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Assignment and Consent Standards in Commercial Leases

Mar 6, 2020

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. This article presents a brief overview of the assignment provision in commercial leases, both office and retail.

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. When a tenant’s interest in a lease is assigned, the tenant is transferring its entire leasehold interest and 100% of the leased premises to a third party for the entire remaining term of the lease. For the tenant, the assignment provision represents a potential exit strategy, dependent of course on the local market, and increased flexibility for future needs. For the landlord, the assignment offers greater security for its revenue stream and hopefully the avoidance of a tenant bankruptcy or default while keeping its building occupied. The tenant’s desire for flexibility and the landlord’s need for control is where the negotiations are focused. This article presents a brief overview of the assignment provision in commercial leases, both office and retail, with particular attention on the laws of Maryland, Virginia and the District of Columbia. The landlord’s standard for providing consent to a request to an assignment will be reviewed, and we will conclude by offering suggested language.

What If The Lease Does Not Contain An Assignment Provision?

The law traditionally favors the free alienation of property. Therefore, under the laws of almost every state, if the lease is silent on whether the landlord’s consent to an assignment is required, then the commercial tenant has the right to assign its interest. This is true in Maryland, Virginia and the District of Columbia. Given this baseline, almost every lease form will have a detailed provision setting forth the assignment process. Note also, however, that in most states it is also enforceable for a commercial lease to have an outright prohibition against assignments. Such a provision would likely be a non-starting deal point for most sophisticated tenants.

What Does Reasonable Mean?

If a lease simply provides that the tenant requires landlord’s consent to an assignment, but does not include the standard for giving or withholding that consent, then in many states the implied standard is that the landlord’s consent may not be unreasonably withheld. Historically this was the minority view, with the historical rule allowing the landlord to withhold consent for any reason. The implied duty of reasonableness is now more the norm as more states adopt this position when presented with the issue. There is express case law establishing this rule in Maryland, and most courts in Virginia and Washington, DC will imply such a covenant of good faith and fair dealing. Most states, though, do allow a landlord the sole right to grant or withhold its consent if the lease clearly expressly provides, and in Maryland the lease must specifically state that the landlord’s consent may be granted or withheld in the sole and absolute subjective discretion of the landlord. Again though, a sophisticated tenant with any leverage should never agree to such a provision.

Most negotiated leases will instead contain a provision requiring that landlord’s consent to an assignment is required, but such consent will not be unreasonably withheld. The tenant will likely also try to include landlord’s obligation to not unreasonably delay or condition its consent. A short clause without further defining what constitutes “reasonableness” generally favors the tenant, and landlords typically prefer including specific standards as to the criteria it can consider when reasonably deciding whether or not to consent to an assignment. Without such specificity, defining “reasonable” is difficult as the landlord and tenant clearly will have differing viewpoints and it may be left as a factual question to be decided in litigation. The typical definition (set forth in the Restatement (Second) of Property) would be that of a reasonably prudent person in the landlord’s position exercising reasonable commercial responsibility.

Absent a detailed provision listing the criteria a landlord can consider when reasonably reviewing a request to assign, a landlord is typically found to be considered reasonable if it considers certain general broad factors. First, the landlord reviews the assignee’s proposed use. In a retail setting, the landlord will be concerned whether the proposed use fits with the existing center and/or violates any existing exclusives or insurance requirements. In an office setting, the landlord might review the expected traffic and wear and tear on the building. Second, the landlord will consider the creditworthiness of the assignee. The landlord (and the assignor) will want to be confident that the assignee is capable of performing tenant’s obligations under the lease and a large creditworthy tenant increases the value of the asset. The assignor might argue that a strict financial test (such as a minimum net worth, for example) is unfair since the assignor is likely not being released upon the assignment and the landlord can still pursue the assignor in the event of a default. Third, the landlord will review the experience and history of the assignor. As mentioned above, landlords instead prefer a detailed list setting forth the many factors that they can include as part of reasonably reviewing a request for a lease assignment.

Without further establishing the criteria, the landlord puts itself at risk of a challenge by the tenant that a denial of a consent is unreasonable.

In defining “reasonable,” courts typically do not allow a landlord to deny or condition consent to an assignment based purely on economic reasons where the landlord results in substantially increasing what it was entitled to under the lease. In Washington, DC, there is well established case law holding that it is unreasonable for a landlord to withhold consent solely to extract an economic concession or improve its economic position. For example, a court would not consider it reasonable for a landlord to condition its consent on the assignee paying a greatly increased rent. Instead, as discussed below, landlords should look to protect their interests in a market of increasing rents by providing for either the sharing of excess rentals or a right to recapture.

What Are Typical Provisions In an Assignment Clause?

As discussed above, tenants generally prefer a short assignment provision simply requiring the landlord to not unreasonably withhold, condition or delay its consent to an assignment. But most leases are drafted by landlords, and over the years the assignment provisions have evolved to contain many typical provisions in addition to further defining “reasonableness,” including the following below.

• Sharing of Excess Rents. Since many states do not permit a landlord to condition its consent on improving its economic position (e. g. , by increasing the rent), most leases instead contain a provision where the landlord is entitled to all or a portion of the profits. The profits may mean increased rent, or it may even be construed more broadly to consider the value of the location in a sale of the tenant’s business. The landlord’s argument is that it doesn’t want the tenants competing in the real estate market. The tenant should push back here, and certainly try to lower the percentage shared, carve out any consideration received in the sale of tenant’s business, and only share profits after all of the tenant’s reasonable costs incurred in connection with the assignment were first deducted.
• Corporate Transfers. Since a purchase of the entity constituting tenant is likely not deemed an assignment under the law, most leases make clear that any such corporate sale, including the sale of either a controlling interest in the stock or substantially all of the assets of the tenant, is deemed an assignment for purposes of the lease. The tenant should carve out permitted transfers for typical mergers and acquisitions under certain conditions, and also carve out routine transfers of stock (or other ownership interests) between existing partners or for estate planning purposes. The landlord will likely accept a permitted transfer concept provided they receive adequate notice and the successor entity succeeds to all of the assets of the original tenant with an acceptable net worth.
• Assignment Review Fee. Most landlords include in their form lease the requirement that the tenant reimburse them for legal and administrative expenses incurred in reviewing the request for consent and preparing the assignment. The tenant clearly wants to keep these fees reasonable and in keeping with the local market.
• Recapture Rights. Landlords like to include the express right to recapture the premises in the event the tenant comes to it to request a consent for an assignment. A recapture clause allows the landlord to terminate the lease if market rents have increased or if it needs the space for another use. Sophisticated tenants should push back here as much as leverage allows, try to limit the time periods, and if nothing else try for the right to nullify the recapture by rescinding its request for the consent.
• Tenant’s Remedy. To protect themselves from claims for damages from the tenant if the landlord withholds its consent to a requested assignment, landlords often include a provision where the tenant waives its rights to monetary damages in such a situation and can only seek injunctive relief. The tenant should try to delete this provision, or at least, if leverage permits, provide for the right to seek damages if the landlord is subsequently found to have acted in bad faith.

