Assigning a Commercial Lease

There are several different viewpoints to take into consideration on a lease assignment - not just the landlord’s and the original tenant’s, but the incoming tenant’s as well.

A prudent landlord will always want to ensure that they have control over who will be in occupation of their properties, as it will be detrimental to the landlord’s interests if the tenant assigns the lease to an undependable replacement.

The tenant would want to ensure that there is a degree of flexibility in the lease to take account of changing circumstances, for instance in the event of the tenant selling their business and needing to convey the lease as part of the sale.

 The incoming tenant would want to ensure that they are taking on a fair lease which gives them all of the rights and protections that they need, and that they have a suitable degree of flexibility.

A well-drafted commercial lease should strike an appropriate balance between all of the above conflicting factors. The issues should be considered at two distinct points in the process:

1. Lease drafting stage

The landlord and the tenant should ensure that they are satisfied that adequate wording is in place to deal with the prospect of future assignments.

This is an issue in particular for tenants, who should consider the whole of the lease and think ‘if I were to sell my business and need to assign this lease as part of my sale, is there anything in this lease which the potential buyer might not like?’

There is some risk that by entering into a lease containing onerous terms at the outset, the tenant is taking on a lease which could be harder to pass on if they ever needed to, in turn reducing the value of any potential sale.

2. On assignment

It is important that the procedure set out in the lease is checked and followed to ensure that the assignment is not void. All parties are advised to take professional advice in terms of preliminary steps and the assignment procedure.

Concerns

1. The landlord will want to check that the new incoming tenant is of suitable standing to fulfil the outgoing tenant’s obligations. If there are concerns the tenant may be asked to be the incoming tenant’s guarantor.  

2. The tenant may not wish to be a guarantor if there are many years left to run on the lease and they are looking to retire or simply seeking a clean break.

3. The incoming tenant should check that the tenant has complied with its obligations under the lease, because on completion of the assignment, any liabilities such as disrepair may be passed on.