Sublease

What it means

A sublease is an arrangement in which a tenant hands over a leased item, space or part of it to another person, the subtenant. The subtenant pays the tenant, not the owner, and its rights derive from the original lease agreement. If the lease ends, the sublease generally ends too, regardless of what the tenant and subtenant agreed.

A sublease usually requires the landlord's consent. For commercial premises this follows from the specific rules on leases and most lease contracts; for flats from the Civil Code. Subletting without consent breaches the lease and can be grounds for termination. Consent is best obtained in writing, stating to whom and for what purpose the space is sublet.

A sublease must be distinguished from a lease granted directly by the owner and from assigning the whole lease to a new tenant. In a sublease the tenant remains fully responsible to the landlord for the rent and the condition of the premises, even though someone else is actually using them.

How it works in practice

Companies use subleases when they have more space than they need and want to pass on part of the cost, or when space is shared within a group. Subletting an office to serve as a new company's registered office is also common. When registering the office in the commercial register, the property owner's consent is required, not just the tenant's.

Virtual office services often work on exactly this principle: the provider leases premises and gives companies consent to register their office there. Before signing, check that the provider has the owner's authorisation to do so; otherwise the registered office may lapse and the company will have to find a new one quickly.

For tax, sublease income is revenue for the tenant and rent paid to the owner is an expense. For VAT, property leasing is generally exempt, but a payer may opt to tax it under the conditions of the law. The choice affects VAT deduction, so where conditions allow, the lease and sublease should be treated consistently.

What to watch out for

A sublease cannot give the subtenant more rights than the tenant has. If the lease ends in two years, a five-year sublease cannot validly be agreed. Notice periods, conditions for alterations and the deposit also need aligning so the tenant is not left between two contracts without cover.

Watch liability for damage. If the subtenant damages the premises, the landlord will claim from the tenant. The tenant therefore needs clear liability clauses, insurance and a right of access in the sublease so it can check how the premises are used.