assignment of lease what does that mean

Demystifying Assignment of Lease: Your Go-To Guide

LegalGPS : July 25, 2024 at 12:20 PM

When you’re talking about property leasing, it’s important to understand that there are a lot of terms and concepts that you may have never heard before. One of them is the assignment of lease, which refers to a situation where a tenant transfers their rights and responsibilities under the lease agreement to another party.

Assignment of Lease Template

Legal GPS templates are drafted by top startup attorneys and fully customizable.

What is an Assignment of Lease, and why is it so crucial?

An Assignment of Lease is a term you may have heard thrown around, especially if you're involved in rental properties. It’s a pretty important document. But what exactly is it? Well, in simple terms, an Assignment of Lease is an agreement where the original tenant of a property transfers their leases and all of its rights and obligations to a new tenant. Now, you might be wondering, "When would this scenario ever occur?"

Let's imagine you're a tenant who signed a three-year lease for an office space. However, two years in, you need to relocate due to unprecedented growth of your business. Instead of breaking the lease, you might choose to assign your lease to another business looking for office space. This means that you, as the original tenant, no longer have any obligations under the lease. The new tenant is now responsible for paying rent and complying with all of the terms of the previously signed agreement.

Now that you understand, let's get into the step-to-step guide on how to create an Assignment of Lease!

Legal GPS Subscription

Protect your business with our complete legal subscription service, designed by top startup attorneys.

• ✅ Complete Legal Toolkit
• ✅ 100+ Editable Contracts
• ✅ Affordable Legal Guidance
• ✅ Custom Legal Status Report

Steps to Write an Assignment of Lease

Creating a thorough Assignment of Lease agreement doesn't need to be an overwhelming task. Simply follow these steps to ensure your agreement is both comprehensive and legally binding:

Step 1: Identify the Parties

The information of each party should be included. For the existing tenant (the assignor), make sure to include:

Full legal name or business name

Postal mailing address

Phone number and email address

Do the same for the new tenant (the assignee). Make sure all the information is up-to-date and accurate to avoid any unnecessary confusion or disputes. For example, if the assignor is a business, make sure they have updated their mailing address with the post office to reflect their new building location. If a party has multiple addresses, be sure to list them all.

Step 2: Specify the Lease

This section requires exact information from the original lease agreement, including:

Property address and description

Lease start and end date

A reference to the original lease agreement (for instance, a sentence like "the lease agreement dated...")

Remember to include a copy of the original lease as an attachment to ensure the assignee understands the terms they're adhering to. If not already included in the original lease agreement, be sure to add the following information: Description of rental property, Lease term (how long the lease is good for), Rent amount, and Security deposit amount.

Step 3: Detail the Assignment

State that the assignor is transferring all their interests and obligations in the lease to the assignee. Here, write something like:

"The Assignor hereby assigns, transfers, and conveys to the Assignee all of the Assignor's rights, title, and interest in and to the Lease, together with all the Assignor's obligations, liabilities, and duties under the Lease."

This means that the assignor is transferring all of their interests and obligations in the lease to the assignee. This includes any future rent payments, repairs and maintenance responsibilities, notices of default by either party, and so on.

Step 4: Landlord's Consent

Many leases require the landlord's consent to assign the lease. The assignor should request written consent from the landlord and include a clause like:

"The assignment of the lease is not valid unless and until the landlord provides written consent."

This is followed by a place for the landlord to affirm consent by signing or initialing. This is important because the landlord can elect to withhold consent and the assignment will not be valid. If this is the case, you may need to provide additional consideration for your landlord's assent (for example, an increase in rent).

Step 5: Assignee Acceptance

Include a statement in which the new tenant agrees to the assignment and the terms of the lease. It may look like:

"The Assignee hereby accepts this assignment, assumes all duties and responsibilities under the Lease, and agrees to perform all of the Assignor's obligations under the Lease."

You need to do this because the new tenant needs to have an affirmative acceptance of the assignment in order for it to be valid. This is typically done through a letter from the assignee stating that they agree to perform all of your obligations under the lease.

Get Your Assignment of Lease Template with a Legal GPS Subscription

Step 6: Signature and Date

Every binding legal document needs a date and a signature. Make sure that there is a proper place for the assignor and the assignee to sign and print their names, with a line for the date.

By following these clear, actionable steps, you'll be able to construct an effective Assignment of Lease agreement. Remember, every situation is unique, so adjust the template as necessary, being sure to include all relevant details.

Clear so far? Great! Now, let's focus on the tips to draft a perfect Assignment of Lease.

Tips to Draft a Perfect Assignment of Lease

Accurate Dates: Be sure to include the date when this agreement will take effect. Precision avoids any confusion about durations, when the assignee takes over, or when the assignor's obligations end.

Clear Terms: This document should restate the terms of the original lease. The assignee needs a clear understanding of what they're stepping into. Bit ambiguous? Think of it like this: the assignee should be able to step into the assignor's shoes comfortably.

Specify Rent Terms: Stating the rent amount, due dates, and method of payment in the assignment helps create a record of the agreed-upon rent terms, ensuring no misunderstanding arises in the future.

Specify the Term: The assignment should state how long the new lease lasts. For example, if the original lease is for one year, then the assignee will assume only a one-year term.

Specify Other Conditions: If there are other conditions in place—such as tenant improvements or utility allowances—then specify these too.

An assignment of lease doesn't have to be a formidable task to overcome. With a cautious and considered approach, these documents can be a smooth and seamless part of managing a successful lease transition.

Our contract templates can offer you even more support, empowering you towards crafting an excellent and individualized Assignment of Lease ready for your task. So why not take your next step towards leasing success and check them out today? Click here to get started!

Get Legal GPS's Assignment of Lease Template Now

Secure Your Company's IP with a Confidentiality and Intellectual Property Assignment Agreement: The Essential Guide

As an entrepreneur, one of your most valuable assets is your company's intellectual property (IP). From trade secrets and customer lists to patented...

Modified Gross Lease for Business Owners: A Comprehensive Guide

As business owners, we're always seeking opportunities to optimize our costs while securing the best deals for our companies. Real estate leasing is...

Unveiling the Benefits: Why Your Company Needs a Buyer Triple Net Lease

When it comes to commercial leasing, there's a lot to consider for the everyday entrepreneur. One option that stands out among the rest is the Buyer...

.

.

• List Your Law Firm
• Contact HG.org
• Find a Law Firm:

What Is an Assignment of Leases and How Can a Real Estate Lawyer Help?

• LANDLORD AND TENANT LAW GUIDE
• » Lease Agreements and Negotiations
• » Laws Governing Everyday Living Disputes
• » Landlord's Legal Obligations for Maintenance and Repair
• » Eviction and Lease Termination
• » Discrimination Protections Under the Fair Housing Act
• ⇒ How A Lawyer Can Help with Landlord and Tenant Disagreements

Assigning a Lease

Assignments explained, more information on assignments.

• Business Breakups in Virginia
• Contract Management
• Minority Shareholder Protections
• Emerging Companies
• Entity Formation
• Foreign Companies Entering U.S. Market
• Real Estate and Leases
• Starting a Business, Licensing & Compliance
• Registered Agent Services
• Succession Planning for Business Owners
• Tax Law Matters
• Charitable Solicitation Practice Group
• Trade Secrets
• Building Your Cornerstone
• Employee Document Vault
• Employee Handbook Tuneup Services
• Guidelines for Hiring or Firing Employees
• Separation Agreements
• Drug Testing Your Workforce – Best Practices
• Laws Affecting Drug Testing Policies
• VA, MD, DC, Rights & Obligations
• Age Discrimination
• Americans with Disabilities Act
• At-Will Employment
• Fair Labor Standards Act
• Family Medical Leave Act
• Pregnancy Discrimination Act
• District of Columbia
• For Employers of Uniformed Services Members
• Employer Considerations For Government Contractors
• For Non-Profits
• Collaborative Divorce
• Fourth Level Menu Sample
• High Net Divorce
• Same Sex Divorce
• Military Divorce
• Uncontested Divorce
• Litigation vs. Alternative Dispute Resolution in Divorce
• Post-Divorce Enforcement and Appeals
• Alimony and Spousal Support
• Child Custody
• Child Support
• Filing for Divorce in Virginia
• Divorce Security Clearance
• Property Division
• Child Custody and Visitation
• Marital Agreements
• International Family Law
• Domestic Violence and Protective Orders
• Co-Parenting in Virginia
• Bid Protests
• Government Contract Claims and Appeals
• 8(a) Small Business
• HUBZone Small Business
• SDVOSB Program
• Veteran-Owned Small Business
• Women-Owned Small Business
• Arbitration, Mediation & Alternative Dispute Resolution Attorneys
• Commercial & Business Litigation
• Employment Disputes
• Government Contracting Disputes
• Intellectual Property Disputes
• Local Counsel
• Pre-Litigation
• Estate Planning FAQs
• Families With Children
• Business Succession Planning
• Asset Protection Planning
• Celebrity Estate Planning Mistakes
• Legal Business Contingency Plans
• Become a Referral Partner
• Probate is Complex – FAQ and Answers
• Trust & Estate Litigation
• Heba K. Carter
• Grace Clagett
• Joanna Foard
• Elizabeth Hart
• Erin E. Masin
• Evan St. John
• Robert Wolfson
• Our Founder
• How We Help
• Practical Counsel Blog
• Bid Protest Weekly
• Video Library
• Quotes in The News
• GCPC First Generation Law Student Scholarship
• Testimonials
• Make Payments

Assignments & Subleases in Commercial Real Estate Leases

Assignments and Subleases

For many businesses, entering into a lease is an essential and important part of their businesses.  Other than payroll, lease payments are often a business’s largest expense.  However, given the complexity and sheer length of a typical commercial lease, it is a daunting proposition to review and negotiate a lease on your own.  This is the third in a series of articles discussing the major issues to be considered in a typical commercial lease.

This week, we’ll explore assignments and subleases.  While assignments and subleases will have varying terms and conditions on a case-by-case basis, we’ll discuss generally about the issues involved in most assignments and subleases.

An assignment of a lease occurs when an existing tenant (“Assignor”) assigns its rights and obligations under the lease to a new tenant (“Assignee”).  Another form of assignment occurs when a landlord sells the property and a new landlord takes over the lease.  A sublease is often used when the existing tenant (often referred to as “Sublandlord” or “Sublessor”) rents a portion of, or the entire leased premises to another tenant (“Sublessee”), typically for a limited term.  Some leases provide landlords the right to terminate the lease if an existing tenant requests an assignment or lease.

Assignment clauses may also be triggered unwittingly by change of ownership, or equity transfers, in a corporate or LLC tenant.  Leases frequently state that a transfer of a certain percentage of the shares or membership interest in a corporate or LLC tenant shall be construed an assignment.  A tenant should always check its lease for such provisions prior to entering into an equity transfer transaction.

