A sublease agreement is the document under which an existing commercial tenant, acting as sublandlord, re-lets all or part of its leased premises to a subtenant while remaining bound to the original landlord. It sits beneath the master lease, inherits its restrictions, and usually requires the landlord's written consent to take effect.
What Is a Sublease Agreement in Commercial Real Estate?
A sublease agreement is a contract that lets a tenant transfer possession of space to a subtenant without ending the master lease. The original tenant stays on the hook to the landlord for rent and performance, and the subtenant pays the sublandlord. It is subordinate to the master lease, so the subtenant cannot receive rights the master lease does not grant.
Because the sublease depends on the master lease, its economic terms are constrained by that document. The sublandlord cannot grant a longer term than it holds, cannot permit uses the master lease bars, and cannot waive the landlord's consent right. Most commercial leases require the landlord's written consent before a sublease is valid, and many add a recapture right letting the landlord take the space back instead of approving the sublet.
Party | Role in a sublease | Primary obligation |
Landlord | Owner under the master lease | Consents or recaptures; still looks to the original tenant |
Sublandlord | Original tenant re-letting space | Pays master lease rent; collects sublease rent |
Subtenant | New occupant of the space | Pays the sublandlord; bound by master lease limits |
Why a Sublease Agreement Matters
A sublease agreement matters because it decides who is liable and how much rent flows in each direction, which is exactly what an underwriter or asset manager needs from an abstract. The original tenant remains primarily liable to the landlord, so a subtenant default does not relieve it. Rent is often set below the master rate to move space quickly.
According to CBRE, U.S. office sublease space is typically marketed at a discount of 20% to 40% below direct asking rent, depending on market, class, and remaining term. That discount is the reason abstracting a sublease correctly matters: a rent roll that lists the master rent while cash arrives at the sublease rate overstates income. The quotable point for an operator: a sublease does not remove the original tenant from the lease, it stacks a second tenancy on top of it, and both sets of terms bind the space at once.
Example
A tenant leases 20,000 square feet at $40.00 per square foot under a master lease, or $800,000 per year. It subleases 8,000 square feet to a subtenant at a 25% discount to that rate, within CBRE's reported 20% to 40% range. The table shows the resulting rent flows.
Line | Calculation | Annual amount |
Master rent, full premises | 20,000 SF x $40.00 | $800,000 |
Sublease rent collected | 8,000 SF x $40.00 x 0.75 | $240,000 |
Master rent on subleased portion | 8,000 SF x $40.00 | $320,000 |
Sublandlord shortfall on that portion | $320,000 minus $240,000 | $80,000 |
The sublandlord still owes the landlord $800,000 but recovers $240,000 from the subtenant. On the subleased portion it runs an $80,000 annual shortfall, the cost of the 25% discount. An abstract that captures only the master rent would miss both the incoming $240,000 and the retained liability.
Variations and Edge Cases
A sublease agreement is not one form: consent mechanics, profit sharing, and scope all change how it behaves. The table below covers variants an operator should confirm before relying on one.
Variant | Treatment |
Landlord consent | Most master leases require written consent; a sublease signed without it can be void |
Recapture right | Landlord may reclaim the space instead of consenting, ending the sublet before it starts |
Overrent split | If sublease rent exceeds master rent, the lease often shares the excess with the landlord |
Partial vs full | A partial sublease may need a new demising wall and separate access |
Term limit | The sublease cannot outlast the master lease term, even by a day |
Sublease Agreement vs Assignment
A sublease agreement is often confused with an assignment, but they transfer different things. A sublease agreement transfers possession of part or all of the space for part or all of the term, leaving the original tenant in the lease as a sublandlord. An assignment transfers the tenant's entire remaining interest to a new tenant, who steps into the lease directly with the landlord.
The distinction is who holds the lease afterward. Under a sublease the original tenant stays in privity with the landlord and collects rent from the subtenant. Under an assignment the original tenant exits the day-to-day relationship, though it usually remains liable unless the landlord signs a release.
Frequently Asked Questions
Does a sublease release the original tenant from the lease?No. A sublease agreement leaves the original tenant primarily liable to the landlord for rent and performance. The subtenant pays the sublandlord, not the landlord, and a subtenant default does not excuse the original tenant. Only an assignment with a landlord release, or a novation, removes the original tenant's obligation.
Why is sublease rent usually lower than the master rent?Sublease space is typically marketed at a discount to attract a tenant quickly for a shorter, less flexible term. CBRE reports U.S. office sublease space is generally priced 20% to 40% below direct asking rent, depending on market, class, and remaining term. The sublandlord absorbs that gap to cut its ongoing loss on unused space.
Does a sublease need landlord consent?Most commercial master leases require the landlord's written consent before a sublease takes effect, and many also grant the landlord a recapture right to take the space back instead. A sublease signed without required consent can be void and can trigger a default under the master lease.
Related Terms
Assignment and Subletting
Lease Abstract
Estoppel Certificate
Demising Wall