Assignment of Lease (Landlord)
Assignment of Commercial Lease (Landlord)
As a commercial landlord you will be familiar with requests from your tenants to assign/transfer the lease to a new tenant.
An assignment usually requires the landlord to check the financial references of the new proposed tenant to ensure they are acceptable before proceeding. Two documents are then drafted on your behalf:
- The License to Assign;
- An Authorised Guarantee Agreement;
More often than not, the tenant will be responsible for your legal costs, as landlord. However, recent economic changes have meant that this is not always the case.
Most leases of commercial buildings give the tenant the right to sell the lease but this right is usually conditional upon having the consent of the landlord. In most cases the landlord has to give consent unless it would be unreasonably not to do so.
There are two documents required for assigning a lease: the first is the Assignment document which passes ownership of the lease from the seller to the buyer; the second document is the ‘Licence to Assign’ – this is the document which the landlord enters into in order to give consent to the assignment.
Generally speaking the Licence to Assign needs to be entered into before or simultaneously with the Assignment. If the assignment is entered into before the consent from the landlord is obtained then this would be a breach of the lease terms and give the landlord the right to forfeit.
All leases are different and the terms of each need to be looked at in order to assess exactly what requirements there may be in connection with an assignment. The section to look at in a lease is often referred to as ‘alienation’. The clause may well set out the circumstances in which a landlord may withhold consent and the conditions that the landlord can impose as a term of granting the consent.
When deciding whether or not to give consent to an assignment of the lease, the landlord will have particular regard to the expected ability of the party taking the lease to pay the rent. If the landlord is uncertain about that then he may require that a guarantor also enter into the Licence to Assign to back up the obligations of the assignee.
Leases entered into after 1st January 1996 usually contain provisions that enable the landlord to call upon the outgoing tenant to sign an authorised guarantee agreement. This is an agreement whereby the outgoing tenant guarantees the performance of the incoming tenant. This applies for one assignment only i.e. if the lease is assigned again then the liability under the authorised guarantee agreement ends automatically.
Given that leases can often be lengthy and complex documents, both landlord and tenant may well be advised to consult a solicitor to ensure the legality and fairness of the assignment process.
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