Assignment provisions are heavily negotiated and both the commercial landlord and tenant need to be advised to the applicable local law and know the market for a comparable transaction. ( Note: The author represents office and retail landlords and tenants throughout Virginia, Maryland and the District of Columbia.) Sample reasonableness provisions for both office and retail uses are copied below for reference.

Retail Lease

Landlord and Tenant agree, by way of example and without limitation, that it shall be reasonable for Landlord to withhold its consent if any of the following situations exist or may exist: (i) In Landlord’s reasonable business judgment, the proposed assignee lacks sufficient business experience to operate a business of the type permitted under this Lease and to a quality required under this Lease; (ii) The present net worth of the proposed assignee is lower than that of Tenant’s as of either the date of the proposed assignment or the date of this Lease; (iii) The proposed assignment would require alterations to the Premises affecting the Building’s systems or structure; (iv) The proposed assignment would require modification to the terms of this Lease, or would breach any covenant of Landlord in any other lease, insurance policy, financing agreement or other agreement relating to the Shopping Center, including, without limitation, covenants respecting radius, location, use and/or exclusivity; (v) The proposed assignment would conflict with the primary use of any existing tenant in the Shopping Center or any recorded instrument to which the Shopping Center is bound; and/or (vi) The proposed assignment or subletting would result in a reduction in the Rent collected by Landlord during any portion of the term of this Lease.

Office Lease

Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply: (i) The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building; (ii) The Transferee intends to use the Premises for purposes which are not permitted under this Lease; (iii) The Transferee is a governmental agency; (iv) The Transfer occurs prior to the first anniversary of the Lease Commencement Date; (v) The Transferee has a net worth of less than $10,000,000.00; (vi) The proposed Transfer would cause a violation or trigger a termination right of another lease for space in the Building; or (vii) Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Building at the time of the request for consent, or (ii) is negotiating with Landlord to lease space in the Building at such time, or (iii) has negotiated with Landlord during the six (6)-month period immediately preceding the Transfer Notice.

Reprinted with permission from the March edition of the Commercial Leasing Law & Strategy© 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected] .

• John G. Kelly

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A Full Guide to Commercial Lease Assignment (Lease Transfer)

Dealing with a fixed-term lease agreement and looking to move offices or downsize? The topic of commercial lease transfer can be confusing to navigate, particularly when you are unsure of your rights and obligations under the lease.

If you’re renting a commercial property, you signed a contract at the beginning of your tenancy called a lease agreement , which contains all the details of your rights and obligations while occupying and conducting business operations at the commercial property. Your agent is required by law to give you a copy of the lease agreement if you don’t already have one.

The following article will serve as a full guide to commercial lease assignment, providing business owners with an overview of the legal considerations and elements required for an assignment of lease.

• 1 What is a Commercial Lease Assignment?
• 2 Current Market Conditions Boosting Lease Transfers and Flexible Arrangements
• 3 What is the Difference Between Commercial Lease Assignment and Subleasing?
• 4 Why Would You Want to Transfer a Lease?
• 5 How to Go About Transferring Your Commercial Lease
• 6.1 Goals and obligations of the original lessee and new tenant
• 6.2 Starting date of lease assignment
• 6.3 Pitfalls and consequences
• 7.0.1 Further Insights

What is a Commercial Lease Assignment?

Also known as a lease transfer, a commercial lease assignment involves a tenant transferring all of their interests and rights in a lease to a new party. This new tenant will take on the responsibilities of the existing lease, including rent and any other obligations, leaving the original tenant free to exit the agreement.

Commercial lease assignment often occurs when tenants want to leave their commercial property prior to the end of a fixed-term agreement. This often happens when a business quickly needs to upsize or downsize their space, move to a new city, or go out of business.

State law dictates whether tenants require their landlord’s consent prior to transferring a lease or subletting a part of their space. However, most lease agreements will clearly outline full transfer provisions prior to being signed and, whilst it is possible for lease assignment to be forbidden, the vast majority of agreements allow for transfers.

Current Market Conditions Boosting Lease Transfers and Flexible Arrangements

There has been a marked increase in the number of lease transfers and sublets of commercial properties in recent years, largely as a result of increased instances of remote work and downsizing seen across multiple industries. This reduced need for workspace has persisted, as many workers have continued to show a preference for remote and hybrid work arrangements if and when suitable.

Changing employee priorities have forced many businesses to reconsider their existing lease agreements, resulting in an increase in both commercial lease assignments and sublease agreements .

Landlords have adapted their offerings in the face of this changed market demand. Many are now offering flexible, month-to-month leases, allowing tenants to rest easy knowing that they won’t be stuck in a long-term lease agreement if their situation changes.

However, in the case of premium office spaces in highly sought-after locations or warehousing facilities close to major transport links, traditional leases are still very much the norm. In these cases, landlords may have realized that fully reconfiguring their offerings for flexible-usage is financially unrealistic. This may be due to a number of factors, including high-levels of existing demand for traditional leases, the saturation of the flexible workspace market, and the requirements of their typical target tenants.

So, if you’re leasing long-term commercial property and need out of the agreement, or at least to downsize, a lease transfer is a great solution that can leave all contracted parties satisfied. 

What is the Difference Between Commercial Lease Assignment and Subleasing?

A commercial sublease, which is a type of lease transfer, occurs when a tenant who currently leases property agrees to let another tenant use the space concurrently. The agreement involves all three parties: the original tenant, the new tenant, and the property owner.

