A commercial lease assignment occurs when the current lessee transfers their lease to a prospective lessee with the permission of the landlord.
The primary players in a lease assignment are:
- The party exiting the lease is known as the “Assignor.”
- The Assignee is the new lessee under the current lease agreement.
- The Landlord will remain as before
In a typical lease assignment, both parties will hire their own solicitors and pay their own fees, but the assignee is also expected to cover the landlord’s legal fees. In this article, Assigning Commercial Lease, we take a look at the process and mechanism involved.
Please click here to find out more about our commercial property services.
Free Initial Telephone Discussion
For a free initial discussion with a member of our new enquiries team, get in touch with us today. We are experienced in dealing with all aspects of commercial property law and once instructed we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
What are the rights and obligations of assigning a lease?
When one tenant of a commercial lease assigns their lease to another tenant, the lease is transferred.
If the exiting tenant is selling its business to a new owner, reorganising or consolidating its property portfolio, or closing its business, the lease will likely be assigned to the new owner.
The former tenant’s leasehold interests and duties will be assumed by the new tenant. In the contract, the former lessee is called the “Assignor,” while the new lessee is called the “Assignee.”
Upon taking possession, the new tenant will be responsible for all lease obligations, including rent payment and property maintenance. First and foremost, one must determine if the lease allows for assignment and, if so, whether or not the landlord’s approval is necessary. The next stage is to determine if the landlord’s consent is required for the assignment and, if so, under what conditions or under what circumstances the landlord may deny the assignment.
The outgoing tenant should evaluate the financial stability of the proposed tenant in the incoming position since the outgoing tenant may be required to sign an Authorised Guarantee Agreement guaranteeing the fulfilment of the lease by the incoming tenant.
Depending on whether the outgoing tenant is required to agree to an Authorised Guarantee Agreement, the outgoing tenant may be released from liability under the lease covenants as of the date of the assignment.
If the Landlord requires the assigning Tenant to enter into an Authorised Guarantee Agreement (often referred to as a “AGA”), the assigning Tenant will typically guarantee the obligations of the incoming Tenant for the remainder of the Lease Term or until the incoming Tenant themselves assigns the Lease with the Landlord’s consent (whichever is earlier). After that, the former tenant’s AGA will be null and void. Tenant duties under the lease may remain in effect even after an assignment.
Who is liable for the fees associated with the assignment?
Depending on the bargaining power of the parties and the terms of the agreement, either the outgoing or the incoming tenant may agree to pay the legal fees of the other party.
The Landlord’s agreement to the assignment, if necessary, will incur legal fees in addition to those incurred by the outgoing and incoming tenants. According to the lease, the departing tenant is responsible for covering the landlord’s application for consent costs. Surveyor costs for evaluating a potential tenant’s financial strength are one example of this.
The Landlord’s solicitors will typically ask for an undertaking for these costs if the departing tenant is responsible for paying them. This means that the departing tenant must deposit funds ‘on account’ for the landlord’s legal bills into its own solicitor’s client account. In this way, the tenant’s own solicitor can guarantee payment of the landlord’s legal bills. It’s important for a departing tenant to know that this is a common request from landlords.
What is the legal process involved?
The primary obligations of the outgoing tenant’s legal responsibilities are:
If the landlord’s approval of the assignment is needed, submit an application to their solicitor.
Write up the transfer deed (for a registered lease) or assignment deed (for an unregistered lease).
Attend to any concerns voiced by the new tenant’s legal counsel, and
Review the draft Licence to Assign and Authorised Guarantee Agreement provided by the landlord’s solicitor.
The obligations of the incoming tenants’ solicitors can include:
Make sure the new tenant is well-informed about the property and its obligations by inquiring with the exiting tenant’s solicitor and obtaining search results (if necessary).
Check the leasing agreement and the land registry title.
Take a look at the sample contracts the landlord’s solicitors and the departing tenant have prepared for you.
The Landlord’s solicitor will ask for new tenant details, reaffirm any prerequisites for consent, and hand out a draft of the Licence to Assign/Transfer and Authorised Guarantee Agreement.
How we can help
We have a proven track-record of helping clients assign commercial leases. We are a multidisciplinary firm and have all the expertise inhouse to satisfy the most exacting requirements of our clients. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
Deciding when (or whether) to incorporate, what kind of ownership 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 commercial lease. However, expert legal support is crucial in terms of ensuring a positive outcome to your agreement.
To speak to a member of our New Enquiries Team 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.
Comments are closed.
