As Australia’s already tight rental market heats up for summer, it is no surprise that many tenants are exploring ways to make the most of their homes… and their holidays. With short-stay platforms and shared housing now a familiar part of the rental landscape, some are turning to subletting or renting out a spare room to help cover costs while they are away.
It is a trend that is easy to understand. The national vacancy rate has hit an all-time low of 1.47%, according to figures from Cotality for the September 2025 quarter.
At the same time, rents have climbed 4.3% over the past year, with the median capital city rent now exceeding $700 per week.
Data from the REIA shows that 24.4% of household income is now required to meet the median national rent.
Against this backdrop, short-term rentals have become an attractive option for tenants.
For example, Airbnbs in New South Wales earn an average of $71,836 per year, with a typical occupancy rate of 52% and daily rates averaging $379.
With few rentals available for the 31% of Australians who rent and costs continuing to rise, it is easy to see why many tenants are turning to platforms like Airbnb or subletting to supplement their income and offset financial pressure during the summer months.
However, while subletting is legal in some circumstances, it can quickly create headaches for landlords, particularly when it comes to insurance.
To help you better support your landlords, EBM RentCover Managing Director Sharon Fox-Slater explores why subletting remains so common across Australia, the risks it can pose, and how it may impact your landlord’s insurance cover.
So, what exactly is subletting?
Sub-letting occurs when a tenant rents out all or part of their leased property to another person.
Unlike renting directly from a landlord, sub-letting involves a separate agreement between the original tenant (head tenant) and the new occupant (sub-tenant).
In this arrangement, the head tenant effectively transfers part of their interest under the lease to the sub-tenant.
However, the head tenant remains responsible for all obligations under the original lease, including paying rent on time, maintaining the property, and ensuring it complies with legal and safety requirements.
This also means the head tenant can be held liable for any damage or loss caused by the sub-tenant.
Sub-letting may involve renting out a single room or leasing the entire property for a set period.
Example: Susan rents a two-bedroom apartment from her landlord. She plans to travel for two months over summer and decides to sub-let the second bedroom to Andrew for $500 a week. During that time, Susan continues to pay rent to her landlord and remains responsible for maintaining the apartment. Andrew pays rent directly to Susan and follows her rules, much like a tenant would with a landlord.
The relationship between the head tenant and sub-tenant is much like that of a landlord and tenant.
The sub-tenant pays rent to the head tenant in exchange for the right to occupy part (or all) of the property, while the head tenant assumes many of the same responsibilities a landlord would normally have.
While this is the most common arrangement, it is worth noting that other rental setups exist, such as:
- Assignment – where the entire lease is transferred to another tenant (who then deals directly with the landlord); and
- Co-tenancy – where multiple tenants jointly sign a single lease and share full responsibility for the property.
Is sub-letting legal?
Yes, sub-letting is generally legal in Australia. However, the right to sub-let is not automatic.
In most cases, tenants must obtain written consent from their landlord before renting out all or part of the property.
Despite this, some tenants proceed without approval, which can create complications down the track.
It is understandable that landlords may be cautious about sub-letting.
After all, they have entered into an agreement with someone they know and trust, and now a new, unknown person could be living in their property.
This can raise concerns around rental payments, property maintenance, and liability, making it a situation that needs careful management.
That said, landlords cannot refuse a sub-letting request without a valid reason.
Legitimate grounds for refusal may include:
- The tenant wants to sub-let the entire property or for the full term of the lease.
- The proposed sub-let would result in more occupants than the tenancy agreement allows.
- The proposed sub-tenant is listed on a tenancy database.
- The landlord’s insurance policy excludes cover for sub-let arrangements.
When sub-letting gets tricky
Sub-letting can become complicated when things do not go to plan.
If a sub-tenant damages the property, fails to pay rent, or breaches lease conditions, the head tenant remains legally responsible to the landlord for those obligations.
Tensions can also arise in shared living arrangements over noise, cleanliness, or use of common areas, and problems may escalate if a sub-tenant overstays or refuses to leave once the agreement ends.
Without a clear, written sub-letting agreement in place, these situations can be difficult to resolve, often leaving the head tenant exposed to financial loss or legal disputes.
And the landlord can also be affected, particularly if the property suffers damage or rental income is disrupted.
What are the insurance risks?
Like landlords, insurers are generally cautious about sub-letting.
Insurance exists to manage risk, and having someone not named on the lease living in the property naturally increases that risk.
Sub-tenants may cause accidental damage, fail to follow property rules, or default on rent.
These are all scenarios that are harder for insurers to anticipate or control.
As a result, most landlord insurance policies explicitly exclude claims related to sub-letting, including loss of rent or tenant-caused damage.
There are exceptions. If the landlord is unaware (or could not reasonably have been expected to be aware) of the sub-letting arrangement, the policy may still respond to covered events, such as property damage or loss of rent.
Even so, the underlying principle remains: insurance is designed to cover known risks and having someone not named on the lease increases those risks.
In practice, this can mean that a claim may be reduced or even denied if the loss or damage occurs while the property is being sub-let without the insurer’s knowledge or consent.
The bottom line
Sub-letting can be a convenient way for tenants to offset costs, but it brings significant responsibilities and risks for landlords.
The head tenant remains liable under the lease, meaning any damage, unpaid rent, or disputes with the sub-tenant can fall back on them, and potentially the landlord.
From an insurance perspective, most policies exclude claims arising from sub-letting.
If your landlords are considering allowing a sub-let, it is essential they check with their insurer first to understand the potential risks and ensure their property remains properly protected.
Have a question about subletting or what might be covered?
The EBM RentCover team is here to help. Call us on 1800 661 662.
