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Win-Win to Make Subleasing a Breeze (Published in CCAA Newsletter 5/01)
By: John Smith

I wanted to start out this month’s article by saying, “Thank you,” to everyone who attended the Trade Show last month. This year’s show was an enormous success due to the attendance of our members and vendors, their guests, and especially to the tireless efforts of Kris Johnson. Excellent job, Kris! We appreciate your outstanding work.

On a personal note, I also wanted to share that it was an absolute pleasure to speak with such an interactive audience at my seminar, Management Techniques for Small Landlords. The enthusiasm and participation during that seminar made one thing clear: our property owners enjoyed having a forum to discuss their particular management issues. It is with that in mind that I sit down to write this article.

A substantial percentage of the questions asked at that seminar were focused on the issue of subleasing. As this is the time of year that tenants begin approaching us regarding subleasing, I thought this would be a fitting topic for the May newsletter.

The main point I’d like to discuss when we talk about subleasing is looking for the win-win arrangement. While there can be some inconvenience associated with subleasing, always remember that it can be set up to benefit all three parties: the tenant, the sublessee, and you, the owner. All that it takes to set it up that way is some creativity and an atmosphere of cooperation. How to bring this into practice, you ask? Look at what your tenants can bring to the table, as well as what talents you can bring.

One of the questions that I was asked at my seminar was whether I would ever let a tenant out of a lease for a sublessee. My answer was consistent with the way I practice all of my business affairs: as long as the tenant was providing me with a sufficient motivator, I would be willing to work with them. Now, for the tricky part. What would be a sufficient motivator? Cash, of course, goes a long way towards motivating The Johnster. I’ll always be willing to let someone out of their agreement for up-front rental payment. But under what circumstances can this be win-win? What if the sublessee is renting the apartment for a discounted rent? They win. Lower rental payment is a victory. All they’ve got to do in this instance is pay up-front to enjoy the discount. The tenant wins, because they don’t have to worry about the sublessee doing damage to the apartment for which they, the actual tenant, will be held responsible. They may well consider it a big victory that they get out of their lease while only paying the difference between what the sublessee is paying and what they, the tenant, owe on their contract. And, of course, you win. Full rental payment up-front gives you peace of mind that you won’t have collection problems, and gives you your future profits in the present, to do with as you wish. This is one of the most traditional examples of win-win.

Another instance in which I would let a tenant out of a current lease is when the tenant produces a sublessee that would like to rent the apartment for the entire next leasing season, as well as for the current sub-lease period. This is where I would offer my apartment showing skills to the tenant to help set up the win-win. Here, if the tenant approaches me about their beginning the task of finding a sublessee, I could offer to do the showing of the apartment for them. This would provide that they run the ad under my name as an apartment available from the first day that the tenant wants to vacate to the last day of the following leasing period. Now, the sublessee gets a home that they can move into for the summer, and not have to move out in the fall. The tenant gets out of their lease early for the cost of the advertising. And, you get your apartment leased for the following year while someone else paid for your advertising. All you had to give up was your time to show the unit.

Neither one of these examples is meant to be exhaustive. As I said in my introduction, the objective of this article is to act as a catalyst for you to focus your thinking in a way that will help you be more win-win in your negotiations. I have found that when I give up a little in my dealings, the rewards can often far outweigh the costs.

In closing, I want to offer up this forum to try and address your questions and concerns in the future. If you have a particular topic that you’d like to see discussed in this space, please email me with your comments, questions, and feedback at john@johnsmithproperties.com. Also, feel free to call me at (815) 962-6890 during normal business hours.

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John Smith has a Master's Degree in Education, is a real estate investment and management consultant and trainer throughout the state of Illinois, and has been a real estate investor and manager for over seven years in Champaign-Urbana. To contact John Smith, email him at john@johnsmithproperties.com or call (518) 851-7820.