Subletting! One of the most controversial topics at the dinner table when it comes to the world of rental real estate. 3 types of people speak about it in 3 types of ways…
Tenants speak of it with a glimmer in their eyes as if its the miracle to end all of their renting issues.
Landlords and property managers speak of it like it’s a curse and a taboo that comes from scheming and conniving tenants.
And poor sublessees speak of it with uncertainty and fear like they don’t know if they’ll have a home tomorrow.
In this post, I’m going to dissect everything you need to know as a tenant, landlord, and sublessee to uncover the secrets of subletting.
What is subletting?
The formal or informal situation whereby a tenant of a property is renting out a landlords’ property outside of a lease agreement with the landlord – aka the renter is renting out the property they are renting.
Under legal classification, the original tenant in a subletting situation is referred to as the sublessor and the new tenant is referred to as the sublessee.
As long as the legal minimum requirements of providing tenancy for the state are met and the property is occupied by a tenant; if they so wish and are permitted to do so – a subletting arrangement can take place.
Is Subletting The Same As Renting To A Roommate?
There is often confusion, misunderstandings and term mix-ups when it comes to differentiating between a sublessee and the more popularly termed roommate. This often stems from not knowing the subtle differences between subletting and a tenant (or landlord) renting out to another tenant (roommate).
Subletting to a sublessee and Renting out to a roommate are practically similar in that the tenant inevitably ends up sharing the boundaries of a property with another individual who is paying rent. The differences start when it comes to who the rent is being paid to and who the individual is liable to between the original tenant and the landlord.
A sublessee is only directly liable to the original tenant (pays the tenant rent) and is liable by proxy to the landlord through the original tenant. The sublessee is not mentioned in any way or form in the original lease agreement the landlord has with the original tenant. The original tenant is responsible for all the “tenant” needs of the sublessee.
A Roommate; whether brought in by the landlord or tenant is directly liable to the landlord (pays the landlord rent) and would only be liable to the original tenant through a roommates’ agreement or lease orders. The new roommate would be involved in a lease agreement with the landlord and the landlord would be responsible for the needs of the new roommate as they would be for the original tenant.
What type of properties can you Sublet?
Concerning residential property, a tenant can legally (dependant on state law) sublease any property that meets the minimum requirements of the tenancy and does not infringe on their lease agreement with their landlord. This means the following properties can be sublet:
- Rooms in a single-family home.
- Attached properties on a single-family home.
- Rooms in HMOs (Homes in Multiple Occupation).
- Rooms in apartments.
The only properties tenants cannot sublease are properties on medium to large scale attached home estates such as those found cluster homes, townhouses or apartments. You can sublet the rooms awarded to you within your boundary but not the homes on separate plots.
What You Should Know Before Subletting?
Whenever a subletting arrangement takes place, there are 3 parties involved; some directly and others indirectly:
What is a Landlord in a subletting arrangement?
The individual who owns the property that the original tenant and the sublessee occupy. The landlord has overall power over dictating how the property is influenced but they only have a lease agreement with the original tenant.
Landlords in a subletting arrangement do not have any legal connection to the sublessee except through the proxy of the tenant. The landlord is only paid rent by the tenant.
What is the Original Tenant in a subletting arrangement?
The individual who is the original occupant of a rental property is liable to the landlord of the property and responsible for the sublessee of the property. The tenant is held accountable to the landlord for all aspects of their tenancy and aspects of the lessee’s tenancy that influence the property.
The original tenant in a subletting arrangement pays rent to the landlord and receive rent from the sublessee. They are responsible for the tenant and will have to do what a landlord does to the tenant to the sublessee.
The original tenant will face consequences for falling short with their rental payments to the landlord as well as facing consequences for damages on the property caused by them or the sublessee.
What is a Sublessee in a subletting arrangement?
The individual who is renting a landlords’ property through a tenant of the property. A sublessee has no legal contract with the landlord of the property and is only liable to the landlord through the tenant.
The sublessee pays rent to the tenant and can only rely on the tenant to influence their living experience on the property.
For the above 3 parties, there are 2 categories of considerations that must be taken for a subletting arrangement. General considerations and Specific Considerations.