When you sublease your space, you become the sub-lessor (or sub-landlord), and your new tenant is now the sublessee (or subtenant). Your agreement with them will normally allow them to reside in your space – or a specified portion of it – for either the remaining term of your lease or some other pre-determined length of time. 

It’s important to keep in mind that, as the original lessee, you’re still liable and responsible for making monthly lease payments on a sublet agreement. Therefore, you must collect rent from your subtenant each month while continuing to make rental payments directly to your landlord.

Why Would You Want to Transfer a Lease?

Lease transfers can be done to adjust the leased property size and monthly rent. A business owner may decide that they need to upsize or downsize their leased premises prior to the end of their original lease term.

Also, a lease transfer may be sought because the current tenant wants to vacate the rental property entirely, with no plans to lease elsewhere. This may be due to outside factors (e.g. a global pandemic) or the forced closure of a business.

A lease transfer, or a sublease arrangement, may also be desired so that two businesses with complementary strengths can share a workspace and mutually benefit from their operational proximity. No matter how complementary the proposed new tenant is to the existing tenant, this new business relationship will require the landlord’s permission (unless they have been given prior written consent providing them with sole discretion over subletting)

How to Go About Transferring Your Commercial Lease

The only necessary requirement for lease transfer is to identify a new lessee. In the vast majority of cases, your landlord cannot deny your request for a lease transfer unreasonably , yet it’s still in your best interest to find a new tenant with an established rental history and who can financially afford the rent on time. The only situation in which a commercial landlord can instantly deny a lease transfer request is if this provision was established in the initial lease agreement, however, this type of provision will often scare off prospective tenants.

If you’re looking to transfer your lease, most agents will request that the new tenant apply as if they were renting any other property as a primary lessee. Be sure that, in addition to their application , the prospective tenant provides documentation like company financials and past rental receipts to support your transfer request. This way, there’s no doubt of their ability to be a reliable tenant. 

If you wish to transfer your lease, you must have written consent from your landlord – mere verbal agreement will not suffice. Without your landlords’ express permission in writing, any attempted transfer of lease will be considered null and void. You will then need to fill out a lease assignment agreement, outlining the proposed assignee, current tenant, landlord, and existing lease term.

Important Things to Keep in Mind

To avoid any unnecessary stress or surprises, it helps to understand your rights and responsibilities before beginning the commercial lease transfer process.

Goals and obligations of the original lessee and new tenant

When considering a lease transfer, it is crucial to first identify the goal you hope to achieve through this deal. Most commercial leases have restrictions on transferring the lease, so before beginning any negotiations, all rights and obligations of the involved parties must be closely analyzed. If everyone’s interests are clear from the start, then agreement upon terms should run much more smoothly.

Starting date of lease assignment

In most cases , tenants need to pay their rent a month before move-in date. Confirm that the party being assigned the lease understands when they are responsible for making their first rent payment, so there are no delayed payments. This is also important for sublease agreements, because existing tenants are often liable for any missed rental payments made by the sublessee.

Pitfalls and consequences

Depending on the terms of the lease transfer and the legal documentation, the original lessee may find themselves responsible for any actions or defaults of the new leaseholder. 

As commercial leases often last several years, this could result in a heavy financial burden and significant legal consequences. Careful negotiation at the outset will always lead to a more positive outcome, so it’s important to tick all appropriate procedural and legal boxes when pursuing a commercial lease assignment.

Wrapping up

Before you begin subletting or transferring/assigning a lease, be sure that you understand the objectives of both parties and identify the correct method of altering the lease. Both lessors and lessees should also review all clauses in the lease and negotiate based on everyone’s incentives and interests. If there is any confusion about preparing or reviewing documents related to this process, it’s important to consult with legal advisors for the sake of all parties concerned.

Further Insights

Looking for more articles about the US office market and general office matters? You can find a number of recent posts below! Alternatively, if you’re a business or freelancer looking for flexible workspace in the US, we can help to connect you to a wide range of serviced offices and coworking spaces in highly sought-after locations such as New York City , Los Angeles , Houston , Atlanta , Miami , Chicago , and Dallas . You can also call us to have a discussion about your requirements on 972-913-2742 .

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Tags: 2022 , commercial lease assignment , commercial property , guides , landlords , lease transfer , Office Space , subleasing , tenants This entry was posted on Tuesday, November 8th, 2022 at 8:46 am and is filed under 2022 , Business Advice , Leases , Office Talk .

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Copyright © 2000 - 2024. All Rights Reserved. About Offices.net Privacy Policy Contact Us Commercial Real Estate

This commercial lease assignment is between , an individual a(n) (the " Original Tenant ") and , an individual a(n) (the " New Tenant ").

On or about , the Original Tenant and (the " Landlord ") entered into a lease agreement (the " Lease ").

The Lease covers the commercial property located at ,    , and more particularly described as follows: (the " Premises "). The Premises contains feet of interior floor space.

Under section of the Lease, the Original Tenant is permitted to assign its interest in the Lease, with the consent of the Landlord.

The Original Tenant wishes to assign to the New Tenant its rights in, and delegate all of its obligations under, the Lease, and the New Tenant wishes to accept this assignment.

The parties therefore agree as follows:

1. ASSIGNMENT.

The Original Tenant assigns to the New Tenant of all its rights in, and delegates to the New Tenant all of its obligations under, the Lease. This transfer will become effective as of (the " Effective Date "), and will continue until the present term of the Lease ends.

2. ASSUMPTION OF RIGHTS AND DUTIES.

After the Effective Date, the New Tenant shall assume all rights and duties under the Lease, including the obligation to pay rent under the Lease when it is due. The Original Tenant will have no further obligations under the Lease The Original Tenant will remain bound to the Landlord under the Lease, notwithstanding the assignment . However, the Original Tenant remains responsible for obligations accruing before the Effective Date.

3. REIMBURSEMENT.

On or before the Effective Date, the New Tenant shall pay $ to the Original Tenant, which is the sum of:

• (a)  The security deposit held by the Landlord under the Lease; and
• (b)  The rent or other deposits paid in advance by the Original Tenant for any period after the effective date of this assignment.

