Assignment of a Commercial Lease

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. This means that there are two distinct documents required to effect an assignment of a lease:

The first document is the ‘Assignment’ – this is the 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 whereby the landlord gives consent to the Assignment.

Please note that selling (often termed as ‘assigning’) the lease is different to subletting. Assigning a lease means you transfer the existing lease, whereas subletting means that a new lease is granted out of the head lease. For more information about granting a sub lease, please see the subsequent article on this.

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’.

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 sign. The Solicitors at Lawdit can advise whether a licence to assign either with or without a guarantor clause is suitable to your particular situation.

The Landlord and Tenants (Covenants Act) 1995, which came into force on 1st January 1996, changed the liability that tenants have under a lease. A tenant who signed a lease before this date was generally caught by ‘Privity of Contract’, which meant that the original tenant remained liable under the terms of the lease for the whole duration of it. This meant that a Landlord could go back to the original tenant to obtain payment of rent arrears which had accrued long after that tenant had sold the lease. However, the Act has brought in rules so that this does not apply to leases entered into after that date.

Leases entered into after 1st January 1996 usually contain provisions which 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.

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