PRACTICAL COUNSEL:  In both assignments and subleases, the rights and obligations of the existing and incoming tenants are delineated in the underlying lease document.  A prospective tenant should take care when reviewing a proposed lease to ensure that they understand the implications of an assignment or sublease, as they may be faced with unfavorable consequences.  Whether a business needs to move out of a leased space due to growth, sell itself, or has space that is not being used, the assignment and sublease clauses will come into play and it is imperative to understand their implications.  The actual assignment of lease or sublease agreements should also be drafted and negotiated carefully to conform to the underlying lease, as well as protect the best interests of the Assignor, Assignee, Sublessor or Sublessee.

What is Assignment of Lease and How It Differs from Subletting

The assignment of lease (and rent) is a foggy topic that is often confused with subletting. Let's clear the air once and all right now. Learn the differences between a lease assignment and sublease so you can make the right choice.

What is Assignment of Lease? - The Important Basics

Let's begin by introducing the 3 players in a lease assignment - The landlord, the original tenant (assignor) and the new tenant (assignee). The original tenant has an unexpired lease agreement with the landlord and he wants out. Since the original tenant can't just break the agreement and walk off, what he does is to get a new tenant to swap places... and take over all his rights and obligations for the remainder of the lease period. So if the original tenant signs a 1 year commercial lease and the business goes bust after 8 months, the new tenant will be assigned a 4-month commercial lease (with the same terms and conditions as the original agreement). Now here's the big catch: Even though the original tenant has handed over all his duties and obligations to the new tenant, he is not off the hook... unless the landlord agrees to release him from all liabilities. If the new tenant stirs up trouble, our dear original tenant will find himself in hot soup as well. Of course, whether the original tenant is allowed to pull this assignment trick out of his hat is a whole new matter. Knowing for sure is actually simpler than most people think: First, examine your local landlord tenant laws for any lease assignment rules. Most of the time, landlords are given the right to allow or disallow assignments but once in a while, the local law let tenants have the final say instead. If there's no mention of lease assignments in your law text, then your rental lease agreement shall dictate the terms.

Difference Between Lease Assignment and Subletting

When it comes to subletting vs assignment of lease, there's often a massive mix-up. Sometimes even real estate professional get it wrong by assuming them to be one and same thing. However if you dig deeper, you will find that the differences are not just numerous, but important as well. Let's begin by dragging the landlord into the picture. An assignment of lease launches the new tenant into a direct relationship with the landlord - The landlord collects rent straight from the new tenant and deals with the new tenant directly on all lease issues. So in this case, the original tenant gets to take back seat and doesn't have to manage the new tenant actively. On the other hand, there's no direct relationship between the landlord and new tenant (subtenant) in a sublease. Instead the original tenant plays mother goose and is responsible for collecting rent from the subtenant and making sure that he's following the lease rules. When you compare the two, a sublease is a lot more hands-on for the original tenant. No matter which path you take, you will still want a good new tenant who pays the rent on time and follows the lease rules to the agreement. For the golden rules on screening tenants and running credit checks, Click here for our guide to running tenant credit checks. When you have a lease assignment, the terms and conditions of the lease remains largely unchanged - It's almost like taking the original lease agreement and swapping the tenant's name with another. With a sublease, there's more breathing space - The original tenant can decide how much rent to charge, how long the subtenant is going to stay or even collect security deposit... as long as it stays within the boundaries drawn by the original lease agreement between the landlord and original tenant.

Should You Choose Assignment of Lease or Sublease?

You are the Landlord - A lease assignment is recommended in most cases. You will have more control over your new tenant (instead of leaving matters in the original tenant's hands and hoping that he would do a good job)... plus you still have the original tenant to cover your back in case anything goes wrong. You are the Original Tenant - Now this is a tricky one. If you want to someone to take over the entire lease and property for its remaining duration (e.g. your business goes belly-up and you no longer need the office), then help yourself to a lease assignment. If the landlord's consent is required for assignment (and he doesn't give the nod), you can always try offering him a lease assignment fee as a deal sweetener. However, if you are looking for someone to share the place (and rent)... or perhaps you need someone to cover the rent while you are overseas for a few short months, then a sublease would be ideal. You are the New Tenant - An assignment of lease works better for you most of the time. You won't be at the mercy of the original tenant (for example if he screws up and the landlord terminates the original lease agreement, your sublease might also go up in flames). But if you only want to rent part of the property... or don't want to tie yourself down for the remaining lease duration, then you are better off sticking to a sublease. Now that we have covered the topic of assignment vs sublease, go ahead and take your pick - Click here for an assignment of lease form or Click here for a sublet agreement instead.

Landlord Tenant Law

• 3 Methods of Resolving Landlord Tenant Disputes
• Federal Fair Housing Act - Avoiding Discrimination
• Security Deposit Laws for All U.S. States
• U.S. State Laws on the Return of Security Deposit
• Sublet Laws - Subletting Laws for All U.S States
• Assignment of Lease and How it Differs from Subletting
• Guide to Commercial Landlord Tenant Law
• How to Find a Good Real Estate Lawyer
• What to Look for When Hiring a Real Estate Attorney

Becoming a Landlord

• Buying Rental Property
• Financing Properties
• First Time Landlord
• Property Manager Career
• Managing Tenants
• Tenant Screening
• Tenant Credit Check
• Rent Payment
• Security Deposit
• Property Maintenance

Landlord Tenant Rights

• Types of Tenancy
• Breaking a Lease
• Section 8 Landlord

Accounting & Taxes

• Landlord Insurance
• Landlord Accounting
• Rental Property Tax
• Landlord Resources
• Landlord Software
• Landlord Tenant Forms

Privacy Policy

© 2008- Propertydo.com. All Rights Reserved.

Assignment of Lease Explained

• December 1, 2023

Understanding the complexities surrounding the assignment of a lease is crucial for both tenants and landlords. Within the UK, various situations might compel a tenant to transfer their lease to another party. In this guide we will delve into the essentials, helping you understand every facet of a lease assignment.

What is an Assignment of Lease?

In the world of property management and real estate, the concept of an “assignment of lease” is fundamental. It involves a tenant, known as the assignor, transferring their entire legal interest in a property to another individual or entity, called the assignee. This process is common in both residential and commercial contexts and plays a significant role in maintaining the fluidity of property interests, especially in a dynamic market.

When a tenant signs a lease, they agree to specific commitments, including paying rent and maintaining the property, which are enforceable for a set period. However, various circumstances may prompt a tenant to vacate the property before the lease term expires. Herein lies the importance of the assignment of lease.

Through lease assignment, the original tenant can exit the property and pass on the responsibility to a third party, who then assumes the role of the tenant with all its incumbent responsibilities. It’s important to note that while the new tenant steps into the shoes of the original tenant, the lease terms remain unchanged.

For instance, if an individual rents a flat and later decides to move out before the lease’s expiration due to reasons such as relocating for a job or changing living situations, they may opt for an assignment of the lease. This strategy allows another person to take over the living space and adhere to the responsibilities under the original lease, ensuring that the flat does not remain unoccupied and the landlord continues to receive rent payments. This seamless transition can be especially beneficial in residential areas with high demand for housing, as it minimises financial instability for the landlord and provides immediate accommodation for those in need of a home.

Key Components of Lease Assignment

• Assignor and Assignee: The existing tenant (assignor) and the new tenant (assignee) are the primary parties in this agreement. Their willingness to transfer and assume the lease’s obligations, respectively, drives the assignment process.
• Landlord’s Role: While not a direct party to the assignment, the landlord plays a pivotal role. Most lease agreements stipulate that landlords must provide consent before any assignment takes place. This clause protects the landlord’s interests, ensuring the new tenant is reliable and meets the required standards.
• Legal Documentation: The process requires several legal documents, including the initial lease agreement and a deed of assignment. The latter must clearly articulate that all rights and responsibilities have been transferred to the new tenant. This precision prevents future disputes regarding the terms of the lease.
• Liabilities: The assignment of lease doesn’t inherently absolve the original tenant of responsibilities. Depending on the agreement’s terms, the assignor might remain liable if the assignee fails to fulfil the lease obligations. This potential continued liability underscores the importance of thorough assignee vetting.

The Legal Ground

The legality surrounding the assignment of a lease is rooted in UK property law. It necessitates compliance with various statutory requirements and often involves complex legal procedures. Consequently, parties usually engage solicitors to ensure that the assignment aligns with legal protocols, protecting the interests of all involved parties.

The assignment of a lease is a nuanced process, influenced by factors unique to each situation. Whether prompted by personal, business, or financial changes, lease assignments facilitate flexibility in property occupancy and use. Understanding this concept is crucial for tenants seeking an early exit from a lease, individuals looking for established lease properties, and landlords wishing to maintain continuous tenancy and income streams.

Understanding the Deed of Assignment of Tenancy

A “deed of assignment tenancy” is a legal document that evidences the transfer of lease obligations from the current tenant to another. It is an essential part of the lease assignment process, binding the new tenant to the terms stated in the original lease.

Landlord’s Checks Before Permitting Assignment of a Lease

The assignment of a lease, while beneficial in maintaining continuous occupancy and consistent rent payments, necessitates thorough due diligence on the part of the landlord. Before consenting to an assignment, it’s imperative for landlords to conduct comprehensive checks, mirroring the depth of evaluation done during the initial tenant screening process. These checks are crucial in mitigating potential risks and safeguarding the landlord’s investment.

Detailed Assessment of the Prospective Assignee

Landlords should ascertain the financial stability and reliability of the assignee. This assessment often involves:

• Credit Checks: This allows landlords to have a clearer understanding of the prospective assignee’s credit history, highlighting their ability to keep up with regular rent payments and financial commitments.
• Employment Verification: Landlords typically require proof of ongoing, stable employment. This verification helps ensure that the new tenant has a consistent income stream capable of covering the rent and other associated costs.
• References: Previous landlords or property managers can provide insights into the assignee’s behaviour, paying habits, and overall reliability. Personal references might also be necessary to form a more comprehensive view of the prospective tenant.

Review of the Assignee’s Intent

Understanding the prospective tenant’s reasons for seeking the property and their long-term intentions can provide reassurance. For instance, landlords should feel more comfortable knowing that the assignee plans to reside in the property for an extended period and doesn’t intend to sublet without permission or engage in unlawful activities.

Examination of Financial Documentation

Landlords may request documentation such as bank statements or savings accounts to further verify the assignee’s ability to afford the property. This scrutiny is particularly pertinent in higher-rent areas or for properties with higher maintenance costs.

Ensuring Contractual Compliance

It’s important for the landlord to confirm that the assignee understands and agrees to the terms set out in the original lease. The assignee must comply with all existing conditions, and any deviation needs to be negotiated with and approved by the landlord.

Legal Considerations

Given the legal complexities surrounding lease assignments, landlords often seek legal advice during this process. Lawyers can help ensure that the assignment adheres to local property laws, the original lease’s terms, and that the landlord’s interests are thoroughly protected throughout the transition.

By conducting these comprehensive checks, a landlord exercises due diligence, significantly reducing the likelihood of issues arising from the assignment of the lease. This meticulous approach helps maintain the property’s revenue stream, upholds community standards, and ensures the continued preservation and value of the property investment. It’s a proactive measure, providing the landlord with peace of mind that they are handing over their property to a reliable and responsible assignee.

