A critical part of apartment property management is keeping the rentals occupied and rental income flowing. But this objective is not as easy as you would wish as a landlord or property owner. Circumstances come up, and your tenants may need to terminate their lease early or move out for a certain period without losing their unit.
Often, such renters will approach you about potential subleases. But what does subletting hold for you? This post by the property management experts at RTI Properties is what you need to navigate subletting like a pro. Let us dive right in.
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Subletting vs. Lease Assignment
Subletting and lease assignment are foggy topics for most landlords and tenants in Southern California. This section will clear the confusion, thanks to apartment property management experts at RTI Properties.
In a lease assignment, there are three parties: landlord, original renter (assignor), and the new tenant (assignee). In this case, the assignor wants to break their lease agreement early, but they can’t just do that and walk away due to early termination fees and other liabilities. So, the original tenant gets a new tenant to whom they transfer all their rights and obligations for the remainder of the lease term. This launches the assignee into a direct relationship with you (the landlord), allowing you to meet and screen the new tenant.
When it comes to subleasing/subletting, the original tenant rents their rental unit to someone else (subtenant) for a specific period. Note that the lease remains under the original tenant’s name, but the subtenant pays the rent and takes care of the property.
There exists no direct relationship between the subtenant and the landlord in this arrangement. The original tenant collects rent from the subtenant and ensures they adhere to the lease terms and conditions.
Pros and Cons of Subleasing for Landlords
The most significant benefit of subletting is that it ensures a steady flow of rental income.
A rental unit staying vacant can significantly impact your rental income, making subletting a viable option if a tenant intends to move out, whether permanently or temporarily.
A short-term sublease allows you to maintain a steady stream of rental income while still maintaining your agreement with the primary renter. With a permanent sublease, you can buy time to market your property and screen potential tenants while still generating income.
Something else you will love about subleasing is that you do not have to turn over the property. Preparing and marketing a unit can be time and money consuming. Subletting thus becomes a more straightforward solution to finding a new tenant. Let us assume that the new tenant is subletting while searching for a more permanent place; there is a likelihood that you have acquired your next tenant without having to invest money and time in turnover tasks.
As we mentioned earlier, in subleasing, the original tenant is responsible for rent payment and damages. However, the need to follow up on rent with a tenant living in another city or abroad is not a welcome idea for most landlords.
You also need to consider the risk of renting your property to someone unknown. Often, the primary tenant is subletting to avoid penalties of early lease termination and will less likely be concerned with finding someone who meets your screening standards.
Dealing with a stubborn subtenant will cost you money and harm your reputation. That is why apartment property management pros advise property owners and landlords to perform thorough background checks on subtenants. It is also crucial to include a clause in the original lease agreement about subleasing to minimize the potential risks.
California Sublease Laws
Different states have varying laws regarding subtenancy. In California, a tenant cannot rent to another person if their lease prohibits it. But if the lease only prohibits lease assignment, subleasing is legal.
Additionally, California law presumes that your tenant can sublet if your lease includes a clause stating that prior permission is required but does not mention subleasing,
San Francisco is among the few California cities where subleasing regulations favor tenants more. Section 6.15 allows renters to sublease even when their landlords or property managers make it hard for them to replace roommates.
The city’s regulations also protect renters from losing their residences if they want to leave for an extended period but wish to keep the unit via subleasing. Also, a landlord cannot unreasonably prohibit subletting unless the lease includes a clause (in enlarged or boldface font) separately initiated by the tenant and offers an explanation of the prohibition.
Let us focus on subtenancy termination. If a subtenant rents month to month and the primary tenant wishes to terminate the arrangement, they must provide a 30-day notice (for subtenants who live in the property less than one year) or 60-day notice (if the sublease occupies the residence for over a year).
California does not always demand reasons for eviction. However, if your apartment is located in San Francisco, Los Angeles, Oakland, or Berkeley, your tenant must justify evicting a subtenant. It is illegal to pursue eviction for discriminatory or retaliatory reasons. Legitimate reasons include:
- Property damage
- Failure to pay rent
- Violence against other residents
- Using the unit for illegal activities
- Conducting cockfighting or dogfighting on the property
- No-fault cause (e.g., unsafe residence conditions, intent to demolish/renovate the property, removal of the property from the rental market)
- Drug or weapon-related offenses
How to Approach Subleasing
So, circumstances have changed for your tenant, and they need to move. The renter does not want to terminate their lease, and you keep the rent payments flowing in. Theoretically, that is a win-win situation for both of you. The renter vacates, and you get a new subtenant and keep collecting rent on time.
However, things often go wrong in the real world. So, how do you protect yourself? The following pointers will help you draft a subletting policy/clause that protects your interests and rights and prevents liabilities.
» Have the Sublessees Screened
In subletting, the primary tenant is responsible for finding a subtenant. However, you should not be left out of this process as the landlord or property owner. Screening is your first defense against troublesome tenants, but you want to conduct the process in compliance with the Fair Housing Laws. A comprehensive subtenant screening includes income verification, credit check, criminal background checks, and previous landlord/ professional references.
» Demand Consent
You or your property manager has the final say on who should live in your rental units. As such, require tenants to request your permission to sublet in writing and include the following details:
- Reason for subleasing
- Length of the sublease
- Essential details about the tenant
» Agree on an Effective Payment Method
The last thing you wish for is disputes over rent payments. At RTI Properties, we highly recommend online rent payment. It guarantees that you will receive rent payments in time each month.
In most cases, the primary tenant sends you the amount they collect from the subtenant. But should the tenant not want to be the middleman, you can require the subtenant to pay rent only online via ACH (automated clearing house- online bank-to-bank money transfers) or credit card. The baseline is to let your primary tenant know they are still required to pay rent.
» Require Renter’s Insurance
Landlord’s insurance is not enough to cover tenants. It covers property damage and liabilities, including wind damage, lightning strike, and fire damage to the property, but does not cover the tenant’s belongings. If a tenant’s injury is due to your fault, your insurance can help foot the associated medical bills, legal bills, and other costs the court may demand.
Still, the primary tenant’s renter’s insurance will not protect the subtenant. Therefore, have a subtenant purchase a renter’s insurance to cover personal belongings, liabilities, and living assistance.
Sublease Agreement Provisions
The apartment property management firm taking care of your property should provide a comprehensive sublease agreement template that complies with your state’s laws. If you are managing the property yourself, ensure your sublease agreement captures the following details:
- Primary tenant and subtenant’s names
- The exact address of the rental unit being subleases
- The exact period of the sublease
- Rent amount and payment method
- Security deposit
- Utility costs (can be fixed monthly payment or a percentage of the bill)
- Regulations governing drinking and smoking
- Whether subtenants need permission to host overnight guests
- Allowable noise levels and quiet time
- Acknowledgment that the unit is in good condition and the subtenant is responsible for any damages
- Landlord and subtenant’s signatures
- Date of signature
Subleases can be daunting, especially if you are a DIY landlord. You must follow the right procedures and have a legally enforceable subletting policy that captures all the necessary details and follows all federal and local laws.
Working with a reputable apartment property management firm with solid experience handling subleases can give you the peace of mind that situations will be handled properly, your rights will be protected, and all parties involved will be happy.
RTI Properties has you covered with full-suite apartment management services from tenant acquisition, marketing, rent collection, sublease processing, property maintenance, dispute resolution to record keeping. Contact apartment management experts today and see how our services breathe new life into your investment.