Transferring or Assigning a Commercial Lease

Most commercial property leases allow the tenant to transfer (or ‘assign’) the lease to a prospective tenant, subject to the landlord’s consent.

This article will provide some helpful tips for a prospective tenant who is considering taking on an existing lease.

Initial Steps

Before the assignment of the lease can take place, the following will need to be considered:

  • Check if there is a provision for allowing the lease to be assigned
  • Check who is paying who’s legal costs. In almost all cases the landlord’s legal costs will need to be met by either the outgoing tenant or the incoming tenant. Both the outgoing and incoming tenants will need to negotiate who pays their respective legal costs. Ideally, each party would pay it’s own legal costs.
  • Check that the rent is paid up to date. The landlord will make it a condition of granting consent to the lease assignment, that all rent is paid up to date. Where the existing tenant is in rent arrears and struggling to pay the rent, the prospective tenant will need to consider contributing towards or paying the entire outstanding rent to ensure the lease can be assigned.
  • Obtain bank and accountant references. If the prospective tenant is already trading, then a trading reference, will also be required. These will need to be provided to the landlord or his agent to demonstrate that the prospective tenant has a good track record and is likely to be a good tenant who will stay for the remainder of the lease term and pay the rent on time.
  • Consider nominating a suitable guarantor who will be willing to sign the lease and thereby guarantees that if the prospective tenant defaults on the lease, then the landlord will be able to look to the guarantor for remedy of the breach.
  • Will the outgoing tenant require a premium? This is most common where the property is in a sought after location or where the business is sold as part of the lease assignment. However, please note that any business element should be covered by a separate sale contract.

It is always advisable that before committing to a transaction such as a lease assignment, always consult a solicitor, who will help guide through the process.

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