Subletting, Should You Allow It?
You did your due diligence and properly screened your current tenant, but now they need to move out early before their lease expires. But, hey, they’ve got a friend that can take over their lease. Will you consider subletting?
What Is Subletting?
Subletting, or subleasing, means that your tenant assigns the remainder of their lease to a third party. Commonly it’s a friend or co-worker, but it can be a stranger who answered an ad. You can also think of subletting as an assignment of the lease to another tenant. All the terms stay the same, just the tenant(s) change.
Your standard lease should address whether you allow subletting or not. If it doesn’t, be sure to read on as to why you should address it in your leases going forward.
Advantages of Allowing Subletting
Lower Vacancy Rate – Subletting results in an alternate tenant to make the monthly rental payments, avoiding vacancy, and keeping rental income flowing.
Avoids Legal Costs – If your current tenants must move for a new job or because of loss of income, etc., they may break their lease anyways. Your only solution then is to pursue them via court action, which will cost you time and at least court fees, if not attorney fees. If your tenant is moving out of state, it’s rarely cost-effective to hire an attorney in that state to legally pursue them – you’ll end up spending more than you’ll recover.
Tenant Finds their Replacement – You know how difficult and time consuming it can be to find good tenants. With subleasing, the person moving out handles it for you. They may run their own advertisement and show the home. They may even do the screening (more about that further down!). Since most folks aren’t generally fond of moving, your new tenant may end up renewing for another year.
Responsibility Falls On the Original Tenant – Depending on what you agree to, your original tenant may still be held responsible for any unpaid rent and damages. Often times sublets can be better tenants because they feel like they are “house-sitting”, hence they may take more care with your property.
Disadvantages of Allowing Subletting
Lack of Proper Screening – How much do you trust your tenant to find their replacement? Your tenant probably will not be as diligent as you in screening someone. They probably have no clue how to get a credit report or check out past evictions and convictions. They’re usually only concerned with not being on the hook for any fines or penalties tied to breaking their lease.
Tenant Scams – Sadly, not all sublets are on the up and up. You can fall victim to a sublet scam in a couple of ways:
- Your original tenant illegally finds someone willing to pay higher rent then their lease with you, probably not even telling them they don’t own the property. They then sign a lease with this person and allow them to move in with little to no screening. You don’t find out until something goes wrong, but then you have to deal with an occupant you don’t have a lease with.
- Your original tenant finds a sublet that pays several months of rent in advance to them, then they skip town with the money and leave you with the mess. The sublet tenant probably won’t pay you the rent they already paid to someone else, so you’ll be forced to evict them.
Both of these scenarios set the stage for lost rental payments for you as the landlord. In the first situation, the sublet pays the rent directly to the tenant, who then may just keep the money and not pay you. Similarly, in the second example, the sublet pays multiple months’ rent at move-in, and the tenant takes off with the cash. Either way, you are out the money, and now have to start the eviction process, which can turn out to be more costly than a vacancy.
Before you consider allowing subletting, make sure your lease addresses subletting and requires your approval. This will help reduce your legal exposure.
If you want to allow a tenant to sublet to another tenant, we recommend understanding exactly what is going on. Does your current tenant have a legitimate reason for breaking the lease that they can document? Where are they moving to? Is it out of state, potentially making them uncollectible? This will help in avoiding a scam. We then recommend you screen the potential sublet, just as would any other applicant. You can require this as a condition of letting the original tenant out of the lease. You can also require the original tenant to remain liable for the terms of the lease if the sublet fails to perform.
Allowing subletting of your property can be risky, but many landlords find it to be seamless and beneficial. After weighing the factors, you’ll need to decide if it makes sense for your property. Remember, you don’t have to allow sublets and can enforce all terms of the lease. If, however, you find that it may work for you, make sure to include a detailed clause in your lease regarding subletting to address and mitigate the negative aspects.