General Considerations Of Subletting:
These considerations influence all 3 parties in some way or form and will generally require like-minded assumptions from all parties for the subletting arrangement to take place and take off.
If one party out of the 3 does not have a positive like-minded assumption on the points under “general assumptions,” likely, the subletting arrangement will not take place, to begin with, or will take place with the occurrence of frequent conflict between the parties.
1. Is subletting safe?
Safety in a subletting arrangement has a different association for the different parties of the arrangement.
In general, all 3 parties will benefit from the fact that the property will be actively occupied more throughout the subletting arrangement that out of it. Active occupation is the time a tenant is living and working in the property – a tenant on holiday will still pay rent but is not actively occupying the property.
A study by the FBI outlined how most robberies occur when robbers expect a property to be vacant; more tenants on a property significantly reduces the times when the property is fully empty and this protects the property of all 3 parties.
For the Landlord; safety is primarily concerned with the safety of the property. The landlord will have significantly limited influence over the sublessee; who they are and what they do and what can be done to them.
For the Tenant; safety has more to do with their personal property, livelihood and contract with the landlord. Unlike the landlord, the tenant will have to live with the sublessee. Usual conflicts that appear in roommate situations such as theft, privacy and conflict management are all apparent in a subletting arrangement. The tenant can also have their lease agreement with the landlord compromised because of the actions of the sublessee.
For the Sublessee; safety is concerned with personal property and livelihood. The basics of this are identical to the considerations of the tenant. Where there is a slight divergence is in the case of livelihood; is that the sublessee’s guarantee of tenancy is significantly less stable than that of the tenant as well as their ability to influence the property is less consistent than for the tenant.
2. Is Subletting Legal?
The question of whether or not subletting is legal or not is undoubtedly a question that all 3 parties in the arrangement must take special care of; this is because the potential consequences of partaking in illegal subletting can strike all 3 parties of the arrangement,
The legality of subletting is based on 2 foundations; the law of the state and the agreements of the original lease. State law affects whether or not subletting is even an option and the procedures required to legally partake in it. The lease agreement between the original tenant and landlord will overrule state law in the case of state law making subletting legal overall.
State law may say that by default (without landlord consent) a tenant can sublet a property so long as they abide by the minimum legal requirements of tenancy – if the primary lease agreement between the tenant and landlord does not ban or otherwise restrict subletting.
In the above example, the landlord is at a higher risk if they don’t include subletting rulings in the lease agreement. If they do, they can either outright ban the ability to sublet or influence the rules, regulations, and procedures of how it is to be conducted.
3. Who is responsible for who and what?
In a normal tenancy environment; strictly between a landlord and tenant has a very simple and understood dynamic. The tenant pays the landlord rent and damages from direct damage on the property and the landlord ensures that the property is maintained to a certain standard of living to the tenant.
This responsibility dynamic becomes obscure and muddled when subletting is put into the picture. The basic dynamic is simple enough;
- The Landlord earns rent from the tenant and is liable for maintaining the property for the tenant but not the sublessee.
- The Tenant pays rent to the landlord and is responsible for maintaining the landlord’s property as well as earns rent from the sublessee and is responsible for maintaining the property for the sublessee.
- The Sublessee pays rent to the tenant and is responsible for maintaining the property for the tenant.
The problem arises when you consider the implications of the fact that the property is always owned and only influenced through the landlord and not the tenant and the sublessee can only be punished through the tenant.
With that in mind, if the tenant is obligated to have the property meet a certain standard that requires the landlords’ approval but is not obligated by the landlord; the standard may not be held.
For example, if the tenant needs the landlords’ approval to make specific renovations (painting or drilling in the wall) and the sublessee wants to do those renovations; the renovation needs to be approved by the landlord
For the landlord, the situation becomes problematic when issues are caused by the sublessee but the landlord can only directly influence the original tenant to tell them to influence the sublessee.
Specific Considerations Of Subletting:
These considerations only influence one party in some either a beneficial or negative way.
Below is a detailed list of the specific pros and cons of subletting for the landlord, tenant, and sublessee.
