In this article, you can find the answer to the following questions:
- What is a lease?
- What is assignment of a lease?
- Why would you choose to assign your lease?
- Who is allowed to assign a lease?
- Can a landlord object to the assignment of a lease?
- What additional things may a Landlord require to grant assignment?
- What are your rights as an assignee?
- Are there any disadvantages of assigning a lease?
What is a lease?
A lease is a formal agreement between a Landlord and Tenant to rent a building for business purposes. Both the Landlord and Tenant are obligated to comply with the provisions (or rules) that they agree to include.
Leases are unique to the specific property, but modern leases tend to have a similar format.
What is assignment of a lease?
Assignment is the transfer of rights of a property from one person to another, whereby the incoming tenant – the assignee – gains the rights that the existing tenant (who owns or holds the lease on the property) – the assignor – had prior to the transfer. The lease is passed (assigned) from one party to the other.
Why would you choose to assign your lease?
When a tenant signs a lease to occupy space within a building, they are bound to a minimum term – the duration of which they must pay rent. However, unforeseen circumstances (such as financial changes, company growth, change in business strategy or ownership) may require them to move out before this time; assignment to a third party is one possible way to allow them to move out early.
Who is allowed to assign a lease?
In most tenancy agreements, it is perfectly legal for a tenant to assign the lease to another individual. The Alienation Provision within the lease will detail if it is possible to do so and the ‘rules’ to comply with should you wish to assign. The original tenant will vacate the premises and the leasehold agreement will be taken over by the assignee. A lawyer will usually facilitate this process.
However, some leases contain restrictions. Some prohibit assignment, but more often than not it is allowed with Landlord consent.
Can a landlord object to the assignment of a lease?
If the original lease (Head Lease) allows assignment, the landlord should not unreasonably object or delay without providing good written reasons for this – and if they do, they risk having to pay compensation to the tenant.
It is common to see wording such as ‘with Landlord consent not be unreasonably refused or withheld’.
What additional things may a Landlord require to grant assignment?
- They may require additional information about the new tenant and their business.
- The lease may also stipulate that the assignee needs to have an equivalent or better credit score than the current leaseholder.
- Sometimes the lease will require that an Authorised Guarantee Agreement (AGA) is entered into – whereby if the assignee defaults on rent payments the assignor will cover this. It offers the landlord better protection, but means that the assignor is not fully released from all liability.
- The lease could also limit assignment to companies within certain industries. The landlord may require proof that a new tenant fulfils this.
What are your rights as an assignee?
After the assignment, the assignee will receive all benefits that are held within the lease – most importantly exclusive possession of the space.
Are there any disadvantages of assigning a lease?
- As an assignor: Sometimes your liability is not fully released, if for example you have to sign an AGA.
- As an assignee: It is always advised to seek professional assistance before taking on an assignment so that you fully understand all the provisions within the lease to avoid nasty surprises later – such as a rent change that you didn’t expect!