Sublease vs. room rental: Which one is right for your property?

As a tenant, you have certain responsibilities to the landlord, as well as the right to enjoy the property you rent. Most likely your lease specifies these rights and responsibilities. In addition, a written lease may contain provisions about subleasing a room or your entire apartment.

If you own a home or condo, you can rent out a spare room depending on local law and on any homeowners association (HOA) rules. Whether you can sublease or rent a room depends on whether you rent or own the property.

Permission to sublease

A tenant creates a sublease when they're the tenant on the master lease with the landlord but someone else takes their place for part of the lease term. Often, the tenant intends to return at some future date and doesn't want to break the lease, which could trigger the landlord's collecting additional rent or fees because most leases restrict early termination.

You, as the tenant, become a landlord to the subtenant under a sublease. It's important to ask the landlord for permission to sublease your apartment if the lease requires the landlord's consent. If the master lease doesn't require permission, you should notify the landlord that you're subletting your apartment. Some states allow subleasing by law. In any event, if you don't get permission in writing from the landlord when it's required, you and your subtenant could be evicted from your apartment.

The risks of subleasing vs. assignment

Subleasing also includes renting out part of your house or apartment while you remain on the premises. Subleasing is different from assigning the lease, as assignment is when the person moving in takes over the lease in your place.

Assignments are less risky than subleases because once you assign the lease, you're off the hook and have no liability to the landlord for rent or any future damage to the rental. You may still need permission to assign the lease, but that depends on what the lease language contains.

Whether you stay in the apartment or leave, subleasing is somewhat risky because you're still responsible to the landlord for any damage caused by the subtenant or for their failure to pay rent.

Before subleasing a room or the entire property, make sure you carefully screen your subtenant for eviction or bankruptcy issues. Take photos of the apartment or house before the subtenant moves in so you know its condition at the time of sublease. Meet the potential subtenant so you know who you're allowing to move in.

Writing a sublease agreement

It's important to have a sublease agreement between you and your subtenant so you both know what responsibilities you have. A standard sublease agreement should contain many of the clauses a master lease contains, but you can tailor your sublease agreement to your specific situation.

A sublease agreement should contain:

• Your name and contact information as master tenant (or sublessor) and the name and contact information of the subtenant (or sublessee)
• The address of the property you're subleasing
• The length of time or term the sublease is for
• The amount of rent and security deposit due from the subtenant
• Whether the subtenant pays rent to you or to the landlord directly; the subtenant pays the security deposit directly to you
• What's included with the sublease, such as utilities and furniture
• That the subtenant is liable to you for damage caused by them or their guests
• A reference that the master lease—which you should attach to the sublease—also applies to the subtenant
• What you aren't permitting, such as smoking
• What laws govern the sublease agreement and whether you'll resolve disputes in court or by mediation
• Signatures of both parties and the date signed

A single room rental

A single room rental is where a home or condo owner rents out a room in their house or apartment. You become the landlord and the renter becomes your tenant.

Unlike a sublease, as the owner of the home, you don't have any responsibility to a landlord unless you're in a condo. Check the HOA rules to see if you're permitted to rent out a room. No matter what you own, you must still check local and state laws to see if there are any restrictions on room rentals in your area. Many towns have restrictions for taking in boarders, as do many states. If you're not sure whether you can rent out a spare room, consult an attorney.

Also check with an attorney to find out what laws apply to landlords now that you've become one. As a new landlord, you'll have to claim the rent as income, and you must ensure that your house or condo is habitable, which means it must have:

• Running water
• Electricity
• Heat, plus air conditioning in certain states
• No mold, or bug or rodent infestation
• Smoke and carbon monoxide detectors
• Enough doors or windows for emergency exits
• The proper windows required by law
• Anything else required by law

Renting your spare room

Renting out a room is a great way to help pay the mortgage, but make sure—as with a subtenant—that you screen applicants carefully. After all, they'll be living with you, and you don't want to live with someone who will make you miserable. Meet the prospective tenant and decide what type of "ideal" tenant you want.

Make sure the prospective tenant fills out a room rental application and signs a room rental lease agreement before they move in. The lease term could be for a set length of time, such as six months, or you may want to begin with a month-to-month lease to make sure the arrangement is working.

Finding the right person to move in depends on your screening process, so long as you don't discriminate. Protect your valuables, both expensive items and identification documents, such as birth certificates, drivers' licenses, and bank books. Call your insurance company to make sure you have the proper insurance, or make sure the tenant purchases rental insurance.

While being a landlord as a renter or an owner requires you to do some homework, it's a great way to keep your apartment or to help pay your bills.