Subletting a rental property means renting out a property you are leasing to a third party. It may be considered for various reasons, such as a work transfer or making effective use of unused space, but it carries significant risk and requires caution.
In this article, we explain in detail the features and rules of subletting, the risks that may arise, and how to draft a sublease agreement. We also introduce what to do if it is discovered and agency contracts that can help avoid these risks.
What does subletting mean?
Subletting means that tenant B rents out a property leased from owner A to a third party, C, and earns income from it. It is essentially the same as what is commonly called “re-renting,” and broadly carries the same meaning as renting out a space to another person.
The difference between subletting and renting out part of a space
Renting out part of a space means leasing part of a room or office to a third party, but there is no major difference between subletting and renting out part of a space; in both cases, something you are renting is being lent to a third party.
The owner’s permission is essential for subletting
Unauthorized subletting is prohibited under the Civil Code. If you sublet without the owner’s permission, it may constitute a breach of contract and you may be asked to vacate the property. On the other hand, if you have obtained permission, there is no contractual problem.
What rules are unique to subletting?
Because subletting can easily lead to disputes, it is important to accurately understand the contract structure and where responsibility lies.
Conditions required for subletting to be permitted
The owner’s permission is required. If permission cannot be obtained, it is possible to petition the court for permission through a procedure known as a leasehold non-contentious case.
Two independent contracts exist
In a subletting arrangement, tenant B enters into two independent contracts: the lease agreement with owner A and the sublease agreement with subtenant C.
The relationship between owner A and subtenant C
There is no direct contract between A and C, but C is still obligated to A to pay rent and return the property. However, C cannot directly demand repairs from A.
Damage caused by the subtenant is B’s responsibility
If subtenant C soils or damages the building, tenant B bears that responsibility. This is because C is regarded as B’s performance assistant.
Refusal of renewal also becomes complex
Even if A and B mutually agree to terminate the lease agreement, A cannot assert the termination against C. Even when the agreement ends due to expiration of the term, a grace period of six months after notice to C is required.
What risks can arise from subletting?
Subletting carries many risks, including rent arrears, neighborhood disputes, damage to the room, breach of contract, and breakdowns in personal relationships.
Risk of rent arrears
Some occupants who use subletting may have circumstances that make it difficult for them to pass standard screening, and the tenant bears full responsibility for any rent arrears.
Risk of neighborhood disputes
Problems caused by the subtenant, such as noise or improper garbage disposal, may also lead to a demand that you vacate the property.
Risk of damage to the room
If the subtenant soils or damages the property, you may be charged repair costs or damages even if you did not personally cause them.
Risk of breach of contract
Even sharing with a friend or living with a partner may be treated as subletting if you increase the number of occupants without reporting it.
Risk of breakdown in personal relationships
Even when a property is sublet to a family member or friend, financial trouble can destroy the relationship of trust.
What happens if subletting is discovered?
If unauthorized subletting is discovered, it can lead to serious consequences, including claims for penalties, forced eviction, and being blacklisted.
Claims for penalties
Subletting may be judged to be an act that destroys the relationship of trust, and in addition to termination of the agreement, penalties may be claimed. In some cases, it may also develop into litigation.
Forced eviction order
Under the Civil Code, it is expressly stated that if subletting is confirmed, the landlord may terminate the contract. Penalties may arise even before the contract term expires.
Blacklist by the rent guarantee company
If payments to the guarantee company are delayed due to the subtenant’s rent arrears, you yourself may be placed on a blacklist.
Claims for repair costs
The cost of repairing equipment damaged by the subtenant will be claimed as the responsibility of the sublessor. You will not be exempt even if the subtenant refuses to pay.
What should be included in a sublease agreement?
When drafting a sublease agreement, it is important to clearly state the owner’s consent, an overview of the agreement, obligations and prohibited acts, and the conditions for termination.
Main items that should be included
- Owner’s consent: Clearly state that the landlord has agreed
- Overview of the agreement: Building name, address, room being leased, and the names and addresses of the lessor and lessee
- Purpose of use: Clearly specify whether it is for residential or business use. Also review the legal regulations for rental management
- Sublease term: Clearly state the start date and end date
- Sublease fee: Amount, payment destination, and payment deadline
- Obligations and prohibited acts: Such as a ban on keeping pets and restrictions on the use of open flames
- Grounds for termination: Such as ties to antisocial forces or rent delinquency of two months or more
- Restoration to original condition: Obligations and cost allocation upon move-out
- Court of jurisdiction: Specify the court with jurisdiction in the event of a dispute
Is it possible to operate a private lodging business in a sublet property?
In conclusion, using a property for private lodging without permission is a violation of laws and regulations.
Private lodging use constitutes a breach of the duty to use the property as agreed
Lease agreements are usually limited to “residential use,” and operating a private lodging business constitutes a breach of the duty to use the property as agreed. This is because private lodging, where many people rotate in and out over short periods, differs in nature from residential use.
How should you respond if you receive a warning about subletting?
If you receive a warning from the landlord or property management company, it is important to respond promptly.
- Do not ignore the notice: No response may be regarded as acceptance
- Stop the violating conduct immediately: If it is the first time, it is less likely to lead to penalties or termination
- Report changes in circumstances immediately: Always report any increase or decrease in the number of occupants
Recommended Reading
Frequently Asked Questions (FAQ)
Q. What is subletting a rental property?
Subletting means renting out a property leased from the owner to a third party. Unauthorized subletting is prohibited under the Civil Code, so the owner’s permission is required.
Q. What happens if unauthorized subletting is discovered?
Possible consequences include claims for penalties, a forced eviction order, and being blacklisted by a rent guarantee company. In some cases, it may also develop into litigation.
Q. Do living with a friend or sharing a room also count as subletting?
Adding or changing occupants without reporting it may be judged to constitute subletting. Be sure to report it in advance to the landlord or property management company.
Q. Is there a way to avoid the risks of subletting?
An agency contract is recommended. Even when the contracting party and the occupant are different, the agent can complete the formal contract procedures, helping you avoid the risks of subletting.
Q. Can I operate a private lodging business in a sublet property?
Using the property for private lodging without permission constitutes a breach of the duty to use the property as agreed and can become grounds for termination. The landlord’s permission and consent to private lodging operations are required.
