How can I rent out excess office space?

If you are an owner-occupier or a tenant with unused office space, you may be wondering how you can use that space to generate some extra income.

Two common options are subleasing or licensing the space. 

The best one for you generally depends on:

• Your current lease situation
• How much excess space you have 
• The office layout
• Your business type

What’s the difference between a sublease and a licence?

The key distinction between a sublease and a licence is that a sublease grants a sublessee exclusive possession of the premises, but a licence only grants the right to occupy and use the premises. 

‘Exclusive possession’ in a sublease situation means that a sublessee can exercise control over the property and exclude all others from it. 

However, occupation under a licence is merely a right to use the property for a specific purpose and it does not grant the licence holder the authority to control or exclude others from using it.

When should I use a sublease?

Subleasing a portion of the premises is best suited when you have a decent chunk of space which is distinct, or able to be made distinct, from the remaining area you occupy (for example, an entire floor or a walled off corner space). 

Having this separately defined area is fundamental to the concept of the sublessee having exclusive possession. To make entering the sublease worthwhile for you and the sublessee, you also want to have a sufficient amount of time left on your lease - ideally 6 months or more.

Because you are giving the sublessee a legal interest in the property, the process is more formal and time consuming than with a licence. First, you’ll need to check if your lease allows you to sublease the premises. Most leases will require you to obtain the consent of your landlord (whose consent may not be unreasonably withheld). Obtaining consent from the landlord and negotiating terms with the sublessee can be time consuming and costly.

We suggest engaging a real estate agent who specialises in leasing to help you find a reliable sublessee who has a business that will be compatible with your free office space. 

To make the space attractive to potential tenants, it’s helpful to consult with a professional designer who specialises in office fit-outs. Minor touches like painting a feature wall, adding plants, and upgrading finishes inside the space can go a long way toward giving the space a point of differentiation and getting the space leased sooner. 

Basic works like making sure the area has the proper workstations and cabling will ensure it’s ready for use by any potential tenant.  

‍Advantage

The key advantage of a sublease is that it will usually provide a secure income for a set lease term. 

Disadvantage

The downside to a sublease is that it may be costly and time consuming to fit out the space, obtain a reliable sublessee and gain the landlord’s approval. 

Read more: How to Sublease Commercial Property in NZ

When should a licence be used?

If you have smaller pockets of empty space at your office (for example, unused offices, cubes, desks or tables), you might want to consider licensing. Licensing is typically faster, cheaper and less of a hassle than subleasing. But it won’t work for everyone, especially for occupants with critical security issues.

In a licensing arrangement, you will be the master occupant and licensor, and you will share the space with one or more co-occupants, who are the licensees. 

Licensed workspaces are often not separately demised. Co-occupants often mingle within shared spaces, like reception areas, conference rooms, kitchen/break rooms and lounge areas. 

As part of a licence agreement, you will usually be sharing basic services like internet connections, printers and scanners. It’s crucial to include rules and regulations about how the space will operate. For example, are dogs allowed?

Advantage

Licensing empty space in your office usually doesn’t require any fit out costs or increase to your existing overheads. In addition, you typically won’t have the hassle of getting consent from your landlord, as you’re not vacating part of the premises in the same way you are under a sublease. 

Most licence agreements are only month-to-month, so, if needed, you can quickly recapture its space or kick out incompatible licensees. This provides flexibility that you don’t get under a sublease.

Disadvantage

The income you generate from a licence is less predictable than under a sublease, because licensees are more able to leave. 

Setting up a licence

Have a think about pricing your empty seats. If there are dedicated co-working spaces nearby (for example an office run by Regus or Generator), think about pricing below them to attract licensees. 

Co-working spaces often advertise a ‘Hotdesk’ price, which is lower than the price of an allocated desk. An allocated desk rental could earn up to $800 per month, depending on the quality and location of your office.

There are a number of websites where you can list your office space - check out www.sharedspace.co.nz or www.instantoffices.com. Alternatively, consider approaching compatible businesses or people who might be complementary to your current office setup.

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Are you considering the best way to get a return on unused office space? NZ Legal can help you with a sublease or licence that will reduce any liability and maximise your returns. Get in touch today by completing the form below.