4. INDEMNIFICATION.

• (a)  The Original Tenant shall indemnify the New Tenant against any award, charge, claim, compensatory damages, cost, damages, exemplary damages, diminution in value, expense, fee, fine, interest, judgment, liability, settlement payment, penalty, or other loss (a " Loss ") or any attorney's or other professional's fee and disbursement, court filing fee, court cost, arbitration fee, arbitration cost, witness fee, and each other fee and cost of investigating and defending or asserting a claim for indemnification (a " Litigation Expense ") arising out of the Original Tenant's breach of its obligations under the Lease before the Effective Date.
• (b) The New Tenant shall indemnify the Original Tenant against all Losses or Litigation Expenses relating to the Lease, except if those Losses or Litigation Expenses arise from the Original Tenant's failure to perform its obligations under the Lease before the Effective Date.
• (c)  The New Tenant shall indemnify the Original Tenant against all Losses or Litigation Expenses attributable to the acts or omissions of the New Tenant or its agents, contractors, or employees with respect to the Premises or any activities on the Premises. This indemnification will survive the termination of the Lease and this assignment.

5. CONTINUING EFFECTIVENESS OF LEASE.

This assignment is made on the understanding that all other terms of the Lease remain in full effect, including the prohibition against further assignments and subleases without the Landlord's express written consent.

6. ORIGINAL TENANT'S REPRESENTATIONS.

The Original Tenant represents that it:

• (a) has the power and authority to enter into and carry out this assignment;
• (b)  has not previously assigned its rights under the Lease;
• (c)  is the lawful and sole owner of the interests assigned under this assignment;
• (d)  the interests assigned under this assignment are free from all encumbrances;
• (e)  except for the Landlord and the Original Tenant, there are no parties in possession or occupancy of the Premises or any part of them, and there are no parties with possessory rights on the Premises or any part of them; and
• (f)  has performed all obligations and made all required payments under the Lease.

7. CONDITION OF PREMISES.

The New Tenant has examined and inspected the Premises and accepts them "as is" and in their present condition with all faults. Except as provided in this assignment, the Original Tenant makes no representations, covenants, or guaranties about the status, nature, or condition of the Lease or the Premises.

8. INTERPRETATION.

In interpreting the language of this assignment, the parties shall be treated as having drafted this assignment after meaningful negotiations. The language in this assignment will be construed as to its fair meaning and not strictly for or against either party.

9. GOVERNING LAW.

• (a) Choice of Law.  The laws of the state of govern this assignment (without giving effect to its conflicts of law principles).
• (b) Choice of Forum. Both parties consent to the personal jurisdiction of the state and federal courts in , .

10. AMENDMENTS .

No amendment to this assignment will be effective unless it is in writing and signed by a party or its authorized representative.

11. COUNTERPARTS; ELECTRONIC SIGNATURES.

• (a) Counterparts.  The parties may execute this agreement in any number of counterparts, each of which is an original but all of which constitute one and the same instrument.
• (b) Electronic Signatures.  This agreement, agreements ancillary to this agreement, and related documents entered into in connection with this agreement are signed when a party's signature is delivered by facsimile, email, or other electronic medium. These signatures must be treated in all respects as having the same force and effect as original signatures.

12. SEVERABILITY.

If any one or more of the provisions contained in this assignment is, for any reason, held to be invalid, illegal, or unenforceable in any respect, that invalidity, illegality, or unenforceability will not affect any other provisions of this assignment, but this assignment will be construed as if those invalid, illegal, or unenforceable provisions had never been contained in it, unless the deletion of those provisions would result in such a material change so as to cause completion of the transactions contemplated by this assignment to be unreasonable.

13. NOTICES.

• (a) Writing; Permitted Delivery Methods.  Each party giving or making any notice, request, demand, or other communication required or permitted by this assignment shall give that notice in writing and use one of the following types of delivery, each of which is a writing for purposes of this assignment: personal delivery, mail (registered or certified mail, postage prepaid, return-receipt requested), nationally recognized overnight courier (fees prepaid), facsimile, or email.
• (b) Addresses. A party shall address notices under this section to a party at the following addresses:
• If to the Original Tenant:
• ,   
• If to the New Tenant:
• (c) Effectiveness. A notice is effective only if the party giving notice complies with subsections (a) and (b) and if the recipient receives the notice.

14. WAIVER.

No waiver of a breach, failure of any condition, or any right or remedy contained in or granted by the provisions of this assignment will be effective unless it is in writing and signed by the party waiving the breach, failure, right, or remedy. No waiver of any breach, failure, right, or remedy will be deemed a waiver of any other breach, failure, right, or remedy, whether or not similar, and no waiver will constitute a continuing waiver, unless the writing so specifies.

15. ENTIRE AGREEMENT.

This agreement constitutes the final agreement of the parties. It is the complete and exclusive expression of the parties' agreement about the subject matter of this agreement. All prior and contemporaneous communications, negotiations, and agreements between the parties relating to the subject matter of this agreement are expressly merged into and superseded by this agreement. The provisions of this agreement may not be explained, supplemented, or qualified by evidence of trade usage or a prior course of dealings. Neither party was induced to enter this agreement by, and neither party is relying on, any statement, representation, warranty, or agreement of the other party except those set forth expressly in this agreement. Except as set forth expressly in this agreement, there are no conditions precedent to this agreement's effectiveness.

16. HEADINGS.

The descriptive headings of the sections and subsections of this assignment are for convenience only, and do not affect this agreement's construction or interpretation.

17. EFFECTIVENESS.

This assignment will become effective when all parties have signed it.The date this assignment is signed by the last party to sign it (as indicated by the date associated with that party's signature) will be deemed the date of this assignment.

18. NECESSARY ACTS; FURTHER ASSURANCES.

Each party shall use all reasonable efforts to take, or cause to be taken, all actions necessary or desirable to consummate and make effective the transactions this assignment contemplates or to evidence or carry out the intent and purposes of this assignment.

[SIGNATURE PAGE FOLLOWS]

Each party is signing this agreement on the date stated opposite that party's signature.