Costs Involved in Lease Assignment

The process of lease assignment, while a practical solution for tenants looking to transfer their lease obligations, does entail various costs that both the assignor (original tenant) and assignee (new tenant) need to consider. These expenses contribute to a seamless transfer process, ensuring all legalities are properly managed, and all parties are adequately protected. Understanding these costs is essential as it prevents unexpected surprises and allows for a more transparent transaction.

Costs for the Assignor

• Advertising Costs: If the landlord does not immediately have a new tenant, the original tenant may need to advertise the property. This could involve online listings, printed materials, or hiring an estate agent to expedite the process, all of which incur costs.
• Tenant Screening Costs: The assignor might opt to conduct preliminary screenings of potential assignees, which include credit checks, reference checks, and other background investigations to ensure they’re presenting a reliable tenant to the landlord.
• Legal Fees: The legal intricacies of transferring a lease require the involvement of legal professionals. The assignor typically bears the cost for legal consultations, drafting the deed of assignment, and any related legal documentation.
• Landlord’s Administrative Fees: Some landlords charge an administrative fee for processing a lease assignment, covering the time and resources they expend to conduct their checks and modify their records.
• Potential Liability Costs: If the assignee fails to meet the lease obligations, and depending on the terms of the assignment, the original tenant may remain partially liable. This contingent liability could lead to future costs.

Costs for the Assignee

• Security Deposit: It’s standard practice for the new tenant to provide a security deposit before moving in. In some cases, the assignee reimburses the original tenant for the initial deposit, depending on its condition and any agreement between the parties.
• Advance Rent: The assignee may need to pay the first month’s rent in advance, similar to standard leasing arrangements.
• Legal Fees: Assignees also incur legal fees. They need legal counsel to review the terms of the lease, ensure the assignment is conducted correctly, and understand their new responsibilities and liabilities.
• Stamp Duty: Depending on the property’s value and the lease’s remaining duration, the assignee might need to pay Stamp Duty Land Tax (SDLT) on the premium or the rent of the lease.

Shared Costs

In some instances, both parties negotiate and equally share specific costs, such as those for legal consultations, to ensure fairness and mutual satisfaction in proceeding with the transaction.

Both assignors and assignees must factor in these expenses to accurately assess whether a lease assignment is a financially viable option. It is advisable to consult with real estate professionals and legal advisors to understand all potential charges fully. Having a clear, upfront understanding of these costs allows both parties to make informed decisions, ensuring a smooth, transparent, and fair transition process.

Does Assignment Create a New Tenancy?

No, an assignment does not create a new tenancy. It merely transfers the existing tenant’s rights and obligations to the new tenant, who then steps into the shoes of the original tenant under the same lease terms.

The Necessity of Legal Assistance

It is highly advisable to engage a solicitor during the assignment of a lease. A solicitor can provide necessary legal advice, prepare the deed of assignment of lease, and ensure compliance with various property and contract laws.

Deed of Assignment vs Tenancy Agreement

While they might sound similar, a deed of assignment is not the same as a tenancy agreement. The former refers to the document transferring existing lease rights to a new tenant, while the latter is a contract outlining the terms between a landlord and tenant for new occupancy.

Parties Involved in Signing the Deed of Assignment

The deed of assignment of lease is typically signed by the outgoing tenant, the incoming tenant, and sometimes, the landlord, especially when their consent is a prerequisite for the lease transfer.

Landlord’s Consent to Lease Assignment

A landlord can refuse to consent to assign a lease, but this refusal must be reasonable. Scenarios for justifiable refusal might include the prospective tenant’s inability to meet financial commitments or proposed use of the property that violates lease terms.

Lease Assignment vs Subletting

• Lease assignment involves the complete transfer of the tenant’s rights to another party.
• Subletting occurs when the tenant temporarily hands over the property rights to another party but retains some rights or eventually plans to return.

Financial Responsibilities in Lease Assignment

Typically, the outgoing tenant or the incoming tenant covers the costs related to the assignment of lease, such as legal fees, administrative charges, and any leasehold improvements. The specific arrangements may vary based on mutual agreements.

Assigning a Lease Without a Deed: Is It Possible?

No, a lease assignment must be evidenced by a deed to be legally binding. The deed of assignment tenancy is crucial as it protects the interests of all parties involved and provides legal clarity.

The Meaning of ‘Assignment’ in Rent Context

In the context of renting, ‘assignment’ refers to transferring the existing tenant’s lease obligations and rights to another party. The assignee assumes responsibility for rent payments and adherence to the lease terms.

Advantages of Assigning a Lease

There are several benefits associated with the assignment of a lease, including:

• Flexibility for the tenant needing to vacate the property before lease termination.
• Minimal interruption in rent payments for the landlord.
• Opportunity for another tenant to occupy the premises without having to negotiate a new lease.

Stamp Duty and Lease Assignment

Stamp duty on assignment of lease may apply depending on the premium paid and the lease’s yearly rent. It’s important to consult a solicitor to understand any potential tax implications.

Post-Assignment Liabilities for Tenants

After the assignment of a lease, the original tenant is generally released from future liabilities. However, they may remain liable if the new tenant defaults, depending on specific lease terms or if guarantees were provided.

Essential Documents for Lease Assignment

In the process of a lease assignment, several critical documents must be prepared, reviewed, and signed to ensure a legally binding transfer of rights and responsibilities from the original tenant (assignor) to the new tenant (assignee). These documents are crucial in defining the terms of the assignment, protecting the interests of all parties involved, and complying with legal standards. Here are the essential documents required for a successful lease assignment:

1. The Original Lease Agreement

• Before any transfer, all parties must review the original lease. It’s vital to understand any clauses or terms that could impact the assignment, such as conditions requiring the landlord’s consent for any lease transfer.
• The original lease agreement serves as the foundation for the assignment, outlining the terms and obligations that the assignee will need to adhere to.

2. Deed of Assignment of Lease

• This legal document formally transfers the lease obligations from the assignor to the assignee. It must clearly state the terms under which the lease is assigned, including any continuing liabilities of the assignor, if applicable.
• It should be comprehensive, detailing the rights and responsibilities of all parties and any guarantees provided by the assignor.
• The deed is usually drafted by a solicitor to ensure that it complies with legal standards and adequately protects everyone’s interests.

3. Landlord’s Consent to Assignment

• Most leases require the landlord’s formal approval for any assignment to occur. This document is the landlord’s written agreement, permitting the transfer from the current tenant to the new one.
• It may come with conditions the assignee must satisfy, which should be clearly outlined in the consent form.

4. Assignee’s Letter of Acceptance

• This document is proof that the assignee understands and agrees to the terms set out in the original lease and the deed of assignment.
• The letter may restate key lease terms for clarity and will affirm the assignee’s commitment to abide by all the lease conditions and responsibilities.

5. Legal Advisories

• Though not a formal part of the lease assignment, documentation of legal advice received by both the assignor and assignee (and possibly the landlord) is crucial.
• These advisories ensure each party has been informed of their legal rights and obligations, potentially offering protection in the event of future disputes.

6. Inventory List

• If relevant, an inventory list detailing the condition of the property, especially for furnished rentals, would be necessary. This document helps manage expectations and responsibilities concerning the property’s state and contents at the time of the assignment.

7. Proof of Assignee’s Financial Stability

• While not always formally part of the assignment documentation, evidence of the assignee’s ability to meet financial commitments (like bank statements or employment confirmation) often needs to be submitted to the landlord during the assignment process.

The process of assigning a lease is a complex legal transaction that requires strict adherence to procedural standards. These essential documents ensure that the assignment progresses smoothly, with clear understanding and agreement from all parties involved. Both assignor and assignee should seek legal counsel to ensure their interests are protected, and all documents are in order, further underscoring the importance of each document’s role in this pivotal real estate process.

Energy Performance Certificate (EPC) Requirements

Yes, an EPC is generally required for a lease assignment, especially if the building is to be sold or rented out. This certificate ensures that the property meets the necessary energy efficiency standards.

Registering an Assignment of Lease

Registration of an assignment of lease is crucial. It validates the change of tenant under the lease, making it legally binding and enforceable. This process usually involves submitting the deed of assignment to the appropriate land registry.

Timeframe for Assigning a Lease

Assigning a lease can take anywhere from a few weeks to several months, depending on factors like obtaining the landlord’s consent, the new tenant’s credibility, and the speed of legal processes.

Embracing the Benefits of Lease Assignment

Whether you’re a tenant seeking flexibility or a landlord desiring continued occupancy, lease assignment offers solutions that can cater to your individual needs, promoting ease and continuity in the leasing process.

If you’re considering a lease assignment, it’s paramount to seek professional advice to navigate the complexities involved. The information contained in this article should be used for information purposes only and should not be relied upon in place of specific legal advice.

Related Blog Posts

Spotlight on Cardiff

Cardiff, the vibrant capital city of Wales, is nestled in the county of Glamorgan within the historic region of South Wales.

Moving to the Seaside

In this article, we explore 15 popular seaside towns across the UK that are attracting new residents.

Legionella and Landlords

This article explores what legionella is, how it occurs, the responsibilities of landlords and the legal requirements surrounding this issue.

Assignment and Consent Standards in Commercial Leases

Mar 6, 2020

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. This article presents a brief overview of the assignment provision in commercial leases, both office and retail.

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. When a tenant’s interest in a lease is assigned, the tenant is transferring its entire leasehold interest and 100% of the leased premises to a third party for the entire remaining term of the lease. For the tenant, the assignment provision represents a potential exit strategy, dependent of course on the local market, and increased flexibility for future needs. For the landlord, the assignment offers greater security for its revenue stream and hopefully the avoidance of a tenant bankruptcy or default while keeping its building occupied. The tenant’s desire for flexibility and the landlord’s need for control is where the negotiations are focused. This article presents a brief overview of the assignment provision in commercial leases, both office and retail, with particular attention on the laws of Maryland, Virginia and the District of Columbia. The landlord’s standard for providing consent to a request to an assignment will be reviewed, and we will conclude by offering suggested language.

What If The Lease Does Not Contain An Assignment Provision?

The law traditionally favors the free alienation of property. Therefore, under the laws of almost every state, if the lease is silent on whether the landlord’s consent to an assignment is required, then the commercial tenant has the right to assign its interest. This is true in Maryland, Virginia and the District of Columbia. Given this baseline, almost every lease form will have a detailed provision setting forth the assignment process. Note also, however, that in most states it is also enforceable for a commercial lease to have an outright prohibition against assignments. Such a provision would likely be a non-starting deal point for most sophisticated tenants.

What Does Reasonable Mean?

If a lease simply provides that the tenant requires landlord’s consent to an assignment, but does not include the standard for giving or withholding that consent, then in many states the implied standard is that the landlord’s consent may not be unreasonably withheld. Historically this was the minority view, with the historical rule allowing the landlord to withhold consent for any reason. The implied duty of reasonableness is now more the norm as more states adopt this position when presented with the issue. There is express case law establishing this rule in Maryland, and most courts in Virginia and Washington, DC will imply such a covenant of good faith and fair dealing. Most states, though, do allow a landlord the sole right to grant or withhold its consent if the lease clearly expressly provides, and in Maryland the lease must specifically state that the landlord’s consent may be granted or withheld in the sole and absolute subjective discretion of the landlord. Again though, a sophisticated tenant with any leverage should never agree to such a provision.

