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As a landlord, when you sign a lease with a specific tenant, you expect that tenant to be the person living in the unit for the duration of the lease. However, sometimes you may find that over the course of a lease agreement, your tenant may try to rent out the property to someone else. This is called subletting.
Subletting is an increasingly common scenario among students and travelling professionals looking for a solution to hold on to their homes while going away for an extended period of time.
However, it is important to note that some lenders do not permit subletting on properties that they are financing, so, if you are looking at this strategy, you need to ensure your lender permits it. That is why we are offering a free strategy call for you to find the best lender for you. All you need to do is click the link below.
So, how exactly does subletting work, and should you be allowing your tenants to sublet their rentals?
What is Subletting? (And What Are the Rules?)
Subletting, or Subleasing, is the process where a tenant rents out a property they are currently renting to another tenant while they are not living in the unit or renting out part of the property to another tenant in order to hold on to the property.
What make subletting different from the tenant signing onto the original lease or taking over the lease is the fact that the agreement is between the subletter and the new tenant instead of the new tenant and the landlord.
However, this does not mean that your tenants can sublet a property without your consent. In fact, tenants are only legally permitted to sublet their rentals if they receive explicit consent to do so from the property owner. If permission is not granted, the tenant cannot proceed with subletting the property. However, if your tenant believes that you have refused permission for an unfair reason, they may try appealing your decision to the Landlord and Tenant Board. Additionally, it is important to note that the tenant is only legally allowed to rent the property to the new tenant for the same amount as they are responsible for paying each month in rent.
Why Might a Tenant Want to Sublet Their Rental?
The most common reason a tenant will decide to try to sublet their rental is because they are going to be out of town for an extended period and do not wish to lose the unit they are currently renting but cannot afford to continue paying for it as well as their other accommodations.
A key example of this is student renters who travel home for the summer. While your tenant may be in town for six to eight months out of the year, for the remainder of the year they are not living in town and normally would have to surrender their apartment and look for new living arrangements somewhere else. However, by subletting their unit, the renter is able to offer the apartment to someone else for the time they are away so that you can maintain your cash flow and they still have a place to live when they come back.
The Benefits of Subletting for Investors
There are two primary advantages to allowing your tenant to sublet their rental on your property.
Cashflow Remains Uninterrupted
By having a secondary tenant move in and pay rent equal to the amount they owe you each month for the property, your cash flow goes entirely uninterrupted while the primary tenant is away. Instead of spending time and money to tackle turnover and missing a month or two of rental payments, you can continue to make the same money each month with little to no hassle.
Liability Remains With the Original Tenant
Since the sublease on the property is an agreement between the primary tenant and the new subtenant, liability for any damages or missed rent on the property still falls on the original tenant. So while they are responsible for working things out with their subtenant for any mishaps or problems that arise, you are protected from these events. (Provided the damages are not something that you would be responsible for in the first place.)
Discover How To Analyze a Properties Cash Flow With This Step By Step Guide
Why Might You Prohibit Subletting On Your Properties
While there are definitely some good reasons to allow subletting, there are still some key problems you will need to account for that may serve as a reason for you to prohibit the practice on your properties.
Subtenants May Not Be As Reliable
Subtenants occasionally feel a reduced sense of responsibility over the property compared to a primary tenant. As a result, subtenants are often more likely to skip rent payments, cause noise complaints and damage the property. While you may be protected from being held liable for these things, the time and hassle of dealing with them when they do arise may still be frustrating.
To prevent this, you should always demand to screen subtenants as you would a primary tenant so that you can ensure they are responsible enough to live in your property. If they do not pass your screening, go ahead, and deny the sublease.
Insurance Policies May Not Cover Subtenants
Sometimes insurance policies are worded in such a way that they only cover the property owner and the primary tenant on that property. If this is the case with your insurance provider, you should not permit your tenants to sublet their rentals without providing their own additional insurance to cover the subtenant.
What Should You Do If a Tenant Sublets Without Your Permission
If you become aware that your tenant is subletting your rental without your permission, you will have 60 days to notify the tenant of the breach in their lease or else it will be legally assumed you have accepted the new tenant. From there, you will need to give them a time frame to rectify the situation – typically 30 days – or else you will need to take legal action to evict them and their subtenant.
If you would like to learn more about the world of real estate investing, or are planning to expand your investment portfolio and need to secure mortgage financing, give us a call at LendCity. Our number is 519-960-0370 or you can visit us online at LendCity.ca. Alternatively, you can click the link below to book a free strategy call with us today.
Subletting is often confused with the idea of a sandwich lease, learn the difference in the video below.