Subleasing property is an effective way to minimise living costs for tenants and maximize rental income for landlords. While subleasing could be a smart strategy for both landlords and tenants, it doesn’t come without important considerations.
How does subleasing work under Australian law, and what are the implications for landlords and tenants?
What Is a Sublease?
A sublease is an agreement between the main tenant and a subsidiary tenant who wishes to rent a part of the property. For example, you may be renting a property that has a spare room, and you (as the tenant) may want to rent out the room to minimise the rental cost.
In simple words, a sublease agreement allows tenants to maximise cash flow by allowing a third party to rent a part of the premises.
Subleasing Do’s and Don’ts for Tenants
Please take the following things into considerations before you sublet the property:
- Double-Check the Subleasing Clause – Just because the rental agreement doesn’t mention subleasing does not mean that you’re permitted to take on a new tenant.
- Take the Landlords Consent – According to law, landlords cannot prohibit tenants from subleasing unless there is a reasonable cause.
You Are Responsible for Your Subtenant
Once you share the property with a tenant, you are responsible for the subtenant. This may include issues like damage, non-payment of rent and so on. Most landlords will deal only with the head tenant for rent payment and problem resolution.
If you feel that the landlord unreasonably denies consent, you have the option of making a legal appeal to the NSW Civil and Administrative Tribunal (NCAT).
A sublease contract should cover:
- The term for sublease and details of the subleased premises (The duration of the sublease cannot exceed the term of the main rent agreement)
- Landlord’s consent
- Security deposit and renter’s insurance
- Overdue rent clauses
- Repair, damage and obligations to head tenant
The tenant as well as the subtenant needs to sign the sublease agreement and keep a copy for their records.
What Are the Implications of Subleasing for Landlords?
As a landlord, your properties should generate consistent and regular income. However, this may not be a constant as tenant turnover tends to be high, and many times, they may move within a few months.
A prudent landlord may wish to perform due diligence with the main lease agreement (with the head tenant) and pay attention to the following considerations:
- Ensure that subleasing is addressed in the main agreement along with restrictions if any. The main lease agreement should not unreasonably deny subletting of the property.
- If the main lease agreement is terminated, it should automatically void the sublease. This will discourage head tenants from entering into a direct lease with subtenants.
The landlord may withhold consent to sublease if the number of proposed occupants is too high.
Do You Need Legal Advice?
Whether you’re a landlord or tenant, an experienced property lawyer can assist you in formulating a law-compliant sublease agreement. Our legal advisors at Owen Hodge Lawyers can help you include important legal clauses, clarify or resolve issues and run credit checks for prospective subtenants.
For any assistance or concerns regarding property subleasing, please call us on 1800 770 780 for a consultation.