Subletting implications for a landlord
Pros and cons of a landlord subletting. Table
Pros for a landlord subletting:
Cons for a landlord subletting.
|Better tenancy security.||It can lead to a landlord losing the complete tenancy of your property.|
|Ability to earn income from the arrangement.||May not be covered in 3rd party participants or will result in higher 3rd party participant fees.|
|Reduces control of your property.|
Pros for a landlord subletting:
1. Better tenancy security.
The second worst situation for any landlord is an unforeseen vacancy on their property. It’s something you weren’t expecting, you likely aren’t prepared for and will cost you money.
As a landlord, when you have been a part of subletting arrangement; if your original tenant decides to vacate when the lease concludes or has to vacate prematurely, it will result in the conclusion of the sublessee’s agreement which is often also an inconvenience for them.
More often than not, the sublessee will prefer to stay in the home they have already settled in and will become a primary tenant in the property under the landlord.
2. Ability to earn income from the arrangement.
It is possible and often a better situation for all 3 parties when the landlord is involved in some way or form in the subletting agreement.
This does not have to involve the landlord being involved in the contract with the sublessee but will instead be an addition in the original lease agreement between the landlord and tenant.
This addition could allow the tenant to have more property control to better care for the sublessee in return for charging additional rent to the original tenant.
Cons for a landlord subletting.
1. Reduces control of your property.
A sublessee will always involve a level of unknown and lack of control for the landlord. The landlord will likely have limited influence on aspects of the tenancy such as screening the tenant, managing their behavior and enforcing house rules.
This can lead to property damage and disturbances that cannot be immediately settled.
2. May not be covered in 3rd party participants or will result in higher 3rd party participant fees.
Insurance companies and property managers are potential and often crucial 3rd party property participants. They will help a landlord run their property effectively and cover them from specific damages.
Their assistance though is often very specific in only working within the boundaries of the property concerning tenants who are part of the lease agreement and the individual agreements with the companies.
The inclusion of subletting can potentially infringe on the contracts with these companies thus breaking the contract or requiring a costly amendment to cover the sublessee.
3. It can lead to a landlord losing the complete tenancy of your property.
If a sublessee is so destructive on the property and cannot be managed by the tenant who has main control and influence over managing their behavior on their property; the only course of action may be evicting and ending the contract with the tenant which would dissolve the contract with the sublessee.
This would cost the landlord a vacant property that does not generate income as well as the costs of repairing and renovating the property.
Subletting implications for a tenant.
Pros and cons of a tenant subletting. Table
Pros for a tenant subletting:
Cons for a tenant subletting.
|Better protection from breaking the lease agreement||Tenants can cost you your home.|
|Generate income from the sublessee||You effectively become a landlord and you will get little to no help from the landlord.|
|Ability to travel||It can raise your rent.|
|Property protection in the event of traveling||You get a roommate.|
|You get a roommate|
Pros for a tenant subletting:
1. Better protection from breaking the lease agreement.
Landlords may include specific clauses in the lease agreement that states that the rental property needs to be actively occupied a specific number of days on the week or that the tenant has to routinely perform specific tasks on the property.
Not executing these clauses could lead to consequences that can affect the tenants’ tenancy or rental history. Having a sublessee on the property would allow these tasks to be performed if the tenant has to be away from the property for an extended period.
2. Generate income from the sublessee.
Having a sublessee is in all terms a tenant for the tenant and as such they pay rent. Regardless of how the subletting arrangement is organized; the original tenant will earn income out of the arrangement.
Depending on how well the property, the property can be leveraged; this could allow the tenant to “House Hack” and essentially live on the property for free by establishing a way to earn more income from subleasing than is needed to rent the property. (usually from renting out more rooms)
To learn more about House Hacking, I wrote a comprehensive guide for everything important you need to know (HERE).
3. Ability to travel.
As stated above, you can travel for prolonged periods without worrying about breaking lease requirements when a sublessee occupies the property to perform the lease required tasks and obligations.
This gives the tenant freedom to travel worry-free in relevant situations.
4. You get a roommate
There are many benefits to living with someone you trust. From companionship, to support and added security for your home.
