Your landlord will almost certainly need to provide formal written consent.
Landlords usually cannot withhold consent unreasonably, but they have the right to know exactly who is moving in. They will look at the proposed subtenant’s business model, their financial stability, and their intended use of the space. If you run a quiet architectural practice, your landlord might legitimately refuse a high volume outbound call centre.
Don’t try to guess what a legal document means on your own. It pays to have commercial real estate lawyers look over the subletting conditions in your head lease so you know exactly what your landlord can and cannot demand during the approval process. Getting caught breaching your head lease can trigger default clauses, resulting in a legal mess you want to avoid.
Pricing the space to move
You probably want to recover exactly what you pay per square metre. That is rarely how the market works in reality. Office vacancy rates in major Australian CBDs and suburban hubs are high right now. Direct landlords are offering massive incentives, rent free periods, and custom fitouts to secure new tenants. You are competing against those landlords.
A subtenant knows they are taking on a shorter term and a space that is already fitted out for someone else. They will expect a discount. Look at similar subleases in your area. You might only recover 60 or 70 percent of your actual rent cost.
However, you cannot always just slash the price to get someone in quickly. Some head leases dictate that you cannot sublet below current market rates, as heavily discounted rents can devalue the landlord’s overall building asset. If your landlord challenges the rate you have agreed upon with a subtenant, you might need a formal rental determination. In these situations, engaging a professional property consultant who handles binding valuations and lease disputes can provide the independent evidence required to force the landlord’s approval.
Finding a reliable subtenant
Finding a business that fits your company culture is nice, but finding one that pays their invoices on time is essential. You can list the space on commercial real estate portals yourself, but sorting through initial inquiries and managing viewings takes up a massive amount of time.
If the space is substantial, it often makes sense to engage a commercial leasing agent to market the tenancy. They have access to current market data, know how to vet applicants properly, and can often tap into a network of businesses actively looking for short term project space. They charge a fee for their service, but it removes the burden of managing inspections and fielding calls while you are trying to run your actual business.
Drawing up the sublease agreement
Do not rely on a verbal agreement or a generic template downloaded from a random overseas website. A formal sublease document protects you when things go wrong. It needs to clearly state the passing rent, the exact term, and the security deposit or bank guarantee required before they get access.
The term of the sublease must legally expire before your main lease ends. Standard practice is to have the sublease end at least one day prior to your own expiry date.
You also need to outline exactly what happens if they damage the property. Under the head lease, you are still the one ultimately responsible to the landlord. If your subtenant damages the air conditioning or ruins the carpets, the landlord will look at you to fix it. Make sure your agreement includes a solid bond to cover these very real risks.
Handling shared services and access
Sharing a commercial space means sharing utilities and infrastructure. You need a clear, practical plan for how costs like electricity, internet, and daily cleaning are divided.
If the subtenancy is a separately metered warehouse bay, the division is straightforward. If you are sharing an open plan office, you will likely need to agree on a percentage split based on floor area or headcount. Write this formula directly into the agreement so there is no confusion when the quarterly power bill arrives.
Think about the operational details.
- Who manages the internet connection?
- Will they need their own separate network for security reasons?
- Do they get access to the meeting rooms, and if so, how does the booking system work?
You also need to manage physical security. Issuing alarm codes and swipe cards needs to be tracked meticulously. Figuring out the rules for the kitchen and the meeting spaces early on prevents minor grievances from turning into major distractions.
The make good obligations
Most Australian commercial leases include a make good clause. This requires you to return the space to its original condition when you finally leave. You need to consider how your subtenant’s fitout affects this obligation.
If they install partitions, extra power points, or specific cabling, your sublease should explicitly state that they are responsible for removing them. They must make good use of their portion of the space before they vacate. You do not want to be left footing the bill for stripping out their modifications when your own lease expires.
Take detailed photos before they move in to document the exact condition of the space. Include these in a formal condition report signed by both parties. This removes all ambiguity about what the space looked like on day one.
Sorting out insurance and liability
Your existing public liability insurance likely covers your core business operations, not your new role as a sublandlord. You must require the subtenant to hold their own public liability insurance and provide you with a certificate of currency before they move a single item into the building.
Check with your own insurance broker as well. Let them know you are subleasing part of your premises. They can advise if your policy needs adjusting to reflect the new occupancy arrangement and any increased foot traffic. It is a minor administrative task that can save a massive financial headache if a fire starts or a visitor slips in the shared foyer.