[PAGE BREAK HERE]

LANDLORD'S CONSENT  AND RELEASE

As Landlord under the Lease, I hereby consent to this assignment of the Lease, and to the New Tenant's assumption of the Original Tenant's obligations under the Lease, including the obligation to pay rent when it is due. As of the Effective Date, I release the Original Tenant from all liability for obligations (including rent payments) under the Lease However, the Original Tenant remains primarily obligated as tenant under the Lease and I do not waive or relinquish any rights under the Lease against either the Original Tenant or the New Tenant.

EXHIBIT A Attach copy of Lease

Free Assignment of Commercial Lease Template

How-to guides, articles, and any other content appearing on this page are for informational purposes only, do not constitute legal advice, and are no substitute for the advice of an attorney.

Assignment of commercial lease: How-to guide

Occasionally, tenants wish to leave a rental property before the end of their lease. Individuals may take new jobs in new cities, and companies may go out of business or sell their enterprises to a third party.

Whatever the reason, tenants can transfer their original commercial lease to new parties by completing an assignment of the lease.

An assignment transfers one party's interest and obligations under a lease to another party.

During these tenant transfers, the new tenant takes on the lease responsibilities, including paying rent and property maintenance of the leased premises, and the original tenant is released from most of their duties.

Successful property management begins with good documentation and a properly drafted, executed assignment:

• Ensures that all parties involved understand the obligations being transferred
• Defines the responsibilities that each party will have under the new arrangement
• Lays the foundation for a long-lasting landlord and new tenant relationship

Important aspects to consider when drafting commercial leases

Laws about the original commercial lease agreement.

State laws  governing real estate, renting, leasing, and assignments vary widely and can tremendously affect your arrangement.

Since the tenant is legally responsible for this document, they must include specific information like financial statements in the commercial lease assignment. Consider your state and local laws for additional information required in your area.

Criteria for commercial landlords in providing consents

A landlord may consider only proper factors when deciding whether or not to consent to an assignment.

Some criteria will be regarded as impermissible by courts, such as refusal based on race or sex of the proposed new tenant. If your landlord does not consent to your attempted assignment, ensure they give you clear written reasons for the decision. Failure to provide such reasons can itself be deemed unreasonable.

Consequences of not providing consent

It is essential to seek the landlord’s permission for the proposed transfer of the duties.

Depending on your jurisdiction or the terms of your original lease, a landlord’s failure to respond to your request for consent to assignment within a specific time may be deemed consent. Sometimes, it may give the assigning tenant grounds to terminate the lease. Review the original lease and your state’s laws for additional details.

Although a landlord is not required to consent to a lease assignment agreement, in some cases, your lease will state that a landlord’s consent will not be “unreasonably” withheld. This is more common in commercial leases than in a residential lease. What is considered unreasonable varies from jurisdiction to jurisdiction, and you should review the laws in your area (and the assignment clause in your original lease agreement) for additional information. On the other hand, if the lease states that the landlord may use their “sole discretion” to evaluate the new tenant, they can veto this assignment without any reason.

Rights of the original tenant

The original tenant cannot assign more rights than the original lease. For example, if the lease term is one year, the assignment term cannot be two years.

Review the lease assignments before signing

Most leases require the landlord’s written consent before an assignment becomes effective. Review the assignment provisions and the original lease agreement for additional information and see if other requirements must be met to make the lease assignment agreement valid.

Get the assignment signed

Sign three copies of the assignment, one for you, the other party, and the landlord. Depending on the nature of its terms, you may decide to have the document witnessed or notarized. This will limit later challenges to the validity of a party’s signature.

Be sure the assignee gets a copy of the original lease by attaching it to the assignment. Its terms will bind them, and they should know their new obligations and rights.

If your agreement is complicated, contact an attorney to help draft a document that meets your needs.

Key components of a commercial lease assignment

The following instructions will help you understand the terms of your assignment.

Introduction

In this section, identify the parties and, if applicable, what type of organization(s) they are. Write down how the document identifies each party. For example, the current tenant can be addressed as the “original tenant” or “assignor” as they assign the lease to the new tenant, and the new tenant can be called the “new tenant” or “assignee.”

Furthermore, add the date on which the assignment will become effective – when it is signed.

The “whereas” clauses, referred to as recitals, define the world of the agreement and offer essential background information about the parties.

In this assignment, the recitals include a simple statement of the parties’ intent to assign the original tenant’s interest in the lease and the new tenant’s intent to assume it. Provide a brief description of the rented property and the landlord’s name under the lease.

You don't need to include a complete legal description for the property description, but provide enough information to identify it. For individual houses, the address will usually be sufficient. If the property has a specific name (e.g., “Lincoln Towers”), include that as well. If only a section of the premises is assigned, clarify that in this description.

This section mentions the assignor’s assignment of their right and interest in the lease to the assignee. This assignment clause allows you to determine whether all of the assignor’s interest in the lease is being assigned or only part of it. For example, if interest in only one-half of the premises is being assigned, the document should note this.

Assumption of rights and duties

This section clarifies the assignor’s responsibilities for the duties listed under the lease (e.g., rent, maintenance of property, etc.). For example, whether:

The assignor is ultimately released from any liability they had under the lease. For example, if the assignee defaults, the landlord cannot seek payment from the assignor.

The assignor will be liable to the landlord if the assignee defaults.

In any event, the assignor will remain responsible for any obligations that occurred before the assignment. In other words, if the damage happened to the apartment before the transfer or the assignor did not fulfill another obligation under the lease, the assignor remains responsible for the building occupied.

Reimbursement

In many rental relationships, amounts are paid in advance or deposited as security for the landlord.

At the end of the lease, this security deposit (with deductions subtracted or interest added) is returned to the tenant. If an entire interest is assigned, the lease does not end, and the assigning party cannot get this money back. This paragraph requires the assignee to pay those amounts to the assignor, and any later return of that money by the landlord will be made to the assignee.

Indemnification

In such clauses, the assignee promises to bear the financial cost of any injury the assignor suffers due to its assignment and any lawsuits arising from its activities on the premises. Note that there is an exception for things done by the assignor before the effective date of the assignment — the assignor remains responsible for those actions.

Continuing effectiveness of lease

Here, emphasize that the original lease terms are still effective to the assignee, except for the assignment.

Assignor’s representations and warranties

List the assignor’s promises under the assignment. Note that this is not a detailed list of services to be provided. Instead, this is the assignor’s assurance that the lease and the rental interest it’s providing are helpful (i.e., no one else lives or has an interest in the place, the lease is still in effect, the assignor is not behind in rental payments, etc.). If there are additional representations the assignor should be making, feel free to include those here.

