In this article, we outline best practices and potential pitfalls of subletting. It may not be legal to prevent it outright.
A landlord’s top priority is to avoid vacancies. This can at times be a challenge, circumstances change, and no matter how great the property is – unexpected situations can arise which could lead to unexpected and costly vacancies.
Often, when circumstances change for a tenant the tenant will approach their landlord and ask about the potential to sublease.
Subletting is often a good solution for both tenants and landlords. It allows tenants greater flexibility around their living arrangements, as well as helping landlords avoid losing money from unexpected vacancies. However, subletting is not without its risks, and as a landlord, you need to be aware of these increased risks and what can be done to mitigate them.
In this article, we take a deep dive into subletting and how to best handle it as a landlord.
Subletting is when your tenant finds someone – for a period of time – to cover the terms of their lease.
There are several reasons why a tenant might want to sublet. Often it’s because they are going away for an extended period and want someone to cover the rent whilst they are out of town. Alternatively, they might be moving out of the area due to job change or relocation and don’t want to break the terms of the lease.
Working with your tenants to come to a solution that works for everyone is likely the best way forward.
First of all, it’s worth pointing out that you can only outright ban subletting in your lease agreement in some states. Others require you to legally allow it unless you can give good reason to deny your tenant the option to sublet. See the laws by state further down the article.
On top of this, if you are allowed to ban subletting and choose to write that into your lease, there is a chance your tenants will sublet anyway, but without your knowledge. This can lead to several problems depending on the scenario.
As a rule of thumb, you want to be involved in who is staying in your property. So, whatever your decision is around subletting, make sure there is a legally binding clause in your lease.
If you don’t allow it, make sure you do regular property inspections. If you do allow it then make sure the sublessee has to apply and is subject to your normal screening process and subsequent approval.
Including this requirement in the sublet clause of your lease agreement will ensure tenants ask for your express permission before beginning the sublet process.
The more you formalize this, the more you’ll communicate to your tenants how seriously you take the leasing process, and they’ll take the same care in subletting.
ASSIGNMENT AND SUBLEASING. Tenant(s) shall not assign this Agreement, or sublet or grant any license to use the Premises or any part thereof without the prior written consent of Landlord. Consent by Landlord to one such assignment, subletting or license shall not be deemed to be consent to any subsequent assignment, subletting, or license. An assignment, subletting, or license without the prior written consent of Landlord or an assignment or subletting by operation of law shall be absolutely null and void and shall, at Landlord’s option, terminate this Agreement and start the eviction process of all Tenant(s) and occupants.
All subletting individuals are required to apply to the Landlord for evaluation and screening. The landlord reserves the right to reject any sublessee that does not qualify.
Whilst your property is sublet your original tenant is responsible for any damages to your property or late rent.
You can’t evict a subtenant. If you receive no rent your only recourse is to file for eviction against your original tenant. This can be especially problematic if they are out of state.
It’s a good idea then for your tenant to create a legally binding sublease agreement with their subtenant as well as collect a deposit from them to offset any potential expenses they will have to pay from their own deposit should the subtenant cause damage to the property.
Just like when you choose your tenant you will want to properly screen any potential subtenants. Tenant screening is a crucial task for a landlord because it is the only way you can minimize the risks of getting stuck with nightmare tenants.
When you talk to your tenants about subletting make sure they understand that whilst they will be responsible for finding their replacement tenants – you as the landlord will have the final say as to whether or not those tenants are suitable. To make it easier it could be worth your while outlining what you look for in a suitable tenant so they can better select prospective sub-tenants.
When collecting rent from a sublet property you can either choose to collect rent directly from the occupying subtenant or continue to collect rent from your original tenant and the subtenant pays them.
Personally, we prefer the second option for the following reasons. When your property is being sublet your current tenant is still responsible for ensuring that rent is paid on time. The only action you as a landlord can take if the sub-tenant is late to pay rent that is to file for eviction against your current tenant.
To avoid arguments with your tenant about late rent, potential fees, or who is responsible, have them continue to pay the rent and they can take on the responsibility of chasing up payments from their subtenant.