Cons for a tenant subletting.
1. Tenants can cost you your home.
Though the landlord is not directly involved in a tenants’ agreement with a sublessee, they can influence the sublessee through the tenant.
In cases where the sublessee repeatedly fails to meet landlord standards or causes drastic damage or disruption to the property; the landlord may decide that the best course of action is to evict the tenant and the sublessee through the association with the tenant.
A tenant is always risking their reputation and desirability when they get involved in subletting.
2. You effectively become a landlord and you won’t get a lot of help from the landlord.
A sublessee is a tenants’ tenant and that makes the original a landlord who has specific responsibilities that they must do for the sublessee.
This will mainly take form in maintaining a specific standard in the property. A sublessee who lives in the same home as the tenant is easier to manage as naturally needed renovations should be done by the landlord but a sublessee who occupies an attached home on the property like a cottage will often require the tenant to do the heavy lifting.
The tenant will also have to manage the hurdle of agreeing with the tenant on how to do renovations. Landlords are often necessarily wary of tenants who do permanent renovations to the property.
It is in the landlords’ power to dictate where, how and when you can make renovations and this could lead to being inconvenient and expensive.
3. It can raise your rent.
Most subletting arrangements will and should have the landlord involved in the operation. A common compromise for allowing a tenant to sublet the property involves the landlord raising the rent of the original tenant by a reasonable percentage for every sublessee occupying the property.
The landlord will usually raise the tenants’ rent instead of asking for a portion of the sublessee’s rent; this keeps the landlord out of the agreement and makes you liable for the payment and not the sublessee. If the sublessee can’t make rent this month; the tenant still has to pay the subletting premium to the tenant.
4. You get a roommate.
This is mostly a negative when in a room renting situation; where you and the sublessee are living in the same home.
I highly recommend my post on how room renting fares as a rental/subletting strategy (HERE)
Subletting implications for the sublessee.
pros and cons of a sublessee subletting. Table.
Pros for a sublessee subletting:
Cons for a sublessee subletting:
|Often cheaper accommodation.||Less awarded and consistent offerings.|
|You get a roommate.||The landlord can indirectly affect your tenancy.|
|You get a roommate who’s also your landlord.|
Pros for a sublessee subletting:
1. Often cheaper accommodation.
Because the lessee is often accommodating a property that is already accommodated property and will typically have fewer perks, security, and assurance for occupying the property when compared to the tenant; they are usually charged a significantly discounted rental price when compared to what the tenant is paying.
2. You get a roommate.
There are extra eyes on your property to keep away thieves as well as just having a general good company (if you like your tenant).
Cons for a sublessee subletting.
1. Less awarded offerings.
As stated above, in return for cheaper accommodation, the sublessee is often limited in what they are offered on the property; particularly when it concerns duties that require landlord intervention.
The landlord is legally obligated to sustain a specific living standard for the tenant and will have to quickly make arrangements for specific urgent renovations and property repairs.
If the plumbing get’s backed up, the landlord is obligated to quickly make arrangements to not inconvenience the tenant. This is not the case for the sublessee.
If the sublessee is living in an attached home on the property (cottage or cabin), if the plumbing has an issue the landlord may not be obligated to fix it or fix it quickly if they maintain the state of that property was on the lease.
The tenant would have to sort it out in the landlords’ stead and would often require the landlord’s permission to make such repairs to the property. This bureaucracy is slow and uncertain for the sublessee.
2. The landlord can indirectly affect your tenancy.
A sublessee is partially caught between a rock and hard place; they have to manage both satisfying the tenant and the landlord. The tenant is who they must pay rent to and the landlord is who owns the property in total.
Though the landlord will likely not be involved in the tenancy contract with the tenant, they will be able to influence both the tenancy of the tenant and the sublessee.
The sublessee is dependent on the tenant; if the tenant does anything to get evicted from the property, it would jeopardize the tenancy of the sublessee.
3. You get a roommate.
Lack of privacy and always feeling like someone is looking over your shoulder.
This is especially the case when you are living in the same home as the tenant.
When Should You Sublet And How Do You Sublet?
