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Renters across the U.S. have watched as rents skyrocketed in recent years. Thankfully, according to the most recent rental report from Realtor.com®, prices are steadily declining.
However, there’s an entirely different issue looming. Just like with the housing market, the rental market is having inventory issues.
As rental rates decline, building multifamily housing has become less appealing to investors over the past few years.
According to Realtor.com senior economist Joel Berner, that could result in lower rental unit inventory going forward and, in turn, cause rent prices to go up.
One solution is to sublet a place from an existing renter. As the one attached to the rental agreement, the existing renter arranging to sublet might seem like an easy way to get out of a lease on short notice. However, it could also leave you on shaky legal ground if you don’t handle subletting appropriately.
What is subleasing?
Also known as a subletting, this arrangement allows someone to rent a home from someone else who is already renting the property. It can be a lifesaver for both tenants seeking short-term digs, as well as those who must vacate their apartment (temporarily or permanently) before their lease is up.
Let’s say, for instance, you have a one-year lease, but you get a job offer in another city six months into your lease. You could break your lease—that is, if your landlord allows it—or you could find someone to rent your apartment from you, and you become this person’s landlord (technically sublandlord).
Sublease vs. rental: What’s the difference?
Setting up a sublease is different from traditional renting because it adds another layer to the tenant-landlord relationship. If you rent a home, you rent from the property owner. You typically pay a security deposit, sign a lease, and pay your rent directly to the property owner or the property’s representatives.
A sublet situation is more like a sandwich. If you rent a home from the property owner and then sublet it to someone else, you’re in the middle between your subtenant and your landlord.
What are the benefits of subletting a house?
- Not having to break your lease. Breaking an apartment lease can be an expensive proposition. You might have to pay a hefty fee or continue paying rent until your landlord finds another renter, which is expensive and frustrating.
- Not paying for an empty apartment. It seems silly to pay rent on an apartment that’s not occupied. Finding a subtenant allows you to recoup at least some of your costs.
- Having a built-in house sitter. If you find a trustworthy subtenant, you can leave your furnishings behind, knowing that someone’s there to keep an eye on things and deal with property-related emergencies.
What are the drawbacks to a sublease agreement?
It comes down to liability.
“As a landlord, you’re not crazy about the idea of a subtenant, because you have someone in between you and the person who’s occupying your space,” says William C. Vogel, president of Vogel Advisors, in Royal Oak, MI. “As a tenant, you’re still liable for the lease. If the subtenant doesn’t pay, you still have to make the payment.”
Liability issues go beyond monthly payments, though. Leases also typically address the overall condition of the apartment or property you’re leasing.
“The obligation is that you’re going to get the house, or the apartment, back in the same or better condition than you found it, and the risk is really significant with the wrong subtenant,” says Vogel.
If your subtenant trashes the kitchen or forgets to maintain the pool, it could cause thousands of dollars in property damage. Who’s on the hook for that? Often it’s the person in the middle.
Alternatives to sublets
Before you sublease your apartment, Vogel recommends you try a couple of alternatives. The first option is to find a new tenant to present to your landlord. This might work better if you’re renting from a property owner instead of an apartment management company, but it can’t hurt to try in either scenario.
Essentially, you find a new tenant who is willing to sign a brand-new lease. The tenant should meet your landlord’s requirements in terms of credit and rental history. Ideally, the landlord says yes, and you’re released from your lease (and potential liability).
Another option is to find someone who is willing to finish your lease. You have six months left, and the new tenant is willing to sign the lease for six months. Note: Such an agreement doesn’t automatically relieve you of liability. Vogel recommends including language in the assignment that specifically relieves you of liability.
If those options don’t work, though, subletting might be your best alternative.
How to protect yourself when subletting
Brian Davis, director of education for Spark Rental in Baltimore, recommends starting by reviewing your lease.
“Some leases include a clause prohibiting a sublease, and others have a clause requiring the landlord’s written approval before the tenant can sublet,” Davis says.
Even if your lease prohibits this practice, Davis still recommends asking your landlord.
“Most landlords are amenable, on the condition that the sublessee qualifies just like any other tenant,” he says.
If your landlord won’t budge, you can check out your local laws about subletting. Some states and cities have laws that state landlords can’t prevent subletting to qualified renters.
If your landlord is on board, there are some additional steps you should take to protect yourself:
- Screen your subtenant. Don’t just take the word of a friend or relative on this person being wonderful. Check references. Run a background check. Do your due diligence to ensure you have someone responsible and financially stable.
- Sign a subletting agreement. There are sample agreements online, or you could consult with a lawyer. Your subletting agreement should spell out how long you’re subletting the space, how much rent is, when rent is due, and how the property should be maintained.
- Get a security deposit. A security deposit can help cover any damage that occurs while someone else is occupying the space.
Subletting isn’t perfect, but if you get everything in writing and look for a responsible tenant, it could free you up to pursue other opportunities.
Dina Sartore-Bodo contributed to this report.