In the Bloom with Maria: Subletting your business space may require changes to your insurance coverage
Opening more than one shop or studio may sound like a great way to add to your bottom line. But if it doesn’t work out and you have to close a location—but are unable to break your lease—subletting may be an option for you.
Hortica Retail Sales Specialist Maria Shepherd reminds us that before you can sublet, you’ll need your landlord’s approval. Plus, changing a lease Use clause may also require some negotiating and additional consent from the landlord, and insurance coverage updates may also be in order.
In their article “Negotiating commercial leases: Subletting your commercial space,” published October 17, 2018, in MultiBriefs, authors Dale Willerton and Jeff Grandfield explained how subletting works and what to look out for.
First, they say you shouldn’t expect to get 100 percent of your rent payment. But they point out that if a subtenant pays 75 percent of the current rent, it may still be worth doing.
Another thing to keep in mind is overholding. Most lease agreements contain an Overholding Clause (or a Holding-Over Clause). That’s the portion of a lease agreement that lays out the base rental rate (and Common Area Maintenance/CAM/Occupancy Costs) adjustment at the end of the term. If a tenant remains leasing on a month-to-month basis, base rent can increase by 150-200 percent.
If you’re signing a new lease, try to negotiate the amount down to 120 percent and keep the amount in mind at renewal time to avoid getting penalized. You can even ask your landlord to waive this increase during protracted renewal negotiations.
Finally, you’ll have to consider Use in the lease. For example, if you go from having a flower shop space to subletting a pharmacy, this Use change can have implications with your landlord, your lease, and your insurance. Be aware that your insurance carrier may also require underwriting risk review and consent before making revisions to your policy to properly cover you for this type of location and liability change.
If you have questions on this or other aspects of your business insurance coverage, we’re here to help.
For more information on protecting your business, check out the Hortica Resources section.
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