Most negotiated leases will instead contain a provision requiring that landlord’s consent to an assignment is required, but such consent will not be unreasonably withheld. The tenant will likely also try to include landlord’s obligation to not unreasonably delay or condition its consent. A short clause without further defining what constitutes “reasonableness” generally favors the tenant, and landlords typically prefer including specific standards as to the criteria it can consider when reasonably deciding whether or not to consent to an assignment. Without such specificity, defining “reasonable” is difficult as the landlord and tenant clearly will have differing viewpoints and it may be left as a factual question to be decided in litigation. The typical definition (set forth in the Restatement (Second) of Property) would be that of a reasonably prudent person in the landlord’s position exercising reasonable commercial responsibility.

Absent a detailed provision listing the criteria a landlord can consider when reasonably reviewing a request to assign, a landlord is typically found to be considered reasonable if it considers certain general broad factors. First, the landlord reviews the assignee’s proposed use. In a retail setting, the landlord will be concerned whether the proposed use fits with the existing center and/or violates any existing exclusives or insurance requirements. In an office setting, the landlord might review the expected traffic and wear and tear on the building. Second, the landlord will consider the creditworthiness of the assignee. The landlord (and the assignor) will want to be confident that the assignee is capable of performing tenant’s obligations under the lease and a large creditworthy tenant increases the value of the asset. The assignor might argue that a strict financial test (such as a minimum net worth, for example) is unfair since the assignor is likely not being released upon the assignment and the landlord can still pursue the assignor in the event of a default. Third, the landlord will review the experience and history of the assignor. As mentioned above, landlords instead prefer a detailed list setting forth the many factors that they can include as part of reasonably reviewing a request for a lease assignment.

Without further establishing the criteria, the landlord puts itself at risk of a challenge by the tenant that a denial of a consent is unreasonable.

In defining “reasonable,” courts typically do not allow a landlord to deny or condition consent to an assignment based purely on economic reasons where the landlord results in substantially increasing what it was entitled to under the lease. In Washington, DC, there is well established case law holding that it is unreasonable for a landlord to withhold consent solely to extract an economic concession or improve its economic position. For example, a court would not consider it reasonable for a landlord to condition its consent on the assignee paying a greatly increased rent. Instead, as discussed below, landlords should look to protect their interests in a market of increasing rents by providing for either the sharing of excess rentals or a right to recapture.

What Are Typical Provisions In an Assignment Clause?

As discussed above, tenants generally prefer a short assignment provision simply requiring the landlord to not unreasonably withhold, condition or delay its consent to an assignment. But most leases are drafted by landlords, and over the years the assignment provisions have evolved to contain many typical provisions in addition to further defining “reasonableness,” including the following below.

• Sharing of Excess Rents. Since many states do not permit a landlord to condition its consent on improving its economic position (e. g. , by increasing the rent), most leases instead contain a provision where the landlord is entitled to all or a portion of the profits. The profits may mean increased rent, or it may even be construed more broadly to consider the value of the location in a sale of the tenant’s business. The landlord’s argument is that it doesn’t want the tenants competing in the real estate market. The tenant should push back here, and certainly try to lower the percentage shared, carve out any consideration received in the sale of tenant’s business, and only share profits after all of the tenant’s reasonable costs incurred in connection with the assignment were first deducted.
• Corporate Transfers. Since a purchase of the entity constituting tenant is likely not deemed an assignment under the law, most leases make clear that any such corporate sale, including the sale of either a controlling interest in the stock or substantially all of the assets of the tenant, is deemed an assignment for purposes of the lease. The tenant should carve out permitted transfers for typical mergers and acquisitions under certain conditions, and also carve out routine transfers of stock (or other ownership interests) between existing partners or for estate planning purposes. The landlord will likely accept a permitted transfer concept provided they receive adequate notice and the successor entity succeeds to all of the assets of the original tenant with an acceptable net worth.
• Assignment Review Fee. Most landlords include in their form lease the requirement that the tenant reimburse them for legal and administrative expenses incurred in reviewing the request for consent and preparing the assignment. The tenant clearly wants to keep these fees reasonable and in keeping with the local market.
• Recapture Rights. Landlords like to include the express right to recapture the premises in the event the tenant comes to it to request a consent for an assignment. A recapture clause allows the landlord to terminate the lease if market rents have increased or if it needs the space for another use. Sophisticated tenants should push back here as much as leverage allows, try to limit the time periods, and if nothing else try for the right to nullify the recapture by rescinding its request for the consent.
• Tenant’s Remedy. To protect themselves from claims for damages from the tenant if the landlord withholds its consent to a requested assignment, landlords often include a provision where the tenant waives its rights to monetary damages in such a situation and can only seek injunctive relief. The tenant should try to delete this provision, or at least, if leverage permits, provide for the right to seek damages if the landlord is subsequently found to have acted in bad faith.

Assignment provisions are heavily negotiated and both the commercial landlord and tenant need to be advised to the applicable local law and know the market for a comparable transaction. ( Note: The author represents office and retail landlords and tenants throughout Virginia, Maryland and the District of Columbia.) Sample reasonableness provisions for both office and retail uses are copied below for reference.

Retail Lease

Landlord and Tenant agree, by way of example and without limitation, that it shall be reasonable for Landlord to withhold its consent if any of the following situations exist or may exist: (i) In Landlord’s reasonable business judgment, the proposed assignee lacks sufficient business experience to operate a business of the type permitted under this Lease and to a quality required under this Lease; (ii) The present net worth of the proposed assignee is lower than that of Tenant’s as of either the date of the proposed assignment or the date of this Lease; (iii) The proposed assignment would require alterations to the Premises affecting the Building’s systems or structure; (iv) The proposed assignment would require modification to the terms of this Lease, or would breach any covenant of Landlord in any other lease, insurance policy, financing agreement or other agreement relating to the Shopping Center, including, without limitation, covenants respecting radius, location, use and/or exclusivity; (v) The proposed assignment would conflict with the primary use of any existing tenant in the Shopping Center or any recorded instrument to which the Shopping Center is bound; and/or (vi) The proposed assignment or subletting would result in a reduction in the Rent collected by Landlord during any portion of the term of this Lease.

Office Lease

Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply: (i) The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building; (ii) The Transferee intends to use the Premises for purposes which are not permitted under this Lease; (iii) The Transferee is a governmental agency; (iv) The Transfer occurs prior to the first anniversary of the Lease Commencement Date; (v) The Transferee has a net worth of less than $10,000,000.00; (vi) The proposed Transfer would cause a violation or trigger a termination right of another lease for space in the Building; or (vii) Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Building at the time of the request for consent, or (ii) is negotiating with Landlord to lease space in the Building at such time, or (iii) has negotiated with Landlord during the six (6)-month period immediately preceding the Transfer Notice.

Reprinted with permission from the March edition of the Commercial Leasing Law & Strategy© 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected] .

• John G. Kelly

Related Practices Areas

• Commercial Leasing
• Real Estate

Related Industries

• Bank & Lender Services
• Real Estate Development & Investment
• Small, Emerging & Growing Businesses

This commercial lease assignment is between , an individual a(n) (the " Original Tenant ") and , an individual a(n) (the " New Tenant ").

On or about , the Original Tenant and (the " Landlord ") entered into a lease agreement (the " Lease ").

The Lease covers the commercial property located at ,    , and more particularly described as follows: (the " Premises "). The Premises contains feet of interior floor space.

Under section of the Lease, the Original Tenant is permitted to assign its interest in the Lease, with the consent of the Landlord.

The Original Tenant wishes to assign to the New Tenant its rights in, and delegate all of its obligations under, the Lease, and the New Tenant wishes to accept this assignment.

The parties therefore agree as follows:

1. ASSIGNMENT.

The Original Tenant assigns to the New Tenant of all its rights in, and delegates to the New Tenant all of its obligations under, the Lease. This transfer will become effective as of (the " Effective Date "), and will continue until the present term of the Lease ends.

2. ASSUMPTION OF RIGHTS AND DUTIES.

After the Effective Date, the New Tenant shall assume all rights and duties under the Lease, including the obligation to pay rent under the Lease when it is due. The Original Tenant will have no further obligations under the Lease The Original Tenant will remain bound to the Landlord under the Lease, notwithstanding the assignment . However, the Original Tenant remains responsible for obligations accruing before the Effective Date.

3. REIMBURSEMENT.

On or before the Effective Date, the New Tenant shall pay $ to the Original Tenant, which is the sum of:

• (a)  The security deposit held by the Landlord under the Lease; and
• (b)  The rent or other deposits paid in advance by the Original Tenant for any period after the effective date of this assignment.

4. INDEMNIFICATION.

• (a)  The Original Tenant shall indemnify the New Tenant against any award, charge, claim, compensatory damages, cost, damages, exemplary damages, diminution in value, expense, fee, fine, interest, judgment, liability, settlement payment, penalty, or other loss (a " Loss ") or any attorney's or other professional's fee and disbursement, court filing fee, court cost, arbitration fee, arbitration cost, witness fee, and each other fee and cost of investigating and defending or asserting a claim for indemnification (a " Litigation Expense ") arising out of the Original Tenant's breach of its obligations under the Lease before the Effective Date.
• (b) The New Tenant shall indemnify the Original Tenant against all Losses or Litigation Expenses relating to the Lease, except if those Losses or Litigation Expenses arise from the Original Tenant's failure to perform its obligations under the Lease before the Effective Date.
• (c)  The New Tenant shall indemnify the Original Tenant against all Losses or Litigation Expenses attributable to the acts or omissions of the New Tenant or its agents, contractors, or employees with respect to the Premises or any activities on the Premises. This indemnification will survive the termination of the Lease and this assignment.

5. CONTINUING EFFECTIVENESS OF LEASE.

This assignment is made on the understanding that all other terms of the Lease remain in full effect, including the prohibition against further assignments and subleases without the Landlord's express written consent.

6. ORIGINAL TENANT'S REPRESENTATIONS.

The Original Tenant represents that it:

• (a) has the power and authority to enter into and carry out this assignment;
• (b)  has not previously assigned its rights under the Lease;
• (c)  is the lawful and sole owner of the interests assigned under this assignment;
• (d)  the interests assigned under this assignment are free from all encumbrances;
• (e)  except for the Landlord and the Original Tenant, there are no parties in possession or occupancy of the Premises or any part of them, and there are no parties with possessory rights on the Premises or any part of them; and
• (f)  has performed all obligations and made all required payments under the Lease.

7. CONDITION OF PREMISES.

The New Tenant has examined and inspected the Premises and accepts them "as is" and in their present condition with all faults. Except as provided in this assignment, the Original Tenant makes no representations, covenants, or guaranties about the status, nature, or condition of the Lease or the Premises.