Condition of premises

Here, mention that the premises are not warranted to be perfect or valuable in a particular way. Instead, the assignee is taking the rented property for what it is and is accepting it in that state.

Additional terms of assignment

This optional provision allows the assignor and the assignee to include any representations, warranties, or other provisions particular to their situation.

Interpretation

This section provides information that both parties were on equal footing in negotiating the consent to assignment. In many cases, a contract is interpreted favorably by the individual who did not draft it. This clause clarifies that both parties were involved in the drafting, so the document should not be read in favor of (or against) either.

Here, list the addresses to which all official or legal correspondence should be delivered. This can be the tenant’s business address or the mailing address for both the assignor and the assignee.

Modification

This section indicates that any changes to the document are only effective if they are made in writing and signed by both parties.

Governing law

This section allows the parties to choose the state laws used to interpret the document.

Counterparts; electronic signatures

This section explains that even if the parties sign the assignment in different locations or use electronic devices to transmit signatures (e.g., fax machines or computers), the separate pieces will be considered part of the same agreement. In a modern world where signing parties are often not in the same city—much less the same room — this provision ensures that business can be transacted efficiently without sacrificing the validity of the agreement as a whole.

Entire agreement

This clause mentions that the document parties are signing is “the agreement” about the issues involved. Unfortunately, the inclusion of this provision will not prevent a party from arguing that other enforceable promises exist, but it can provide you some protection from these claims.

Landlord’s consent and release 

Review the terms of the original lease agreement to determine whether or not the  landlord’s consent  is required to make the assignment effective. This is usually the case. If so, have the landlord sign the document.

Frequently asked questions

What is the purpose of an assignment of lease.

Whether it's because it's time to move to a new space or city, business isn't booming, a company gets sold, or otherwise, sometimes commercial tenants must leave a lease before it ends. And sometimes, they may want to transfer the responsibilities of their lease to someone new. A lease assignment occurs in this case.

Here's the information you'll need to have handy to complete your assignment of commercial lease:

• Who the old tenant is : Have their name and contact information ready
• Who the new tenant is : Have their information available

What is the difference between an assignment and a sublease?

An assignment transfers one party's interest in an agreement to a third party. In this case, the original tenant gives all their interest to a new tenant. That new tenant steps into the shoes of the old tenant and the old tenant is released from most of their obligations under the lease (although this can be changed by agreement).

This is not the same as a sublease.  Under a sublease , a third party is granted only those specific rights provided in the sublease. The original tenant remains ultimately liable for residual obligations under the lease or any failures of the new tenant to meet their obligations. This means that the original tenant will be responsible (in equal measure with the new tenant) for any skipped rent payments or damage to the property.

Related categories

Related templates.

Assignment of Agreement

Transfer work responsibilities efficiently with an assignment of agreement. Facilitate a smooth transition from one party to another.

Assignment of Residential Lease

Simplify lease transfers with an assignment of residential lease agreement. With the landlord's approval, smoothly transfer your lease responsibilities to a new tenant while documenting the arrangement comprehensively.

Landlord Consent to Assignment

Facilitate lease transfers with a landlord consent to assignment form. Provide tenant and landlord information, along with the rental property address, and grant permission for the lease transfer easily.

Subleasing and Assignment Provisions in Commercial Leases

• June 17, 2020

Before the COVID-19 pandemic, many business owners paid little attention to subleasing and assignment provisions when negotiating commercial leases . It was common to focus on rent, maintenance, taxes, and insurance, which affect a tenant’s bottom line, and options to renew the lease if the business thrives. Recently, however, one of the top concerns of commercial tenants is flexibility in case they no longer need to use a portion, or all, of the leased space. In this context, subleasing and assignment provisions are key deal terms.

The Difference Between Subleasing and Assignment

A sublease does not alter the relationship between the landlord and the tenant, who remains liable for all of the tenant’s obligations under the lease. However, the tenant enters into a subordinate lease (the sublease) with a subtenant regarding a portion, or all, of the leased space. After a sublease is signed, the landlord interacts with the tenant, and the tenant interacts with the subtenant.

An assignment alters the relationship between the landlord and the tenant by assigning the tenant’s rights and obligations from the first tenant (the assignor) to the second tenant (the assignee). The assignee steps into the shoes of the assignor, and has a direct contractual relationship with the landlord. After an assignment of the lease, the landlord interacts directly with the assignee.

Important Deal Points Regarding Subleasing and Assignment

Leases may include many provisions regarding subleasing and assignment. Some of the most common issues include the following:

