Finding the right tenants for your property can be one of the most difficult tasks for a landlord to go through. The process involves interviews, background checks, financial guarantees or money if an agency is involved. This is why it’s important to choose tenants that will respect your rules and your property. Subletting is a common problem many property owners face. Subletting is when a long-term tenant rents out the property to a third party through a sublet agreement.
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Many tenants who won’t be using the property for a period of time and want the rent paid do so by subletting. It’s a very common and simple process for tenants to do. While authorizing your tenants to issue a sublet agreement for renters is risky, let’s start off with some of the pros.
Pros of Subletting
- Unlike finding tenants, owners will find subtenants are easier to find because it’s easier and cheaper to rent. Subtenants don’t have to sign any contracts with owners or pay hefty security deposits. This results in a larger demand for the property at a time when the tenant won’t be living in the property.
- Allowing your tenant to issue a sublet agreement will result in a much lower vacancy rate for your property. This is especially the case if the tenant decides to leave the property with a short-term notice. The tenant can provide a subtenant that will save the owner from vacancy problems in the near future.
- If a tenant is travelling and the property is empty for months, then an owner’s property becomes under the risk of burglary. Subletting the property reduces the chances of burglary.
Cons of Subletting
- The problem with a sublet agreement for the owner is that they don’t have control over the terms of the contract because its between tenant and subtenant. Unless an owner has an agreement with the tenant to have full control, then the subtenant won’t recognize the owner’s power to control their property.
- Subletting to make profit is becoming a common thing among tenants. Tenants rent the property for a certain price and then sublet it for a higher price to a third party resulting in profit for the tenant at the expense of the owner. For an owner, this is a problem because it is money that the owner could be profiting from to pay off a mortgage or to expand their investment. Profiting from subletting is the new trend in the real estate market today, which is why owners have to be careful.
- Selecting a tenant based on their references and financial situation is easy for an owner if they fit the requirements. However, a subtenant might not have the same qualifications as the tenant. The owner could be faced with a bad subtenant abusing and destroying the property and it becomes very complicated to sue that person if the owner does not authorize the sublet personally. The tenant and the owner would have to face off in a legal battle that will cost lots of money.Related: How To Deal With Bad Income Property Tenants
- Subletting could be illegal per state laws, which places the landlord at risk of being fined. So even if an owner wanted to permit subletting, being unaware of state laws regarding subletting could land the owner in financial and legal trouble with the government. For example, in New York it is illegal to rent an apartment or a room for less than 30 days unless the tenant or owner is living there as well.
- The subtenant might have a financial situation where they are unable to pay the rent. The landlord would have to go a different channel to claim the money, which would be the original tenant. It becomes too complicated to collect rent money if there are too many parties conflicting that are involved.
Is Subletting Risky for the Owner?
From a basic viewpoint, it is very obvious that subletting benefits the tenants more than the owner of the property. Property owners are in fact usually left harmed financially by subletting due to one of the reasons listed above.
The owner should have a clause in the lease agreement that makes it clear that a tenant is not allowed under any circumstances to sublet the property unless approved by the owner. A clause of this type prevents the tenants from having a sublet agreement and if violated, the tenant risks eviction from the property. The owner can warn the tenant if they violate the terms of the agreement but if the warnings go on deaf ears, then the owner has the legal power to act as deemed necessary. A lease agreement preventing subletting is the only and most effective way to legally prevent any tenant from abusing your terms for renting.
Related: 7 Ways to Keep Income Property Tenants Happy
A sublet agreement between tenant and subtenant might sound harmless at first to an owner, but if you think about it more, what does an owner profit from such an agreement? The answer is, unfortunately, nothing. An owner will not make more money or have a better tenant when they allow subletting for their properties. The only thing they will be getting in return is uncertainty, losing control and possibly financial loss for their investment. This is why it is risky to authorize tenants to have that power within their grasp.