8. INTERPRETATION.

In interpreting the language of this assignment, the parties shall be treated as having drafted this assignment after meaningful negotiations. The language in this assignment will be construed as to its fair meaning and not strictly for or against either party.

9. GOVERNING LAW.

• (a) Choice of Law.  The laws of the state of govern this assignment (without giving effect to its conflicts of law principles).
• (b) Choice of Forum. Both parties consent to the personal jurisdiction of the state and federal courts in , .

10. AMENDMENTS .

No amendment to this assignment will be effective unless it is in writing and signed by a party or its authorized representative.

11. COUNTERPARTS; ELECTRONIC SIGNATURES.

• (a) Counterparts.  The parties may execute this agreement in any number of counterparts, each of which is an original but all of which constitute one and the same instrument.
• (b) Electronic Signatures.  This agreement, agreements ancillary to this agreement, and related documents entered into in connection with this agreement are signed when a party's signature is delivered by facsimile, email, or other electronic medium. These signatures must be treated in all respects as having the same force and effect as original signatures.

12. SEVERABILITY.

If any one or more of the provisions contained in this assignment is, for any reason, held to be invalid, illegal, or unenforceable in any respect, that invalidity, illegality, or unenforceability will not affect any other provisions of this assignment, but this assignment will be construed as if those invalid, illegal, or unenforceable provisions had never been contained in it, unless the deletion of those provisions would result in such a material change so as to cause completion of the transactions contemplated by this assignment to be unreasonable.

13. NOTICES.

• (a) Writing; Permitted Delivery Methods.  Each party giving or making any notice, request, demand, or other communication required or permitted by this assignment shall give that notice in writing and use one of the following types of delivery, each of which is a writing for purposes of this assignment: personal delivery, mail (registered or certified mail, postage prepaid, return-receipt requested), nationally recognized overnight courier (fees prepaid), facsimile, or email.
• (b) Addresses. A party shall address notices under this section to a party at the following addresses:
• If to the Original Tenant:
• ,   
• If to the New Tenant:
• (c) Effectiveness. A notice is effective only if the party giving notice complies with subsections (a) and (b) and if the recipient receives the notice.

14. WAIVER.

No waiver of a breach, failure of any condition, or any right or remedy contained in or granted by the provisions of this assignment will be effective unless it is in writing and signed by the party waiving the breach, failure, right, or remedy. No waiver of any breach, failure, right, or remedy will be deemed a waiver of any other breach, failure, right, or remedy, whether or not similar, and no waiver will constitute a continuing waiver, unless the writing so specifies.

15. ENTIRE AGREEMENT.

This agreement constitutes the final agreement of the parties. It is the complete and exclusive expression of the parties' agreement about the subject matter of this agreement. All prior and contemporaneous communications, negotiations, and agreements between the parties relating to the subject matter of this agreement are expressly merged into and superseded by this agreement. The provisions of this agreement may not be explained, supplemented, or qualified by evidence of trade usage or a prior course of dealings. Neither party was induced to enter this agreement by, and neither party is relying on, any statement, representation, warranty, or agreement of the other party except those set forth expressly in this agreement. Except as set forth expressly in this agreement, there are no conditions precedent to this agreement's effectiveness.

16. HEADINGS.

The descriptive headings of the sections and subsections of this assignment are for convenience only, and do not affect this agreement's construction or interpretation.

17. EFFECTIVENESS.

This assignment will become effective when all parties have signed it.The date this assignment is signed by the last party to sign it (as indicated by the date associated with that party's signature) will be deemed the date of this assignment.

18. NECESSARY ACTS; FURTHER ASSURANCES.

Each party shall use all reasonable efforts to take, or cause to be taken, all actions necessary or desirable to consummate and make effective the transactions this assignment contemplates or to evidence or carry out the intent and purposes of this assignment.

[SIGNATURE PAGE FOLLOWS]

Each party is signing this agreement on the date stated opposite that party's signature.

[PAGE BREAK HERE]

LANDLORD'S CONSENT  AND RELEASE

As Landlord under the Lease, I hereby consent to this assignment of the Lease, and to the New Tenant's assumption of the Original Tenant's obligations under the Lease, including the obligation to pay rent when it is due. As of the Effective Date, I release the Original Tenant from all liability for obligations (including rent payments) under the Lease However, the Original Tenant remains primarily obligated as tenant under the Lease and I do not waive or relinquish any rights under the Lease against either the Original Tenant or the New Tenant.

EXHIBIT A Attach copy of Lease

Free Assignment of Commercial Lease Template

How-to guides, articles, and any other content appearing on this page are for informational purposes only, do not constitute legal advice, and are no substitute for the advice of an attorney.

Assignment of commercial lease: How-to guide

Occasionally, tenants wish to leave a rental property before the end of their lease. Individuals may take new jobs in new cities, and companies may go out of business or sell their enterprises to a third party.

Whatever the reason, tenants can transfer their original commercial lease to new parties by completing an assignment of the lease.

An assignment transfers one party's interest and obligations under a lease to another party.

During these tenant transfers, the new tenant takes on the lease responsibilities, including paying rent and property maintenance of the leased premises, and the original tenant is released from most of their duties.

Successful property management begins with good documentation and a properly drafted, executed assignment:

• Ensures that all parties involved understand the obligations being transferred
• Defines the responsibilities that each party will have under the new arrangement
• Lays the foundation for a long-lasting landlord and new tenant relationship

Important aspects to consider when drafting commercial leases

Laws about the original commercial lease agreement

State laws  governing real estate, renting, leasing, and assignments vary widely and can tremendously affect your arrangement.

Since the tenant is legally responsible for this document, they must include specific information like financial statements in the commercial lease assignment. Consider your state and local laws for additional information required in your area.

Criteria for commercial landlords in providing consents

A landlord may consider only proper factors when deciding whether or not to consent to an assignment.

Some criteria will be regarded as impermissible by courts, such as refusal based on race or sex of the proposed new tenant. If your landlord does not consent to your attempted assignment, ensure they give you clear written reasons for the decision. Failure to provide such reasons can itself be deemed unreasonable.

Consequences of not providing consent

It is essential to seek the landlord’s permission for the proposed transfer of the duties.

Depending on your jurisdiction or the terms of your original lease, a landlord’s failure to respond to your request for consent to assignment within a specific time may be deemed consent. Sometimes, it may give the assigning tenant grounds to terminate the lease. Review the original lease and your state’s laws for additional details.

Although a landlord is not required to consent to a lease assignment agreement, in some cases, your lease will state that a landlord’s consent will not be “unreasonably” withheld. This is more common in commercial leases than in a residential lease. What is considered unreasonable varies from jurisdiction to jurisdiction, and you should review the laws in your area (and the assignment clause in your original lease agreement) for additional information. On the other hand, if the lease states that the landlord may use their “sole discretion” to evaluate the new tenant, they can veto this assignment without any reason.

Rights of the original tenant

The original tenant cannot assign more rights than the original lease. For example, if the lease term is one year, the assignment term cannot be two years.

Review the lease assignments before signing

Most leases require the landlord’s written consent before an assignment becomes effective. Review the assignment provisions and the original lease agreement for additional information and see if other requirements must be met to make the lease assignment agreement valid.

Get the assignment signed

Sign three copies of the assignment, one for you, the other party, and the landlord. Depending on the nature of its terms, you may decide to have the document witnessed or notarized. This will limit later challenges to the validity of a party’s signature.

Be sure the assignee gets a copy of the original lease by attaching it to the assignment. Its terms will bind them, and they should know their new obligations and rights.

If your agreement is complicated, contact an attorney to help draft a document that meets your needs.

Key components of a commercial lease assignment

The following instructions will help you understand the terms of your assignment.

Introduction

In this section, identify the parties and, if applicable, what type of organization(s) they are. Write down how the document identifies each party. For example, the current tenant can be addressed as the “original tenant” or “assignor” as they assign the lease to the new tenant, and the new tenant can be called the “new tenant” or “assignee.”

Furthermore, add the date on which the assignment will become effective – when it is signed.

The “whereas” clauses, referred to as recitals, define the world of the agreement and offer essential background information about the parties.

In this assignment, the recitals include a simple statement of the parties’ intent to assign the original tenant’s interest in the lease and the new tenant’s intent to assume it. Provide a brief description of the rented property and the landlord’s name under the lease.

You don't need to include a complete legal description for the property description, but provide enough information to identify it. For individual houses, the address will usually be sufficient. If the property has a specific name (e.g., “Lincoln Towers”), include that as well. If only a section of the premises is assigned, clarify that in this description.

This section mentions the assignor’s assignment of their right and interest in the lease to the assignee. This assignment clause allows you to determine whether all of the assignor’s interest in the lease is being assigned or only part of it. For example, if interest in only one-half of the premises is being assigned, the document should note this.

Assumption of rights and duties

This section clarifies the assignor’s responsibilities for the duties listed under the lease (e.g., rent, maintenance of property, etc.). For example, whether:

The assignor is ultimately released from any liability they had under the lease. For example, if the assignee defaults, the landlord cannot seek payment from the assignor.

The assignor will be liable to the landlord if the assignee defaults.

In any event, the assignor will remain responsible for any obligations that occurred before the assignment. In other words, if the damage happened to the apartment before the transfer or the assignor did not fulfill another obligation under the lease, the assignor remains responsible for the building occupied.

Reimbursement

In many rental relationships, amounts are paid in advance or deposited as security for the landlord.

At the end of the lease, this security deposit (with deductions subtracted or interest added) is returned to the tenant. If an entire interest is assigned, the lease does not end, and the assigning party cannot get this money back. This paragraph requires the assignee to pay those amounts to the assignor, and any later return of that money by the landlord will be made to the assignee.

Indemnification

In such clauses, the assignee promises to bear the financial cost of any injury the assignor suffers due to its assignment and any lawsuits arising from its activities on the premises. Note that there is an exception for things done by the assignor before the effective date of the assignment — the assignor remains responsible for those actions.

Continuing effectiveness of lease

Here, emphasize that the original lease terms are still effective to the assignee, except for the assignment.

Assignor’s representations and warranties

List the assignor’s promises under the assignment. Note that this is not a detailed list of services to be provided. Instead, this is the assignor’s assurance that the lease and the rental interest it’s providing are helpful (i.e., no one else lives or has an interest in the place, the lease is still in effect, the assignor is not behind in rental payments, etc.). If there are additional representations the assignor should be making, feel free to include those here.

Condition of premises

Here, mention that the premises are not warranted to be perfect or valuable in a particular way. Instead, the assignee is taking the rented property for what it is and is accepting it in that state.

Additional terms of assignment

This optional provision allows the assignor and the assignee to include any representations, warranties, or other provisions particular to their situation.

Interpretation

This section provides information that both parties were on equal footing in negotiating the consent to assignment. In many cases, a contract is interpreted favorably by the individual who did not draft it. This clause clarifies that both parties were involved in the drafting, so the document should not be read in favor of (or against) either.

Here, list the addresses to which all official or legal correspondence should be delivered. This can be the tenant’s business address or the mailing address for both the assignor and the assignee.

Modification

This section indicates that any changes to the document are only effective if they are made in writing and signed by both parties.