• In what circumstances is landlord consent required? Leases typically require the landlord’s consent for any sublease or assignment. However, some leases have different provisions for special circumstances, such as subleasing or assignment to a related entity, or assignment of the lease in connection with the sale of the tenant’s business.
• What is the standard for landlord consent? Provisions that require the landlord’s consent may be followed by a standard such as “in the landlord’s sole discretion,” or “which may not be unreasonably withheld.” Obviously, the second standard is more favorable to the tenant. However, as a practical matter, if a dispute arises regarding whether a landlord’s denial was reasonable or unreasonable, arbitration or litigation would be expensive, the outcome would be uncertain, and the prospective subtenant or assignee may be unwilling to wait to see how the dispute is resolved.
• What information must be provided regarding the proposed subtenant or assignee? Many leases require confidential financial information regarding the proposed subtenant or assignee. The proposed subtenant or assignee may be more comfortable providing information if the lease contains confidentiality and non-disclosure requirements to restrict the landlord’s use of the information. An argument can be made that less information should be required regarding a proposed subtenant than a proposed assignee, because the landlord will not enter into a direct contractual relationship with the subtenant and the tenant will remain liable under the lease.
• What are the landlord’s alternatives? A tenant might assume that if the tenant requests consent to a sublease or assignment, the landlord’s alternatives will be limited to granting or withholding consent. However, many leases give the landlord a third alternative, to cancel the lease if the tenant requests a sublease or an assignment. This is known as a right of recapture.
• When is the landlord’s response due? Some leases do not set a deadline for the landlord’s response to a request for consent to a sublease or assignment. A delayed response would prevent the tenant from moving forward until the response is received. A delayed response also may result in a lost opportunity, if the proposed subtenant or assignee is under time constraints.
• What is the effect if the landlord fails to provide a timely response? A lease may provide that if the landlord fails to respond to a request for consent within a specified period of time, then consent is deemed granted, or a lease may provide that in such circumstances, consent is deemed denied. The first alternative is more favorable for a tenant, but the prospective subtenant or assignee might not be willing to rely on a “deemed consent” provision and may require actual consent before moving forward.
• What are the landlord’s remedies if a sublease or assignment is made without requesting consent? Generally, if a tenant subleases or assigns a lease without obtaining required consent from the landlord, then the tenant is in default and the landlord can exercise all remedies under the lease. The lease also may provide that a sublease or assignment without the landlord’s consent is invalid and unenforceable.
• Will the assignor be released from liability for the tenant’s obligations after an assignment? It may seem like common sense that if a lease is assigned with the landlord’s consent, then the original tenant (assignor) will no longer be responsible for the tenant’s obligations under the lease. However, a lease may provide that the assignor will remain liable under the lease after an assignment. Similarly, the landlord’s written consent may state that both the assignor and the assignee will be responsible for the tenant’s obligations after the lease is assigned. In order to be released, the assignor should obtain a written agreement from the landlord stating that after an assignment, the assignor will no longer be responsible for the tenant’s obligations under the lease.
• Will a guarantor be released from liability for the tenant’s obligations after an assignment? Many landlords require a personal guaranty from an individual, or a corporate guaranty from a related entity, to ensure payment of the tenant’s obligations under a commercial lease. Guarantees typically provide that they will remain in effect even if the lease is assigned. However, the tenant may be able to negotiate for the termination of the guarantee in the event that the lease is assigned.  In some cases, the landlord may require a substitute guarantor.
• What is the effect of subleasing on the obligations of the tenant and the guarantor? A sublease does not affect the tenant’s obligations to the landlord under the lease, or the guarantor’s obligations to the landlord under the guaranty.

If a business owner is considering entering into a new lease, it is important to carefully review the subleasing and assignment provisions and negotiate any necessary changes before signing the lease. If a tenant desires to sublease or assign an existing lease, it is important to review the applicable requirements and restrictions before taking any action. An experienced real estate attorney can assist the tenant by spotting issues, explaining alternatives, and negotiating with the landlord to help the tenant accomplish its business objectives.

ABOUT THE AUTHOR(S)

Michael D. Klemm

Phone: 952-746-2198, email: [email protected], due diligence in commercial real estate transactions, three alternatives for a buyer to keep a seller’s low mortgage interest rate, webinar replay: hoa fall legal updates 2022, escalation clause tips and traps for buying a home (or an island), webinar replay: hoa fall webinar, on-demand webinar – covid-19 and hoas: how to operate during the pandemic, covid-19 and commercial real estate leases in minnesota, january 1 deadline for preventative maintenance plans, schedules and budgets, crossing the line obtaining building permits for decks in cic’s.

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Property Leases: What SMBs Need to Know

Commercial leases are complicated. These tips will help you sort through the legal jargon.

Table of Contents

Signing a lease is an important step for any new business owner. Whether you’re opening a store , moving into an office space or renting out facilities for production, at some point you’re probably going to have to reserve a space for your business. The world of commercial real estate can be complicated, and it can sometimes take years to find the space you’re looking for.

Once you’ve found that space, signing the contract could feel like an annoying final step before you can get moved in and focused on running your business. But like most legal agreements, a business lease is an important document that requires some research.

“You have to do a lot of planning when you’re moving from one space to another,” said Walter Gumersell, partner with Rivkin Radler. “Confirm the terms that you’re going to be taking.” For example, include clauses about rent, the security deposit, the term of the lease and the use of the space. “You want that to be as broad as possible,” he said.

It should be no surprise that the fine print in a commercial lease is very important. There are two basic steps to take before signing a lease: Do extensive research, and be aware of typical statutes included in business leases.

Steps for research include vetting the landlord, determining the building owner, researching zoning laws and getting a general feel for the area. Before you sign a lease, make sure you get an idea of the payment structure, your own personal risk exposure, the transfer structure, the landlord’s desired holdover rate and any nuisance clauses in your lease. These are some important things to look out for, but keep in mind that typical commercial lease practices vary by state.

Commercial lease vs. residential lease

A commercial lease is required any time a business rents a commercial property for the purpose of conducting business from that location. Nishank Khanna, chief marketing officer at Clarify Capital, said a commercial lease agreement is a legally binding contract between a landlord and a business tenant.

“The landlord agrees to rent out the business property, which is typically an office space, in exchange for money,” Khanna said. “Commercial leases typically last from three to five years, creating a long-term relationship between the lessor and lessee.”

Although this may sound very similar to a residential lease, there are some important distinctions between a residential lease and a business lease. For one, while both involve a landlord renting space to a tenant in exchange for money, a residential lease cannot be used for business purposes.

In addition, “commercial leases are less regulated and offer less protection than residential leases,” Khanna said. “They are typically longer in duration and offer greater flexibility when it comes to negotiating conditions than residential lease agreements.”

Another difference is that renters in a residential lease agreement are usually not responsible for paying property taxes, whereas with commercial lease agreements, it’s very common for the tenant to pay at least a portion of the property taxes.

Elements of a commercial lease agreement

A commercial lease agreement is a contract, so it must include certain elements and key information for it to be valid and enforceable. At a minimum, information regarding the rent, security deposit, lease duration and any additional costs the tenant may be subject to should be clearly defined within the lease, according to Khanna.

“The ‘other costs’ category is an especially important one that should be carefully reviewed” before you sign the contract, Khanna said. “Building insurance, property taxes and maintenance costs fall under the ‘other costs’ umbrella. These additional expenses can quickly tally up to large overhead costs.”

Khanna also noted that small business owners should be aware of the difference between exclusive and permitted use. For small business owners in competitive industries, an exclusive-use contract can be especially beneficial.

“An emerging brewery, for example, would be wise to request exclusive permission to rent out space within a community market, in order to decrease opportunity for competing sales,” Khanna said. “Without exclusive permission, another brewery could rent space within the market and try to win business from the same pool of customers, thus reducing the first brewery’s profit significantly.”

