What is involved in assigning a commercial lease?

Assigning a commercial lease is an efficient way for a tenant (called the Assignor) to transfer their leasehold interest to another party (called the Assignee). This means that the Assignee legally undertakes to take on the rights and liabilities of the original lease between the Landlord and the Assignor.

When someone is likely to assign a lease

This commonly occurs when an individual would like to vacate the premises to sell, move or close their business. As they still have obligations to fulfill under their lease for the premises, they will need to seek permission from the Landlord to transfer the lease to a suitable new tenant.

The importance of ensuring the Assignee is solvent

The Landlord is likely to include a clause in the Licence to Assign document that refers to an Authorised Guarantee Agreement. The Authorised Guarantee Agreement is a document that holds the Assignor liable if the Assignee is not able to meet their contractual lease obligations to the Landlord. Therefore, the Assignor should conduct its own checks, to ensure that the Assignee is providing a guarantee or can meet the terms to ensure that the party they are providing a guarantee for can meet the terms of the lease.

In addition, the Landlord will conduct his/her own checks to ensure that the Assignee can meet the financial and practical covenants stated in the assigned lease. The Landlord will usually instruct their own solicitor, but the cost is likely to be borne by the Assignor.

The documents involved in assigning of a lease are:

  • Licence to Assign – this is the document that assigns the lease as it represents the Landlord’s permission for the lease to the Assignee;
  • Rent Deposit Deed – this is to cover the rent deposit paid by the Assignee to the Landlord.
  • Authorised Guarantee Agreement – this is either a separate document or incorporated in the Licence to Assign.
  • Transfer Deed – this transfers the lease from the Assignor to the Assignee.

The Assignor’s solicitors usually drafts the lease and the Transfer Deed.

Please contact Lawdit’s Property Department for an initial consultation.

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