Subletting
Subletting is when a tenant lets all or part of the premises on to another party (the subtenant), without the main tenant leaving its own contract with the main landlord. The mechanism is regulated differently for residential and commercial leases. In the commercial market, subletting is used both as a tactic for handling surplus space during a remaining lease, and as a strategy for main tenants that want to fit several smaller tenants inside their own contract.
Under the Tenancy Act section 7-2, subletting a home requires the landlord's consent. For partial subletting of a home where the tenant continues to live there, the landlord may under section 7-3 only refuse consent when the subtenant's circumstances give reasonable grounds for it, or the dwelling clearly becomes overcrowded. For commercial leases the right is not regulated by law in the same way: the contract governs, and standard commercial contracts often contain an explicit clause requiring written consent from the main landlord before subletting can be agreed. The clauses vary from an absolute ban (with no exception for group companies), through a consent requirement with a reasonableness test, to full freedom for the tenant, the latter typically in negotiated contracts with large single tenants.
From the landlord's point of view, subletting is a mixed blessing. It gives the main tenant the flexibility to continue the contract even if its space needs change, which reduces the risk of the main tenant entering negotiations about leaving early. At the same time, a subtenant can be a weaker counterparty than the main tenant (lower creditworthiness, shorter history), and the landlord loses a direct relationship with the party that actually uses the premises. The standard solution is that the subtenant's payment obligation remains towards the main tenant (who keeps responsibility for the rent to the landlord), while the subtenant takes on certain direct obligations in the sublease agreement.
In large office buildings with flexible concepts, subletting is part of the business model. Operators such as WeWork, Spaces, Mesh, and Norwegian operators such as Kontorhotell and Adminsenteret lease whole buildings or floors on long contracts from the landlord and sublet the parts to smaller users on shorter contracts. This intermediary structure takes its profit on the difference between the main rent and the sublet rent, and in return carries the risk that total rental income stays above the contractual obligation.
For tax purposes, subletting counts as ordinary rental income for the sublessor, who must invoice and pay value added tax on the same basis as the main landlord (assuming the commercial lease is VAT liable). The main tenant often deducts the rent as an ordinary operating cost and records income from subletting as ordinary turnover, so the net effect can be a marginally taxable profit even if the subtenant only covers part of the main rent.
In Placepoint you can compare tenants and contract details from the property panel when you analyse contract structure, vacancy risk and subletting arrangements for a commercial property.
How it looks in Placepoint
In Placepoint you find this in Property panel - Units and tenants:
From Placepoint's glossary: Subletting
More information: Lovdata: the Tenancy Act section 7-2, Lovdata: the Tenancy Act chapter 7, Store norske leksikon: husleie
Norwegian: Fremleie.
Frequently asked questions
Is subletting allowed in a commercial lease?
It depends on the contract. Standard commercial agreements often require written consent from the main landlord before subletting can be agreed. Some contracts ban it, others allow it freely, typically in negotiated large contracts. Residential leases are regulated separately under the Tenancy Act section 7-2.
What happens to the main tenant's liability when subletting?
The main tenant remains the main landlord's counterparty and stays liable for the rent. The subtenant has its own contract with the main tenant, but no direct relationship with the main landlord. If the subtenant defaults, the main tenant must still meet its contract with the main landlord.
Why does a business choose to sublet instead of terminating the contract?
Because the contract is often binding. If the business has surplus space during a remaining five-year contract, subletting can reduce the cost by bringing in partial rent from a subtenant, rather than paying full rent for empty premises. Some contracts also have an explicit subletting clause that provides this flexibility.
What is the difference between subletting and assigning a lease?
With subletting, the main tenant keeps its contract with the landlord and a subtenant comes in as an intermediary. With an assignment, the whole contract is transferred to a new party, and the main tenant leaves the relationship entirely. That normally requires the landlord's consent and negotiation about counterparty risk.