What Landlords Need to Know About Sublets
Managing rental property can be complicated. And when a tenant informs you that they’d like to sublet your space, it just got more complicated. Do you know how to handle requests like these? Can the tenant’s security deposit be impacted by this new arrangement? Like most everything else in property management and landlording, it all boils down to your rental agreement. Take a look at these subletting best practices so you’ll understand what landlords need to know about sublets.
Think of subletting as “sub-leasing.” When a tenant whose name appears on the lease rents out a room or a portion of the rental property to another party — that’s considered a sublet. The original tenant will still be responsible for paying the rent but the subletter typically pays the rent in exchange for staying in the space.
The Benefits of Including a Sublet Clause in Your Rental Agreement
Some landlords view subletting as a better answer than losing a tenant altogether. By looking a little more carefully at how to best build your lease terms, you will have a strong lease that deals with subletting head-on.
Every lease should address subletting. Subletting terms should be spelled out in every rental lease, even if you’re prohibiting it. With a well-built paragraph or two, you can craft a subletting policy that fits your business needs.
Include a fee. It’s a good idea to include a clause that charges the tenant a fee for subletting and screening. By requiring that the subletter undergo the same vetting process, you’ll still get to scrutinize the new tenant and you’ll also be reimbursed for the cost of the background check.
Require the subletter to get their own renters policy. When the original tenant moves out, they may cancel their renter’s policy, leaving your rental space at risk. Be sure to carefully protect your investment with a clause that requires the subletter to purchase their own renters insurance policy.
How to Build a Sublet Agreement
Take advantage of the vast array of online resources and search for sublease agreement templates. Groups like Eforms and Rocket Lawyer help you create a standard sublet agreement. These tools claim to conform to state-specific statues, too. Be sure to have your real estate attorney verify that it’s in compliance with state and local codes before including it in your rental agreement.
Tenant Responsibilities and Finding a Subletter
Typically, the tenant will be responsible for finding the subletter. Be sure that the lease specifies the tenant is responsible for locating an acceptable candidate.
Another best practice is to require the subletter to pass a credit and background check according to your criteria. By partnering with TransUnion’s SmartMove, we’ve helped landlords find great tenants in circumstances like these. SmartMove delivers a ResidentScore that reviews a prospective tenant’s rental and eviction history. It’s a great tool to help to predict if the tenant’s going to be reliable.
What to Do When the Subletter Doesn’t Pay the Rent
Once a new lease is signed, the original tenant is responsible for the rent if it’s not paid. Consider subleasing like adding a mid-term co-signer. The new party comes in, signs on and the current tenant is replaced by the subletter. But if the new subletter doesn’t pay, it’s the responsibility of the original tenant to collect rent from the subletter or pay the landlord out of their own pocket. Here are a few ways to keep the original tenant in the loop when the subletter doesn’t pay the rent.
Get a forwarding address from the original tenant. Before they leave, require that the tenant deliver to you their updated contact information. That way, if the rent is not paid by the subletter, you’ll be able to find them and press for payment.
Stay in contact with the original tenant. Even if rent payments are on time and all is well with the new subletter, there’s no guarantee that things will continue in that direction. Text the original tenant each time rent is paid as a courtesy, and ask them how they’re doing. By getting a reply, you’ll know you can find them if you need to.
Clarify the role of the original tenant before they leave. Be sure that your tenant understands that they’re responsible when reviewing the terms of subletting. That way, there won’t be any surprises later down the road if the subletter stops paying rent.
Subletting and Airbnbs
Include a clause that defines the terms of how a tenant can — or cannot — sublet to Airbnb. If there’s no mention of Airbnb, typically they do not have permission to sublet that way. If you do choose to allow Airbnb sublets, you’ll need to also sign on to all Airbnb-specific agreements in order to participate.
Subletting and Your Tenant’s Security Deposit
Be sure to write up the terms and conditions about the way the security deposit will be handled and how damage will impact the return of it to the primary tenant. Usually, the original security deposit will not be returned until the end of the term. If the subletter has left the space in accordance with the terms in the lease, the security deposit should then be released to the original tenant. If there are dings in the walls or other damage, the terms should reflect that the original tenant’s security deposit will be used to repair and restore the space.
What To Do When a Tenant Sublets Without Your Permission
Again, defer to the way the sublet clause has been written in your lease. When a tenant sublets without permission, landlords may have the legal right to evict the tenant and all subletters. They may also be allowed to sue for damages that resulted from the illegal subletting agreement.
If you choose to allow it, request that the subletter undergo your standard tenant screening process and make the best of a difficult situation. If they pass, then you can consent to the new subletter’s occupancy.
Even though subletting may seem like a lot of stress, you may be able to find a reliable tenant and keep the rent checks coming in. As you consider the ways to build your lease to accommodate subletters, contact your American Family Insurance agent, and review your rental property insurance needs.
Consider bundling your business auto insurance with a landlord insurance policy, and you may find savings through the discounts we offer. Your agent can walk you through the savings opportunities available to you, and you’ll find great coverage in doing so.