Governing law

This section allows the parties to choose the state laws used to interpret the document.

Counterparts; electronic signatures

This section explains that even if the parties sign the assignment in different locations or use electronic devices to transmit signatures (e.g., fax machines or computers), the separate pieces will be considered part of the same agreement. In a modern world where signing parties are often not in the same city—much less the same room — this provision ensures that business can be transacted efficiently without sacrificing the validity of the agreement as a whole.

Entire agreement

This clause mentions that the document parties are signing is “the agreement” about the issues involved. Unfortunately, the inclusion of this provision will not prevent a party from arguing that other enforceable promises exist, but it can provide you some protection from these claims.

Landlord’s consent and release 

Review the terms of the original lease agreement to determine whether or not the  landlord’s consent  is required to make the assignment effective. This is usually the case. If so, have the landlord sign the document.

Frequently asked questions

What is the purpose of an assignment of lease.

Whether it's because it's time to move to a new space or city, business isn't booming, a company gets sold, or otherwise, sometimes commercial tenants must leave a lease before it ends. And sometimes, they may want to transfer the responsibilities of their lease to someone new. A lease assignment occurs in this case.

Here's the information you'll need to have handy to complete your assignment of commercial lease:

• Who the old tenant is : Have their name and contact information ready
• Who the new tenant is : Have their information available

What is the difference between an assignment and a sublease?

An assignment transfers one party's interest in an agreement to a third party. In this case, the original tenant gives all their interest to a new tenant. That new tenant steps into the shoes of the old tenant and the old tenant is released from most of their obligations under the lease (although this can be changed by agreement).

This is not the same as a sublease.  Under a sublease , a third party is granted only those specific rights provided in the sublease. The original tenant remains ultimately liable for residual obligations under the lease or any failures of the new tenant to meet their obligations. This means that the original tenant will be responsible (in equal measure with the new tenant) for any skipped rent payments or damage to the property.

Related categories

Related templates.

Assignment of Agreement

Transfer work responsibilities efficiently with an assignment of agreement. Facilitate a smooth transition from one party to another.

Assignment of Residential Lease

Simplify lease transfers with an assignment of residential lease agreement. With the landlord's approval, smoothly transfer your lease responsibilities to a new tenant while documenting the arrangement comprehensively.

Landlord Consent to Assignment

Facilitate lease transfers with a landlord consent to assignment form. Provide tenant and landlord information, along with the rental property address, and grant permission for the lease transfer easily.

Legal Services

• Brain Injury
• Cerebral Palsy
• Child Birth
• General Medical Negligence
• Misdiagnosis Of Cancer
• Wrongful Birth
• Bridging Loans
• Freehold and Leasehold to Buy and Sell
• Purchases and Sales of Business Premises
• Transfers/Assignments of Existing Leases
• Catastrophic Injury Claims
• Contentious Probate
• Contractual Disputes
• Housing Disrepair
• Landlord & Tenant disputes
• Military Claims
• Other Litigation
• Employment Tribunal Claims
• Restrictive Covenants
• Settlement Agreements
• Contracts, Policies and Procedures
• Defending Employment Tribunal Claims
• Disciplinary, Capability and Grievance Procedures
• EDI and Harassment Policies
• Flexible Work Requests
• Protected Conversations and Settlement Agreements
• Restrictive Covenants and Employee Competition
• Children Advice
• Cohabitation Agreements
• Collaborative Law
• Divorce and Separation
• Domestic Violence
• Financial Arrangements
• Inheritance Act Claims
• Pre and Post Nuptial Agreements
• Property Claims for Unmarried Couples
• Bills of Costs
• Costs Budgeting and Management
• Costs Negotiations and Advice
• Costs Training and Seminars
• Court of Protection
• Group Litigation
• Points of Dispute
• Replies to Points of Dispute
• Solicitor and Client Disputes
• Auction Sales and Purchases
• Buying a House
• Lease Extensions
• Lifetime Mortgages (Equity Release)
• Remortgaging
• Selling a House
• Transfer of Equity
• Court of Protection Applications
• Declarations of Trust
• Estate Planning
• Inheritance Tax Advice
• Powers of Attorney

Further Information

• Accreditations
• Free Online Enquiry
• News, Events and Articles

Assignment Of A Lease: Everything You Need To Know! 📃

The assignment of a lease is a legal process that allows a tenant to transfer or “sell” their lease to another party. This can be a complex process, but understanding the steps involved can help make it easier. Whether you are a landlord, tenant or prospective lease buyer or “assignee”, this guide will provide you with the information you will need to navigate the assignment of a lease.

As an existing leaseholder or commercial tenant, there are plenty of reasons why you might want to exit your business lease early. Perhaps your current premises are no longer suitable for the needs of your growing business, or maybe your business is in financial difficulty, and you need to find a lease with more favourable terms.

There are also a range of options when it comes to deciding how to exit a lease or change the occupational status of a property before the specified lease term end date.

Some of the most common include:

• Assignment of a lease, which involves selling or passing the existing lease (and remainder of the lease term) onto another party or business, who assume the role of occupational tenant;
• Terminating the lease by exercising a break option (either a rolling break option or termination of the lease on a fixed break date) by serving a formal notice on your landlord in accordance with the break clause of your lease; or
• Subletting your premises or a permitted part (with the prior consent of your direct landlord) and adopting the role of intermediate landlord yourself.

Unfortunately, exiting a lease early is not always a simple process and can be costly. A lease is a legal contract, with binding provisions and if you breach its terms, your landlord could take you to Court, sue you for damages, take remedial action and/or forfeit the lease and take back possession of the premises, depending on the nature and extent of the breach in question. Opting to pursue a process such as assigning the lease to a new tenant can make exiting a lease early possible in theory, but there are many factors that should be considered before beginning this process.

If you are thinking of trying to leave your lease early, it is advisable to obtain independent legal advice from an appropriately experienced commercial property solicitor before taking any action.

If you require legal advice or assistance on getting out of a commercial lease please call us on 0800 086 2929 , email [email protected] or complete our Free Online Enquiry Form .

In addition to office meetings, we also offer remote meetings via telephone and video conferencing software so can assist you wherever you are based.

What is assignment of a lease?

The process of assignment of a lease is essentially selling the lease to a third party (the “assignee”).

If you are a commercial property tenant, your lease likely contains a clause that would in principle allow you to assign your lease to a new tenant, subject to receiving your landlord’s prior approval and further subject to complying with certain conditions; these would usually be set out in your lease and commonly involve any number of the following:

• You as outgoing tenant providing an Authorised Guarantee Agreement (or AGA) for New Leases (post-1995), if it is reasonable in the circumstances to provide one, by way of a guarantee of the new tenant’s (assignee’s) payment of the lease rents and performance of the lease covenants going forward; and/or
• Provision of a Guarantor of requisite standing from the incoming tenant (assignee), being an individual, Director or Company, dependent on the landlord’s specific requirements; and/or
• Provision of a Rent Deposit (commonly equivalent to 3-6 months’ worth of the annual rent prescribed by the existing lease) for the landlord to hold as security; and/or
• Modern leases usually reserve a right in addition for the landlord to impose any further conditions that would be reasonable in the circumstances. Your landlord will expect this new tenant to meet the same expectations they originally set for you, and you will probably need the landlord (or indeed superior landlord’s) consent in writing before the assignment can be completed. The process for obtaining the landlord’s consent to the arrangement usually involves providing references for the proposed assignee, evidence of their financial viability and ability to comply with the lease covenants, payment of the landlord’s legal or other professional costs (e.g those of their surveyor) and the landlord being joined to a formal Licence to Assign, which would document their consent to your proposed assignment.

Whilst  your landlord is usually obliged not to  unreasonably withhold or delay their response to your application or their consent to  the proposed assignment, they are not guaranteed to provide consent and are under no obligation to give their consent if the new tenant does not  meet their standards or in the event that you cannot sufficiently evidence the proposed assignee’s ability to pay the rent(s) and comply with and perform the tenant covenants set out in your lease – so it would be  wise to be fully informed and selective  regarding the nature and identity of the proposed assignee and confident in their status and ability, in advance of you approaching your landlord with your application .

There are likely to be restrictions regarding if and when you can assign your lease, specified within the provisions of the lease document. Some common restrictions include not allowing lease assignments of part only of the premises (as opposed to the whole), if the term  is for a short period only, and not allowing the lease to be assigned if the lease would be due to end imminently, or indeed if there is a material ongoing breach of the lease terms, such as allowing the property to fall into disrepair or significant rent arrears.

Once a lease has been assigned, the assignee will become the new tenant and will be responsible for payment of the lease rent(s) and ensuring compliance with all of the tenant’s obligations in the lease, including covenants in relation to repair and maintenance of the property.

What checks will a landlord make before permitting assignment of a lease?

Before consenting to the assignment of a lease to a new tenant, your landlord will want to carry out checks to ensure the tenant you have found is a suitable replacement tenant. These checks can include:

Financial status

Your landlord will want to see evidence – usually in the form of business bank account statements – that the new tenant is an active registered company in a strong financial position.

Statements from previous landlords that the tenant has leased property from, trade references from suppliers or other professional references (for example their accountants or banking manager) will be required to show that the tenant is reliable and doesn’t have a history of missing payments or otherwise neglecting their responsibilities as a tenant or business client.

Proposed use of the premises

Your landlord will probably be looking for a new tenant to intend to use the premises in broadly the same way as you have done in the past as the lease will specify what use is permitted and if there are any restrictions on usage.

If the use of the premises is to be altered or updated it is imperative that a change of use application is made to the landlord and to the extent necessary, the local authority or planning authority. Proper consents or planning permission(s) are to be sought in advance from the local or planning authority and if approved and required, a lease variation reflecting the change of use documented in writing; for example, these provisions could form part of the Licence to Assign, to which the landlord would be joined as a party.

Likelihood of requesting alterations to the building

Your landlord will require advance notice of any alterations or fitting out works the new tenant may wish to make at the premises, and in some cases written permission in the form of a Licence to Alter, setting out plans, specifications and method statements will be required; so it would be good to have these documents prepared in readiness, for the landlord to approve. It is likely that a landlord could withhold their consent for assigning the lease to any tenant intending to make large-scale or structural changes to a property, or those that would adversely impact the energy efficiency of the property (or building of which it forms part)  and especially if the proposed plans vary significantly from the remit of alterations that are generally permitted in principle under the existing lease.

What liabilities will you have when assigning a lease?

It is important to recognise that the assignment of a lease to a new tenant does not automatically exempt you from all liabilities related to that tenancy and the property going forwards. In fact, once the lease assignment is complete you can still be liable should the new tenant miss any payments or otherwise breach the terms of the lease.

