If your tenant has approached you with a request to assign their lease, you may be wondering what this means and what you need to do…here is our step-by-step guide to assist.

  1. What is a lease assignment?

A lease assignment is a tenant effectively selling their lease, and a new tenant, or assignee, purchasing it from them and becoming your tenant. It’s common when a tenant is selling the goodwill and assets of their business, and their buyer will naturally want to take occupation of their premises, as that is where most of the goodwill for the business would be. Alternatively, it may be that a tenant no longer requires use of your premises or cannot afford the rent and therefore wants to be released from their obligations under the lease.

  1. Are lease assignments permitted?

The majority of commercial leases permit assignment of whole but not part. What this means is that a tenant can assign their whole lease but cannot assign only part of it – for instance, just the upstairs floor.

Nearly all assignments will require the consent of the landlord and will be subject to some conditions. It’s important to check your lease to ascertain what these conditions are.

  1. How do I give my consent?

Consent to the assignment should be done by way of a legal document called a Licence to Assign. This is the landlord’s formal and legal approval of the lease assignment and will set out some terms for this – often that it must happen within a set time period and that the landlord must be served with notice.

Luckily, your lease should state that the outgoing and incoming tenant should meet your legal fees for the Licence to Assign and so there should be no financial cost to you personally.

  1. When can I refuse consent?

A good commercial lease should give the landlord some flexibility to refuse consent to an assignment if the annual rent has not been paid up to date by the current tenant or if the landlord does not reasonably believe that the assignee could meet the financial obligations of the lease. Consent should also be able to be refused if there is an unremedied breach of the lease by the existing tenant.

  1. Are there any extra protections?

A well-drafted commercial lease should also allow the landlord to demand some additional protections from the new tenants – such as a guarantor or a rent deposit. You should also be able to require that the outgoing tenant enters into an Authorised Guarantee Agreement (“AGA”) with you at the time of the assignment.

An AGA is an essential form of guarantee where the outgoing tenant guarantees the lease for the incoming tenant.

  1. What about dilapidations?

Dilapidations travel with the lease. As such, the new tenant will assume the responsibilities under the lease and will have to make good any dilapidations to the property at the end of the term and ensure that the property is returned to you in a good state of repair and condition.

If the property is in particularly bad shape at the time of the assignment request, and your lease contains a clause allowing you to refuse consent to an assignment if there is a material breach, you could insist that repairs are done before you agree to the assignment.

Farleys has a team of commercial property specialists on hand to assist landlords and tenants with assigning leases, drafting leases, and any matters which may arise between the two parties. To discuss your requirements with a solicitor today, please call 0845 287 0939, contact us through our online form, or use the chat button below.