The process of assignment of a lease is essentially selling the lease to a third party (the “assignee”). If you rent commercial property, there’s probably a provision in your lease that lets you assign it to another tenant. You will have to look for a possible new tenant on your own in order to achieve this. It is likely that you will need your landlord’s approval before the assignment can be finalised, as they expect that the new tenant will live up to the same standards they initially set for the original tenant. In this article, Assignment Of Commercial Lease By Tenant, we take a look at the process and mechanism involved.
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How does lease assignment work?
The new tenant will be responsible for paying the rent and adhering to all lease requirements, including maintaining the property.
Whether or not the departing tenant must sign an Authorised Guarantee Agreement will determine whether they are exempt from liability under the lease covenants as of the assignment date.
The outgoing tenant will typically guarantee the obligations of the incoming tenant until the end of the lease term or until the incoming tenant themselves assigns the lease with the landlord’s consent, whichever comes first, if the landlord requests that the outgoing tenant sign an Authorised Guarantee Agreement (commonly abbreviated to “AGA”) as a condition of the assignment. The AGA from the departing tenant will then cease to exist. Therefore, an assignment does not always release the departing tenant from all lease obligations.
Practically speaking, the first step is to identify a potential assignee—someone who would wish to take over the lease. In addition to being satisfied with the rent amount, the assignee will want to check the lease to make sure there are no harsh or unsatisfactory terms. With the exception of the fact that the assignee will be taking over the current lease and will, therefore, have little to no opportunity to change its terms, this process will be very similar to the one your solicitor carried out when you negotiated the lease in the first place.
You may have issues assigning the property if the lease contains stipulations that are notably detrimental to the incoming tenant’s freedom to use the space as they see fit or that are generally inappropriate in commercial property leases. Therefore, it’s important to understand exactly what your lease allows and does not allow before you start marketing it.
Furthermore, the majority of tenants will wish to do the same due diligence as if they were buying a business or negotiating the terms of the lease from the beginning. This typically entails inquiring with utility companies and the local council in addition to learning more about environmental and related issues. You shouldn’t count on being able to transfer the lease right away because this takes time.
The actual transfer of the lease, or “assignment,” occurs after an assignee has been identified and is willing to assume the lease. Typically, a TR1 form from the Land Registry will be used for this. If the lease has a term shorter than seven years, a deed of assignment may be used to assign the lease. You, as the current tenant, and the assignee will often execute both of these documents, which have the same effect.
Theoretically, you are free to assign your lease to anyone, whenever you like. But most landlords won’t give the tenant that kind of latitude, so they include clauses in the lease limiting who can assign the lease and under what circumstances. The landlord will typically have to approve the assignment before it can proceed.
Are there alternatives to getting out of the lease?
There are other ways to terminate a commercial lease, and assigning your lease may not always be the best course of action given your particular situation and the terms of your existing landlord’s agreement.
Other options for terminating a business lease early include:
Break clauses
A “break clause,” which gives both parties the option to quit the lease early under specific conditions, is included in some lease agreements. Check your contract carefully to see if there is a clause similar to this one, and if so, what terms and conditions apply. Any notice period restrictions outlined in the lease must be scrupulously adhered to.
Negotiating an exit of the lease
Your landlord might still allow you to end the lease early even if it doesn’t have a break clause. The details of your departure would need to be negotiated, and your landlord might demand a payout to make up for the inconvenience of having to put the property on the market once more.
Negotiating a lease exit should, in contrast to lease assignment, provide you a clean break with no additional obligations; however, we advise getting legal advice to be sure you were leaving the contract without any ramifications.
Subletting
Subletting is an option to think about if you want to terminate your business contract early. You can become a landlord by finding a new tenant and leasing your property to them, if your contract permits it. In exchange for being expected to manage the property actively and deal directly with the subtenant, you can use the rent income from your new tenant to pay your own bills and obligations.
How we can help
We have a proven track record of helping clients assign their leases. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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How to Contact Our Commercial Property Solicitors
It is important for you to be well informed about the issues and possible implications of assigning a lease. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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