The nature and extent of what you could be held liable for depends on when your lease first began. If you entered your lease before 1 st January 1996 (Old Leases) you, as original tenant, will remain liable for all payments due under the lease and performance of the lease covenants for the duration of the lease term including from any subsequent tenants– even if you no longer occupy the property and if the lease is assigned several more times after you. This doctrine is known as “privity of contract” and is usually dealt with by subsequent tenants entering into an express indemnity covenant with the original/former tenant, establishing a chain of indemnity covenants, where there are a series of subsequent lease assignments

For “New Leases” that were entered into after 1 st January 1996, the Landlord and Tenant (Covenants) Act 1995 applies and for such modern leases, as outgoing tenant you would (if reasonably required in the circumstances) be required to sign an Authorised Guarantee Agreement (AGA). This means you would guarantee rental payments and compliance with the tenant covenants of the lease for the next tenant (your assignee and direct successor), but not any further tenants. An AGA may also provide the landlord with the option to require you to take on a new lease (on the existing terms) or pay the landlord a lump sum, often equivalent to 6 months’ worth of the annual rent.

What does lease assignment cost?

On the other hand, if the rent under the new lease is below the market rate, the new tenant may instead want to pay you a premium. These are commercial terms that a local valuation agent or surveyor would be best placed to provide you with input on.

It is highly recommended to involve your solicitor (and consider the cost of their advice) when opting to pursue a lease assignment, so as not to inadvertently break the terms of your lease and potentially leave yourself open to court action or forfeiture of your lease, from your landlord. You may also be required to cover your landlord’s legal costs and other professional fees (e.g. the fees of their agents and/or surveyors) in consideration of your application for lease assignment.

How to get out of a commercial lease – what are the alternatives?

Assignment of a lease is not the only way to exit a commercial lease and depending on your circumstances, the provisions of your lease and in the context of your professional relationship with your current landlord, it may not always be the best commercial option for you.

Some alternative ways to get out of a commercial lease early include:

Exercising a break option

Some leases incorporate a “break clause” or early “break option” which offers one party or both parties the opportunity to end the lease early in certain circumstances. Read your lease carefully to check if it contains a clause such as this, and if it does, what terms and conditions are involved, for example do you have the benefit of a rolling break option or is a fixed break date specified? Any time limits specified in the lease, provisions for giving of notice and compliance with any conditions must be strictly followed, in order for the break option to be valid. It is worth mentioning that business leases benefiting from the protection of the security of tenure provisions of the Landlord and Tenant Act 1954 cannot contain a break option for the landlord.

Negotiating a lease exit and surrender

If your contract does not include a break clause, your landlord may still be open to you exiting the lease early by way of lease surrender, subject to payment of a lump sum, as consideration. You would need to negotiate the specific terms of your exit and your landlord may require a pay-out to offset the inconvenience of having to market the property again, their loss of guaranteed rental income and to cover any dilapidations. You would enter a formal Deed of Surrender with the landlord.

Compared to lease assignment, negotiating an exit from your lease should provide a clean break with no further liabilities, but we would recommend seeking legal advice to confirm that you were exiting the contract cleanly.

Subletting the premises

A final option to consider when looking at how to exit your commercial lease early is subletting. If your contract allows it, you can take on the role of intermediate landlord by finding and leasing your property to a new subtenant.

You can use the rental income received from your new direct tenant to cover your own superior lease rent payments and obligations, but in return you would be expected to take an active role managing the property and deal with the sub-tenant directly, ensuring they comply with any superior covenants and requirements of the landlord and you would be required to promptly arrange remediation of any breaches.

You will need to comply with the provisions of your existing lease with regard to subletting which would usually include obtaining your direct landlord’s prior written consent to the arrangement, payment of their legal and/or other professional fees (e.g. surveyors costs), seeking their approval of the form of sublease and entering into a Licence to Sublet.

Need assistance with assignment of lease?

Exiting a lease early can be a complex process, whether you choose to do so by arranging the assignment of your lease or by one of the other means mentioned above.

Lease assignment is an effective way for tenants to exit a commercial lease early. However, this can be a slow process and you will incur costs.

Contacting a solicitor at an early juncture is advisable so that you are appropriately advised at the outset of any key considerations and potential pitfalls. For example, even though you are selling the lease, you could potentially remain liable afterwards; dependent on the age of the lease and whether or not you have entered into an AGA.

Gurkiran Notay is a Senior Associate in our Commercial Property Department and has a wealth of experience in dealing with commercial lease assignments.  She assists and advises clients across the UK.  In addition to office meetings in Elstead, Surrey, Gurkiran offers remote meetings via telephone or video conferencing software so would be pleased to assist you wherever you are based.

Make a Free Enquiry

If you are considering how to get out of a commercial lease or have any queries relating to any of the issues discussed in this article, please get in touch with our of our experienced property lawyers by calling 0800 086 2929 , emailing [email protected] or completing our Free Online Enquiry Form .

The content of this article is for general information only. The information in this article is not legal or professional advice. If you require legal or professional advice you should obtain independent expert advice from qualified commercial property solicitors such as those within our firm .

Call us 24/7 on 0800 086 2929 or complete our Free Enquiry Form below

Please leave this field empty.

copyright 2020. all rights reserved.

• Clinical Negligence
• Commercial Property
• Dispute Resolution
• Employment Law
• Family Law and Divorce
• Legal Costs
• Residential Conveyancing
• Wills, Trusts and Probate
• Amersham Office
• Bath Office
• Bedford Office
• Brighton Office
• Ebbsfleet Office
• Elstead Office
• Hitchin Office
• Leighton Buzzard Office
• Raunds Office
• Southampton Office
• St Albans Office
• Surbiton Office

Privacy Overview

• News, Events & Articles
• Online Payments
• Transfers/Assignments of Leases
• Landlord & Tenant disputes
• For Employees:
• For Employers:
• Divorce And Separation
• Costs Budgeting And Management
• Buying a Property
• Halal Mortgages
• Lifetime Mortgages
• Re-Mortgaging
• Selling a Property

Legal Aspects of Lease Assignments

A well-structured lease assignment agreement is vital to facilitating a seamless transfer of rights and obligations from the original lessee to the assignee. The agreement must address critical legal aspects, including liability allocation, landlord consent, and dispute resolution mechanisms. Key considerations include the assignor's retained liabilities, the assignee's assumed duties, and the process for obtaining landlord consent. Clearly defining liability and indemnification provisions is also imperative. By understanding the legal intricacies of lease assignments, parties can navigate the process with confidence and mitigate potential risks. As the complexity of lease assignments unfolds, it becomes clear that meticulous planning is necessary to protecting all involved parties.

Table of Contents

Understanding Lease Assignment Agreements

A lease assignment agreement is a contractual document that formalizes the transfer of rights and obligations from the original lessee to the assignee, outlining the terms and conditions of the assignment. This document is vital in facilitating a seamless transfer of interests, avoiding potential disputes, and providing clarity on the responsibilities of all parties involved. A well-structured lease assignment agreement should address key aspects, including the effective date of assignment, rent and payment obligations, and any ongoing liabilities. It is also vital to distinguish between a lease assignment and a lease novation, as the latter involves the replacement of the original lease agreement with a new one, whereas assignment involves the transfer of existing rights and obligations. Additionally, the tax implications of a lease assignment, including assignment taxation, must be carefully considered to guarantee compliance with relevant laws and regulations. By understanding the intricacies of lease assignment agreements, parties can navigate the complexities of lease transfers with confidence, minimizing potential risks and disputes.

Assignor and Assignee Rights Obligations

In the context of lease assignments, the assignor and assignee have distinct rights and obligations that govern their respective roles. The assignor, having transferred their interest in the lease, retains certain liabilities, while the assignee assumes specific duties and responsibilities. Understanding these reciprocal obligations is crucial in navigating the complexities of lease assignments.

Assignor's Rights and Liabilities

Upon assigning a lease, the assignor's rights and liabilities are substantially altered, as they are released from primary liability, yet remain secondarily liable for the assignee's performance. This shift in liability has significant implications for the assignor, particularly with regards to tax implications. The assignor may be liable for any outstanding tax obligations incurred prior to the assignment, and may also be subject to tax implications arising from the assignment itself. In addition, the assignor's insurance coverage may also be affected, as the policy may not automatically transfer to the assignee. It is crucial that the assignor reviews their insurance coverage to guarantee that they are adequately protected in the event of any claims or damages arising from the assignee's performance. The assignor's ongoing liability for the assignee's performance highlights the importance of due diligence in selecting a suitable assignee and verifying that the assignment is properly documented. By understanding the assignor's rights and liabilities, parties can better navigate the complex legal landscape of lease assignments.

Assignee's Duties and Obligations

The assignee, as the new lessee, assumes primary liability for performing the lease obligations, including payment of rent, taxes, and insurance premiums, and is responsible for complying with the lease terms and conditions. This includes adhering to the original lease agreement, as well as any subsequent modifications or amendments. The assignee is also bound by the fiduciary standards of a lessee, which entails exercising due care and diligence in fulfilling their obligations under the lease.

As a successor in interest, the assignee may be held liable for any breaches or defaults by the assignor, a concept known as successor liability. This means that the assignee may be responsible for resolving any outstanding issues or disputes that arose during the assignor's tenure. To mitigate this risk, the assignee should conduct thorough due diligence on the lease and the assignor's performance before assuming the lease obligations. By understanding their duties and obligations, assignees can navigate the complexities of lease assignments and minimize potential liabilities.

Landlord Consent and Approval Process

Landlord consent is a critical component of the lease assignment process, as it guarantees that the landlord's interests are protected and that the assignment does not violate the terms of the original lease agreement. This consent process ensures that the landlord is aware of the assignment and has approved the transfer of obligations from the assignor to the assignee.

To facilitate a smooth consent process, the following steps should be taken:

• Review the lease agreement : Identify any clauses that may impact the assignment, such as waiver clauses or silent partners.
• Notify the landlord : Provide the landlord with written notice of the assignment, specifying the terms and conditions of the transfer.
• Obtain consent : Secure the landlord's written consent to the assignment, which may be conditional upon certain requirements.
• Document the process : Maintain a record of all correspondence and agreements related to the consent process.

Lease Term and Condition Amendments

During the lease assignment process, amendments to the original lease terms and conditions may be necessary to reflect the changed circumstances. This is particularly important when the assignee requires modifications to the lease to suit their operational needs. In such cases, the lease agreement should include alteration clauses that permit alterations to the lease terms. These clauses facilitate the parties to agree on changes to the lease, guaranteeing that the modified terms are legally binding.

Term extensions are a common amendment, allowing the assignee to occupy the premises for a longer period. This may be necessary if the assignee requires additional time to fulfill their business objectives. The lease amendment should clearly outline the extended term, including the revised expiration date and any corresponding changes to the rent or other lease obligations. It is vital to obtain the consent of all parties involved in the lease assignment to the amendments, and that the modified lease terms are properly documented to avoid potential disputes. By including alteration clauses and accommodating term extensions, parties can facilitate a smooth handover and a mutually beneficial agreement.

Liability and Indemnification Provisions

Amendments to the lease terms and conditions, such as term extensions, may also raise questions about the allocation of liability between the assignor, assignee, and landlord, highlighting the need for clear liability and indemnification provisions in the assignment agreement.