If a subtenant starts paying the landlord rather than the tenant, they will have a strong argument that they are the landlord’s tenant. To prevent your subtenant from gaining the rights of a co-tenant, you should make sure that they pay rent to your tenant, and then they send it on to you the landlord.
Your tenant remains responsible for the sub-tenant. However, depending on the situation it might be more practical to also engage in direct communication with the sub-tenant.
You can use Landlord Studio to keep your subtenants organized and better manage communications with them.
As a landlord, you are legally required to give notice for things like property inspections. As the sub-tenant is essentially the tenant of your tenant and not legally connected with you directly the issue of notifying the sub-tenant gets a little confusing.
It is best to err on the side of caution and email both your tenant and the subtenant notice in advance – abiding by your local state law – if you need to gain access to the property.
If the rent is late, you will want to chase up your tenant for payment, not the subtenant. If rent is continually late or unpaid you will want to think about filing for eviction because your tenant has broken with the lease agreement.
To help avoid late rent set up automated reminders for upcoming and overdue rent.
Whilst you’re not responsible for the sub-tenant this does not remove your legal responsibility as a landlord to provide a safe living environment. Having maintenance requests go through your tenant can cause issues and delays, especially if they aren’t living in the property at the same time. Make sure that the subtenant has emergency contact details in case of maintenance emergencies.
Your tenant remains responsible for all damages to the property – even those caused by the sub-tenant. This is why tenants should collect a deposit from the subtenant to offset any damage costs caused by the sub-tenant that will be taken out of their own deposit at the end of the tenancy.
“Track income and expenses, screen tenants, set automatic reminders, and more with Landlord Studio.”
In some states, landlords are legally required to allow subletting unless there is a good reason to deny a tenant’s request to sublet.
On top of this, it is invariably harder to resolve issues surrounding subletting if there is no legally binding clause in the lease.
Whatever you decide is going to be your policy, make sure it abides by local state law, and is clearly and legally stipulated in your lease agreement.
As mentioned above many states require you to allow sub-letting. However, there are a couple of routes available if you don’t want to allow subletting in your property.
The reason subletting comes up is usually a change in circumstances for the tenant. Subletting is an opportunity to keep the rent payments coming in.
Another way to accomplish this goal without subletting is to give the tenant a chance to break their lease agreement.
If a tenant approaches you about subletting, you could encourage them to “buy out” of their lease with an early termination option. For example, you might require 60 days’ notice and a fee equal to 1-2 months of rent.
This will give you plenty of time to find a new tenant as well as cover costs from any vacancy period and costs associated with finding the new tenant.
Sometimes, when a landlord learns that a tenant wishes to sublet, the landlord will inform the tenant that they need to pay a fee to have the option to sublet. This fee is not always fully legal.
To be clear, sometimes a landlord does have costs associated with screening a new tenant (background checks, criminal history checks), and the landlord can pass these costs onto the tenant. However, a landlord cannot:
Check with your specific state laws to determine what is legal and what is not when it comes to subletting fees as laws vary widely from state to state.
When subletting finances must be dealt with properly. The original tenants should collect a deposit from their sublessee. There are strict laws in most states determining the amount of deposit that can be collected as well as the returning of the deposit.
For example, in California, the tenant has 21 days to return a deposit after the subtenant moves out. The security deposit can be used to cover the cost of damage repairs, unpaid rent, and the cost of cleaning the unit. It cannot be used for minor damage that’s due to normal wear and tear.
If the tenant chooses to deduct fees for damage to the apartment, they must provide the subtenant with an itemized list of the deductions and copies of the receipts used for repairs.
Make sure the original tenant and subtenant go through a proper handover procedure where they document damages and make careful notes on the condition of the property when the subtenant moves in to help avoid disputes around deposits at the end of the lease term.
A final note is to ensure that you have contact details for the original tenant as well as their new address (if they are moving out of town) as they are still the ones legally bound to your current lease not the subtenant and not being able to get in contact with them could prove incredibly problematic!
We hope you found this article interesting! However, do note that the purposes of this article are for general information. We are not licensed financial or legal professionals and as such nothing in this article should be understood to be financial or legal advice. If you require financial or legal assistance please seek the help of a competent professional.