Tuesday, November 5, 2013

4 Things to Think about Before Subleasing your Commercial Space

Why Subleasing Complicates Your Liability

Leasing part of your space can be a great way to make a little extra money for space you are not using.  It helps pay the rent, complimentary businesses could lead to referrals, and it could lead to great personal or professional relationships.  However, you could be putting you and your business at risk.  

Here are some liability points to consider:

Your Landlord Doesn't Care if Its the Sub-lessors' Fault
1. Your agreement between you and the landlord are between the land lord and you.  Unless the person subleasing is specifically named in the lease, the landlord is not responsible for any agreed terms to the subleased entity.

Create your own lease (with help from legal counsel) between yourself and the tenant just as if you were the landlord.  Require in the lease that the sub-lessor has at least as much insurance as you have.  A waiver of subrogation saying that you are going to take care of your stuff and they are responsible for their stuff is a great standard clause to add.  
Beware of subleasing - Picture by Josh Ulfers

Your Insurance Company Doesn't Care if its the Sub-Lessors' Fault
2. You need to tell the insurance company that you are subleasing space.  The entity you sublease to should have its own insurance and name you as an Additional Insured.  By doing that you gain protection on the sub-lessors policy if the sub-lessor has a claim that is his fault.  Without the sub-lessor having his own policy, your insurance company could even deny a claim stemming from an action from your sub-lessor.

Your Business Income Doesn't Include Rental Income
3. Making $5,000/month from leasing part of your space?  If business income from renting isn't explicitly added to your policy, then you won't be paid for that income in case of a covered loss.  It's inexpensive, but often overlooked on most business owner policies.

You Could be in Violation of your Lease
4. Make sure that your lease doesn't have a clause that prohibits sub-leasing.  In most cases it is best to talk with your landlord before making any subleasing decisions.  Violating your lease could put you in jeopardy of eviction or hefty penalties.

Talk to your landlord, commercial real estate broker, and your insurance agent before making any subleasing arrangements.

This blog article is not a substitute for professional legal advice. This answer does not create an insurance agent-client relationship, nor is it a solicitation to offer legal/insurance advice. If you ignore this warning and convey confidential information in a private message or comment, there is no duty to keep that information confidential or forego representation adverse to your interests. Seek the advice of a licensed insurance agent in the appropriate jurisdiction before taking any action that may affect your rights.  

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