In considering liability and indemnification provisions, the following key considerations should be taken into account:

• Insurance Coverage : Securing adequate insurance coverage to mitigate potential risks and liabilities.
• Risk Allocation : Clearly defining the allocation of risks and liabilities between the assignor, assignee, and landlord.
• Financial Backing : Obtaining sufficient financial backing to secure the performance of contractual obligations.
• Contractual Protections : Including contractual protections, such as indemnity clauses, to safeguard against potential losses or damages.

Dispute Resolution and Litigation

In the context of lease assignments, disputes and litigation can arise from various sources, including disagreements over liability, indemnification, and contractual obligations. Effective dispute resolution mechanisms, such as mediation and arbitration, can provide an alternative to litigation, offering a more efficient and cost-effective means of resolving disputes. In situations where litigation is unavoidable, developing a well-planned litigation strategy is essential to achieving a favorable outcome.

Mediation and Arbitration

Disputes arising from lease assignments can be effectively resolved through alternative dispute resolution mechanisms, including mediation and arbitration, which offer a more efficient and cost-effective approach to litigation. Mediation, in particular, is a valuable tool for conflict avoidance, allowing parties to engage in open communication and negotiate a mutually beneficial agreement. Neutral evaluation, a process in which a neutral third-party specialist assesses the strengths and weaknesses of each party's case, can also facilitate settlement.

Key benefits of mediation and arbitration in lease assignment disputes include:

• Cost savings : Mediation and arbitration can substantially reduce the financial burden of litigation.
• Time efficiency : Alternative dispute resolution mechanisms can resolve disputes more quickly than traditional litigation.
• Flexibility : Mediation and arbitration allow parties to craft creative solutions tailored to their specific needs.
• Confidentiality : Alternative dispute resolution mechanisms can maintain confidentiality, protecting sensitive business information.

Litigation Strategies

While alternative dispute resolution mechanisms can be effective in resolving lease assignment disputes, litigation may be necessary when negotiations break down or the parties' interests are fundamentally at odds, requiring a more formal and adversarial approach to dispute resolution. In such cases, a well-crafted litigation strategy is vital to achieving a favorable outcome.

Effective litigation strategies in lease assignment disputes involve careful trial preparation, including thorough document review, witness preparation, and specialized testimony. Skilled attorneys must develop a deep understanding of the lease agreement, assignment terms, and relevant legal precedents to build a compelling case. In the courtroom, effective advocacy and persuasive storytelling are vital to persuading judges and juries. Courtroom tactics, such as strategic questioning and evidence presentation, can greatly impact the outcome of the case. Additionally, attorneys must be prepared to respond to unexpected developments and adapt their strategy accordingly. By combining meticulous preparation with adept courtroom skills, parties can increase their chances of success in lease assignment litigation.

Frequently Asked Questions

Can a lease assignment be terminated by the landlord?.

A lease assignment can be terminated by the landlord if the assignee breaches Landlord obligations or if the Lease duration is exceeded, allowing the landlord to regain possession of the property.

Is a Lease Assignment the Same as a Sublease?

A lease assignment and sublease differ in contractual distinctions, as an assignment transfers all rights and liabilities, whereas a sublease creates a new, separate agreement, shifting liability between parties.

What Happens to the Security Deposit in a Lease Assignment?

In a lease assignment, the security deposit typically remains with the original landlord, who is responsible for refunding the deposit to the assignor. Alternatively, the deposit can be transferred to the assignee, facilitating a smooth handover and avoiding potential disputes over deposit refunds.

Can an Assignee Assign the Lease Again to Another Party?

In a successive assignment, an assignee may reassign the lease to another party, but this secondary assignment does not extinguish the original assignee's privity obligations, which remain intact and binding.

Is a Lease Assignment Considered a Novation of the Original Lease?

A lease assignment is not inherently a novation of the original lease, as it does not extinguish the original contractual obligations; rather, it transfers rights and duties, with the assignee assuming liability, while the assignor remains liable, pending contractual or legal precedent modifications to lease obligations.

A lease assignment agreement is a contractual arrangement where the original tenant (assignor) transfers their rights and obligations to a new tenant (assignee). This agreement outlines the terms and conditions of the assignment, including the effective date, rent, and lease duration.

Assignor and Assignee Rights and Obligations

The assignor and assignee have distinct rights and obligations. The assignor is released from liability, while the assignee assumes the lease obligations. The assignee is entitled to occupy the premises and enjoy the benefits of the lease.

Landlord consent is typically required for a lease assignment. The landlord may withhold consent if the assignee lacks financial stability or has a poor credit history. The approval process may involve a thorough review of the assignee's credentials.

A lease assignment may involve amendments to the original lease terms and conditions. The parties may renegotiate the lease duration, rent, or other provisions to reflect the changed circumstances.

Lease assignment agreements often include liability and indemnification provisions to protect the parties from potential claims. The assignor and assignee may agree to indemnify each other against breaches of the lease terms.

Disputes arising from lease assignments can be resolved through alternative dispute resolution mechanisms, such as arbitration or mediation. Litigation may be necessary in cases where the parties fail to resolve their disputes amicably.

Lease assignments involve complex legal considerations. Careful attention to the assignment agreement, landlord consent, and lease term amendments is essential to ensure a smooth transfer of lease rights and obligations.

UNLOCK YOUR COPY

Assignment of Lease vs. Mortgage of Lease

This article may only be applicable in certain jurisdictions.

When lenders consider their real property security options, their analysis often goes beyond simply taking a mortgage from a debtor who owns real estate. A debtor's interest in real property leases (whether as landlord or tenant) means a lender often obtains either an Assignment of Lease or a Mortgage of Lease as additional security. Like any other specific security agreement, these agreements facilitate the orderly and more effective enforcement of the Lender's security in the underlying debtor asset.

Assignment of Lease

In cases where the debtor owns real property but does not occupy it, the revenue stream from third party leases is a significant asset that should be secured. Although most mortgage standard charge terms include at least a brief paragraph related to assignment of leases, they do not provide the benefit of the more fulsome provisions typically contained in a stand alone specific Assignment of Lease (in cases where there may be a significant tenant) or a general Assignment of Lease (securing all present and future leases without reference to a specific tenant).

The debtor's interest as landlord is secured by registration against title to the debtor's real property, typically immediately following the registration of the mortgage of land. It should be noted that in order to register a specific Assignment of Lease, there first requires the registration of a Notice of Lease in respect of the lease that is being specifically assigned. The Assignment of Lease also has a personal property component that cannot be overlooked. The rents and leases that are secured by the Assignment of Lease fall within the definition of personal property under the personal property security legislation; and as such require the registration of a financing statement against the debtor.

An Assignment of Lease document includes certain generally accepted provisions.

The debtor assigns to the lender (as collateral security for the payment of principal and interest under the mortgage of land) all rents and other monies due to it by tenants and the benefit of all tenant covenants under all current and future leases.

The debtor typically covenants to not collect rent more than one month in advance (to ensure that the normal revenue stream is available to the lender on enforcement) and not amend any material terms of the leases without the lender's approval. In the case of a specific Assignment of Lease, it is prudent to also obtain similar covenants from the tenant itself and an acknowledgement that the tenant will attorn to the Lender in the event of default by the debtor.

The debtor is permitted to continue to collect rent according to the terms of the leases until an event of default occurs pursuant to the mortgage of land, after which the Lender may give notice to the tenants to pay all future rents to the lender directly.

Mortgage of Lease

In cases where the debtor does not own real estate but rents space instead, the right to occupy the premises may be a key asset of the debtor that is secured. Although it is typical that a general security agreement includes a reference to leasehold interests in the description of the charged collateral, the general security agreement does not provide the benefit of the more complete language in a stand alone specific Mortgage of Lease document.

The debtor's interest as tenant is secured by registration against title to the debtor's leasehold interest in the real property. This requires the prior registration of a Notice of Lease in respect of the lease that is being secured.

It should be noted that if there is a real property mortgage on title granted by the owner/landlord to another lender prior to the lease, and if the tenant/debtor or tenant's lender has not obtained a non-disturbance agreement from the owner/landlord, the Mortgage of Lease will be no better security than the lease itself (i.e., subject to being terminated at the option of the prior mortgagee in the event of default under the real property mortgage). Most leases will contain a prohibition against mortgaging the lease, so it will be necessary to obtain the landlord's consent to a Mortgage of Lease.

A Mortgage of Lease document typically contains some basic standard provisions.

As in a mortgage of land, the Mortgage of Lease specifies a principal amount, interest rate, payment dates, and contains charging language whereby the debtor's leasehold interest is security for payment of the principal and interest.

Similarly, in the event of default, the lender has the ability to exercise a power of sale and sublease or assign the leasehold interest to a third party.

The debtor covenants to not pay rent more than one month in advance, to not amend any material terms of the leases without the lender's approval, to not terminate or surrender the term of the lease and to hold possession of the premises in trust for the lender.

Most lender mortgage standard charge terms contain flexible language that contemplates use of the terms for both cases where the chargor owns a freehold interest in the property or a leasehold interest in the property.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.

You are using an outdated browser. Please upgrade your browser to improve your experience.

Your career

Making a difference, employment opportunities.

• Assignments of lease - what you should know as a t…

Assignments of lease ? What you should know as a tenant

You (or your company) are a tenant of commercial or retail premises.  You are thinking of assigning your lease. 

What are the main issues?

If you assign your lease, you transfer your rights under the lease to a new tenant.  You cannot assign part of your lease.  An assignment must deal with the whole of your premises.

A proposed assignment requires the consent of your landlord.  Normally, the landlord cannot unreasonably withhold consent to an assignment, provided that the proposed new tenant is of sound financial standing and is willing to provide personal guarantees and/or a bank guarantee at least equivalent to any guarantees that you may have provided to your landlord.

With an assignment, the landlord will normally require you and the new tenant to enter into a deed with the landlord under which the new tenant agrees to take over your obligations under the lease, and you acknowledge that despite the assignment, you are not released from obligations under the lease.

Normally, if you assign a lease, the new tenant takes over your obligations under the lease from the date of the assignment, but you are not released from your obligations under the lease unless you are able to persuade your landlord to release you.  Although releases are not normally provided, there is no reason why you should not request a release.

Although you remain liable after an assignment, landlords will normally release any personal guarantees or bank guarantees that may have been provided by you, provided that the new tenant offers equivalent replacement guarantees.

Transfer of shares instead of assignment

If your company is the tenant under your lease, there may be circumstances in which it suits you to sell the company rather than assign the lease.  Some leases contain provisions which require the landlord’s consent for a transfer of all or a majority of shares in the tenant company, as if the transfer was an assignment of the lease.  If your lease does not contain these provisions, the consent of the landlord will not be required.  However, if personal guarantees have been provided, the landlord’s consent will be required if it is intended to replace those guarantees.

Retail Lease Act

If your lease is of retail premises covered by the Retail Leases Act , that Act sets out the procedure to be followed in relation to assignments and limits the circumstances in which your landlord can withhold consent to an assignment.

Legal Expenses

With an assignment, the landlord will expect its legal expenses in connection with the assignment to be reimbursed.  You may be able to negotiate for the subtenant to pay all or some of the landlord’s legal expenses and your legal expenses.

Author: Jack Gordon

Contributing Author: Melissa Potter

Our expertise