Dealing with Subletting: A Landlord’s Perspective

Real estate is a lucrative investment, so it’s a great idea to invest in rental properties as a landlord. But what if your tenants rent out your unit to another person? Is it illegal to do so? How do you handle it?

Fret not; this article sheds light on what you need to know about subletting. As a landlord, read on to learn how to deal with it legally and professionally.

A Glimpse of Subletting from a Landlord’s Perspective

First things first, what is subletting? It happens when your tenants rent out your rental property or a part of their leased space to another person called a subtenant under a lease agreement. This real estate practice has long gained ground in the real estate market.

Exploring types of subletting

But how does subletting work? It comes in different scenarios:

• Whole unit subletting: It’s when your tenant rents out the entire property to another subtenant.

• Partial subletting: Think of room rentals, where your tenant lets another person take space within your property.
• Short-term subletting: Consider vacation rentals, where your tenant allows guests to have a short-term stay in your unit.

Understanding the reasons tenants sublet

Now, why do tenants rent out your property when they’re only renting the place? They have valid reasons for doing so:

• Rental business: Some tenants deliberately sublet for business purposes as long as their landlords permit it.

• Financial relief: Many tenants rent out a part of your rental space to help them with the rent payment.

• Lifestyle changes: Tenants might move temporarily, change careers, or start a family. If they are legally obliged to honor the lease term, what better way to proceed than to sublet?

Weighing the subletting pros and cons

From the landlord’s point of view, the biggest question is: Is subletting worth the risk? The truth is, this real estate practice comes with both advantages and disadvantages:

Potential benefits

• Consistent rental income: Subletting is one of the rental housing strategies to increase your profits. If your tenants fall short of their finances, allow them to rent out the place or space.

• Reduced vacancy rate: Subletting guarantees your property’s consistent occupancy. It’s better to let your tenants rent out your unit than to leave it unoccupied and receive no income.

• Less landlord responsibilities: Subletting transfers your obligations to your sublessor. Your tenant is now responsible for overseeing things like normal wear and tear in rentals, regular rent collection, and stuff.

Possible drawbacks

• Limited control over subtenants: Subletting legally restricts you from managing the subtenants. You can’t keep up with your offline or online rent collection, property management, and tenant concerns.

• Complex lease management: The subletting arrangements can be a bit complicated. While you should include a clause in your lease agreements, the subletting contract should also align with yours.

• Potential contract term violations: Not polishing the lease agreements and subletting the contract can be one of the landlord’s glaring mistakes. This can lead to possible violations and potential conflicts.

How To Deal with Subletting as a Landlord

This section is the most critical part—handling subletting. 

“As you can see, subletting has become a common practice in a post-pandemic economy. Let’s take the Orange County Office, for instance. This commercial space has significantly boosted its occupancy rates through subleasing opportunities”, says Greg Arnold, General Manager at Kitchen Mania.

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But as a landlord: How do you deal with it to minimize risks and maximize profits? Here’s how:

1. Have a bird’s-eye view of the local laws and regulations

Did you know? Some cities and states have specific regulations around subletting. First, perform due diligence on local and state lease laws. That way, you can ensure 100% compliance and avoid legal consequences.

Take it from Rodger Desai, CEO of Prove. He believes that any real estate transactions should revolve around legalities. “The practice of subletting makes complex lease agreements. So, understand the laws and regulations to avoid contract violations and potential conflicts.”

2. Set clear lease contract agreements in place

Studying the subletting laws and regulations is one thing; Crafting flaw-free lease agreements is another. Incorporate a subletting clause in your original contract and examine the subleasing contract between your tenant and subtenant. Ultimately, write lease agreements that actually work!

Stephen Boatman, Principal at Flat Fee Financial, recommends legal assistance for both the original and subletting contracts. “Legal professionals can ensure that there are no loopholes in all the lease agreements. So there will be no conflict of interest between the landlord, sublessor, and subtenants.”

3. Partake in the screening process of subtenants

Subletting is a lease agreement between your tenant and the subtenants. However, the sublessor should seek authorization or legal permission from you. As a landlord, get involved in the screening process by requiring the following:  

• Credit checks
• Employment verification
• Eviction history checks
• Criminal backgrounds
• Previous landlord references

Learn from Albert Kim, VP of Talent at Checkr. He has his fair share of allowing subletting as a landlord. “As a property owner, you want to ensure you hire tenants who are responsible for maintaining your unit. As you have no control over subtenants, partake in the screening process to hire quality ones and get to know them as well.”

For example, RentRedi is a great property app you can use to screen tenants for credit, criminal, and eviction history. Additionally, you also get proof of income reports.

4. Maintain open lines of communication with tenants

Constant communication is almost always the key to a successful relationship. This essentially applies to a landlord-tenant partnership where subletting is involved. Although another renter occupies your unit, make a conscious effort to communicate with your original tenants regularly.

Volodymyr Shchegel, VP of Engineering at MacKeeper, suggests establishing good relationships with your tenants. “If you’ve built and maintained positive dynamics with them, they might do the same to your subtenants. Ultimately, a good relationship translates to a good partnership in subletting.” 

5. Perform regular property inspections

It’s easy to leave all the responsibilities to your tenant as the sublessor. However, entrusting everything to them can be a recipe for disaster. As the property owner, never neglect your unit by having regular inspections. For example, consider the cost of updating your electrical panel and make the necessary fix to avoid a fire outbreak.

For Gary Hemming, Owner & Finance Director at ABC Finance, real estate investment in a rental business is a great responsibility. “Even after taking ownership, you’ll be responsible for property inspection, maintenance, and upgrade. Even if you hire a property manager or enter into a subletting agreement, always stay on top of it.”

6. Take legal recourse on unauthorized subletting

This part is the most critical—illegal subletting. This happens when your tenants rent out your property without your written permission. That’s why you should have a subletting clause in your lease agreement so you can take legal action.

Jarret Austin, Owner of Bankruptcy Canada, offers a few legal recommendations for unauthorized subletting. “When your tenants get caught for subletting without your permission, you can terminate the lease agreement, pursue immediate eviction, and take legal action for such a violation. These could end up in court proceedings, demand hefty fines, or result in other legal implications.”

Final Words

Subletting is a common practice in the real estate industry. However, as a landlord, it pays to know how to deal with it—legally and professionally! Start by weighing its pros and cons to make informed decisions for your rental business. More importantly, follow our crucial steps for handling subletting.

So, when you add a subletting clause to your lease contract agreements, manage the risks while maximizing its potential income!

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