What is the Difference Between Subletting vs Subleasing in Commercial Real Estate?

Subletting vs Subleasing: What's the Difference?

In commercial real estate, subletting and subleasing are often used interchangeably, but they have distinct legal and practical differences. Subletting is when a tenant rents out part or all of their space to another party while still being responsible for the original lease with the landlord. Subleasing involves transferring the rights to the entire leased premises or lease term to a third party, though the original tenant remains liable unless released by the landlord. Both subletting and subleasing usually require the landlord’s approval and differ mainly in the scope of the space and lease term being transferred.

Here's a more detailed breakdown of the terms

Subletting

• Definition: In subletting, a tenant (the sublessor) rents out part or all of their leased premises to another party (the subtenant) while maintaining their original lease with the landlord.
• Key Points:
  • The original lease between the tenant and the landlord remains intact.
  • The tenant remains fully responsible for paying rent to the landlord and complying with the terms of the original lease.
  • The subtenant has no direct relationship with the landlord and must deal with the original tenant (sublessor) for issues like rent payments or lease conditions.
  • Subletting can apply to the entire space or just a portion of it (e.g., a single floor in a building).

Subleasing

• Definition: In subleasing, a tenant transfers their rights and obligations under the lease to a third party, typically for a portion of the remaining lease term.
• Key Points:
  • The sublease agreement is created between the original tenant and the sublessee, but the original lease still exists.
  • While the original tenant may not occupy the space anymore, they are still responsible for the lease obligations unless explicitly released by the landlord (in a novation agreement, for example).
  • Subleasing generally applies to the entire leased premises for a specific portion of the lease term.
  • If the sublessee defaults, the original tenant remains liable to the landlord for any rent or damages.

Summary of Differences

• Subletting typically involves renting out only part of the premises and maintaining full responsibility for the lease.
• Subleasing usually refers to transferring the entire lease or a significant portion of the lease term, but the original tenant remains liable.

Both options may require the landlord’s approval, depending on the terms of the lease agreement.