Assignment is another word for transferring a lease to a new party. In most commercial leases, the tenant is not able to transfer the lease to a new party without first obtaining the landlord's written consent.
If you are a landlord, you will want to know who your tenant is, have some control over who is renting your premises, and understand their covenant strength and ability to pay rent and abide by the tenant obligations in the lease.
Therefore, it is very common for a tenant to have to make a written application to a landlord if they want to transfer their lease to a new party. The tenant must give the landlord full details of the proposed new tenant, their financial strength, and references so that the landlord can decide whether or not to agree to the lease being transferred.
How would you assign the lease?
It normally starts with a written application to the landlord for permission. A tenant has to supply details of who the proposed tenant will be, if they are a company, when they were incorporated, their accounts for the last 3 years and often a reference from their lender or other professionals. The landlord then has a reasonable period, (as a broad guide around 28 days) to decide whether or not they are willing to consent to the transfer. If a landlord takes too long to make that decision, a landlord can be challenged for unreasonably withholding consent and not responding within a reasonable timeframe.
Do you need the landlord's permission to assign a commercial lease?
This all depends on the wording in the lease, but as a general rule, you should always look at your lease terms before letting a new party occupy the property. It is very usual for a commercial lease to include an obligation on the tenant to obtain the landlord's consent before they transfer their lease to a third party.
What checks will a landlord make before permitting the assignment of the lease?
Typically, a landlord will want to investigate how long the tenant company, if indeed it is a company, has been trading and its covenant strength and financial position. Depending on the covenant strength of the proposed new tenant, a landlord might ask for a guarantor to give them some more security. A landlord is also likely to want references from a new proposed tenant company's bank regarding its financial position.
Can a landlord refuse to consent to the assignment of the lease?
Yes. If a landlord is not satisfied with the proposed new party's covenant strength, they may be entitled to refuse consent to the assignment.
It is also common in many commercial property leases for a landlord to be given the ability to refuse consent to an assignment of the lease if the existing tenant is not complying with the lease terms, perhaps by not paying rent or not repairing the property. You should always refer to the lease terms to see on what basis a landlord can reasonably refuse consent to an assignment of the lease.
What liabilities will you have when assigning a lease?
This depends on the date on which the lease was granted, but assuming that it is post-1996, then a commercial tenant will be released from any liability once they've transferred their lease to the new party unless the lease allows the landlord to force the outgoing tenant to enter into an authorised guarantee agreement as a condition of giving consent to the assignment. An authorised guarantee agreement is effectively a guarantee given by the outgoing tenant that they will step in if the new tenant does not comply with any of the lease terms or misses any of the payments.
How do you register a commercial lease assignment?
It is very common for the lease to contain a contractual clause stating that once the assignment has been completed, written notice must be given to the landlord. In most cases, the landlord will know that the assignment has taken place because they will have been involved in giving permission in a Licence to Assign document.
How can you get out of a commercial lease – what are the alternatives?
This very much depends on the circumstances, but in a worst-case scenario where the tenant can no longer pay the sums falling due under the lease and is placed into a form of insolvency, then it may fall to a liquidator or administrator to terminate the lease.
If a tenant wants the lease to end early, they can consider speaking to their landlord and asking if the landlord will accept a payment known as the surrender premium.
Alternatively, if the tenant no longer requires the property, they might want to find a new tenant to take over their lease or, depending on the lease terms, look to find a third party to lease the property from them. This would be known as a sublease.
What are the costs to assign a lease?
This varies considerably, but it is very common for a landlord to insist that their legal costs are paid if they receive an application for permission to assign the lease. Those can range from £ 500 - £2000 plus VAT. A tenant should also engage their own solicitor to deal with the process for them.
This information is for guidance purposes only and does not constitute legal advice. We recommend you seek legal advice before acting on any information given.