Everything we’ve covered so far in this post has been leading to this.
when you know what subletting is, the types of properties you can sublet in and the considerations you need to make for your part in the subletting machine; and after evaluating all the above you have established that you still want to allow or partake in subletting you just need to effectively set up through the following steps:
- lookup state laws on subletting.
- Ensure the founding parties are aware and comfortable with the subletting arrangement.
- Check-in with 3rd party participants.
- Advertise your subletting property.
- Screen your tenants effectively.
- Sign a sublet agreement.
Going through the steps:
The following are a detailed explanation of the above steps necessary to effectively start subletting. These steps need to be done by both the tenant and the landlord of the property to ensure that the subletting operation can begin with its best foot forward.
1. lookup state laws on subletting.
Before the tenant – comes the law. The state will often mention subletting under common law where it will inform you of all the rules, laws, regulations, processes and potential consequences of subletting.
Some states allow tenants to sublet by default so long as it’s not mentioned in the original lease agreement. Some will require that the tenant involves the landlord in the subletting arrangement.
The most important thing is to know the law now so that it doesn’t come for you later.
2. Ensure the founding parties are aware and comfortable with the subletting arrangement.
In this context, the founding parties are (A) the tenant and (B) the landlord. This is especially the case when the tenant is the one pushing the subletting opportunity to go forward.
Even if you as a tenant are allowed to sublet without consulting with the landlord and with no mention of subletting on the property – It works better for everyone if everyone is involved or at the very least aware of the subletting agenda.
A tenant who decides to sublet without consulting the landlord first; risks resentment from the tenant who may feel cheated or that they are being treated unfairly in the situation. This could lead to the landlord making the subletting environment hostile for the tenant and sublessee down the line.
Don’t forget that the sublessee may only have to pay you rent, without considering the landlord but the landlord controls what can and cannot happen on the property as well as how much rent to charge you at the next lease revaluation.
It is always best to discuss the arrangement openly and compromise for a deal that results in both parties benefiting from the mutual collaboration towards the success of the subletting endeavor.
3. Check-in with 3rd party participants.
If either party is using an insurance service, they must be informed of the subletting operation. It is better to involve them as early as possible to realize how the introduction of the sublessee will influence the terms of agreement with them.
You can only hide a sublessee from insurance companies until you need to cash in on the policies. Better to rip off the bandage now and start paying a little extra than having them void your policy because you breached the contract without telling them.
Aside from insurance agencies, landlords who are using a property management service or agent; will also have to inform them about the sublessee to understand what they will and will not do concerning the subletting arrangement.
4. Advertise your subletting property.
Finding a sublessee to sublet to; involves the same advertising requirements as finding a tenant to rent. The tenant is spoilt for choice on whether to advertise on an MLS, social media, traditional media, friends, family and acquaintances
If you want to advertise on an MLS, you can learn what it takes to make your property stand apart from the rest by reading my post (HERE).
5. Screen your tenants effectively.
Above, I mentioned how an empty property is, the second-worst situation for the landlord; the absolute worst-case situation for a landlord is renting a property to a bad tenant.
As I will repeatedly state, “A good property will be picked out today or the next day but a bad tenant can last you months and money.”
With how important the screening process is, I have dedicated an entire post to understanding and executing an all-encompassing screening process that works for sublessees as well as it does for tenants (HERE).
6. Sign the appropriate agreements.
The last thing to do once after you’ve found the ideal sublessee is to have them sign a Subletting Agreement (HERE) and if they are living in the same home as the tenant; a Roommates’ Agreement too.
It’s crucial to have this done right as both the tenant and the sublessee must agree to live on the property with respect being paid to each other and the landlord who can evict both of them in one fell swoop if they become intolerable.
Concluding Thoughts On Subletting.
Subletting operations involve a lot of small pieces that need to be considered lest you risk having everything fall apart into a rubble mass of emotions and expenses that can leave more than one party homeless.
It the opportune environment where every party is involved in the process and collaborates to make sure every piece is in place, subletting is a possible diamond hidden in a stack of needles.
If you go about it correctly, it can leave everyone in the arrangement better than when they started.