Researching the area, landlord and lease details

Before you sign a commercial lease agreement to rent a workplace , you’ll have to do some research. Make sure to take the following steps while investigating.

1. Understand the area.

While looking for a new property, if you’re selling a product or service to the public, analyze the area and get a good idea of your potential clientele. Your business location means everything for a small business to thrive, so when you’re shopping around for the right properties, take the time to find the right new home for your business. Gumersell said this process can take two years or even longer, so make sure you plan accordingly if your current lease’s end is in sight.

2. Find out more about the landlord and building owner.

Gumersell also said that one of the most important aspects of research that is often overlooked is learning more about the landlord and building owner. Sometimes, your direct landlord may not be the true building owner. Either way, find out as much about the landlord and building owner as possible. You’re entering a business partnership together, so make sure you have an idea of who they are, what their financial situation is and whether they’re making good on their payments.

In some states, for example, if a landlord fails to make their payments to the building owner, or fails to make mortgage payments to a bank, the business or tenant can end up getting evicted in the event of foreclosure – even if the business has been on time with every payment. That’s just one example of how the relationship between a landlord, tenant and building owner can go awry. Gumersell said businesses can conduct a public records search to find out more about the landlord. You can also request documents related to the landlord’s limited liability company or business entity to learn more about whether it’s an ideal partner for your business.

3. Research zoning laws.

Another component to look into is the zoning laws. While your landlord may designate your space for, say, running a restaurant, you have to make sure the landlord’s aims are consistent with the laws of your municipality. There are scenarios in which a landlord or building owner may think they can lease their space to a certain type of business, but it doesn’t match standard zoning laws in the area. By aligning these two details, you can ensure that your business can operate without any major legal headaches from the town or city in which you’re operating.

4. Learn about nuisance laws and the environment.

One of the most important aspects of signing a lease is being able to operate your business to its fullest capacity once you open your doors. Many leases have extensive points on noise, smells and equipment. Ann Brookes, a tax attorney, said that when she signed a lease for a restaurant, she had to negotiate an “offensive odors stipulation.”

“The building rules said no offensive odors,” she said. “Whether a smell is offensive is subjective, so I made sure there was an exception for smells ordinary to a restaurant.”

It’s also important to research basic environmental laws regarding the property before you sign anything, Gumersell said. Landlords often miss these laws, and they could be used against your business.

Important commercial lease statutes to keep in mind

There are some key points to keep in mind when you are reviewing your lease. The rent structure is probably the most basic and most important aspect of any lease. By determining how much you pay per month, as well as how much your rent will increase each year, you can better determine budgets and get a full understanding of whether you can stay in business in this new space.

The lease terms are also very important. Consider a short-term versus long-term lease. A long-term lease can be a great investment if you’re opening a business in an emerging or growing area, whereas a short-term lease provides you with the flexibility to move locations or shutter your business if it doesn’t pan out the way you hoped.

Both with payment structure and term, make sure you understand exactly what you’re on the hook for each month. Ask your potential landlord about how the following expenses are paid:

• Property taxes
• Maintenance (both interior and exterior)
• Local nuisance laws (noise or scent)
• Utilities (water, gas, electric)
• Modifications (whether you can adjust the interior or exterior of your space)

Once you’ve established some basic pricing and term structures, it’s time to dive into some of the less-obvious details. While your lease will likely vary by state, here are some good examples of statutes to be aware of before signing a lease:

• Transfer structure: Iron out how your lease will be transferred if you want to leave the space or your business closes. According to Gumersell, there are generally two structures for transferring a lease: assignment of the lease and subletting. Assignment of the lease means the entire lease is transferred to a new tenant. Subletting is when a current tenant keeps their name on the lease but receives payment from a new tenant and transfers that money to the landlord. In both instances, you usually have to establish prior written consent before the lease transfer. This is a very important aspect of your lease to work out.
• Personal exposure: In some cases, you may be required to sign a personal guarantee when you sign a commercial lease. This means you’re personally on the hook for aspects of the lease even if your business defaults. Work with legal counsel to negotiate this aspect of your contract. If possible, you want only your entity or legal business to take on the risk when signing a business lease.
• Holdover rent: Holdover rent is a rent increase when a tenant stays after the lease has expired. It’s hard to find a lease, and sometimes when businesses are moving spaces, they end up staying longer than their current lease allows while the new one is being set up. In many contracts, landlords include a clause stating that, in these instances, businesses are responsible for up to 250 percent of their normal rent payment per month. So, if you stay beyond your allotted time, it could cost you tens of thousands of dollars. Gumersell recommended negotiating this aspect down to around 125 percent.
• Nondisturbance agreement: In many cases, if the landlord fails to pay their mortgage on the property, your business will still be evicted, even if you’re making all of your payments . With a nondisturbance agreement, if this occurs, you’ll be permitted to stay and continue paying whatever entity has taken over the building from your landlord, Gumersell said.

Everything can be negotiated

While these are some good examples of things to be aware of, there are likely many aspects of your lease that can be negotiated. Work with your potential landlord – and, if necessary, an attorney – to make sure you get the best deal for you and your business.

“Where a residential lease has a fixed term, a commercial lease is often negotiable and can have a longer or shorter term depending on the conditions set,” said Allan Borch, founder of Dotcom Dollar. “Commercial leases also have fewer legal protections because the consumer laws that apply to residential lease agreements do not cover commercial leases.”

Commercial lease agreement terms to know

Borch and Dan Bailey, president of WikiLawn, listed some key terms that small business owners should know regarding commercial lease agreements. The list does not include every possible term you may encounter on a commercial lease agreement, but it’s an overview of the ones you are most likely to see.

• Rent amount/base rent: This amount is calculated based on the square footage of the space. Make sure the number the landlord is using actually represents usable space. This rent is not dependent on revenue.
• Usable square feet: This refers to the amount of space actually reserved for the business as a tenant, in cases of shared spaces.
• Rent increases: Rent increases are usually based on a percentage of the total rent, and that can change from year to year. You can negotiate with the landlord to put a cap on rent increases.
• Security deposit: This is the amount to hold the space until the paperwork is finalized. The amount should be specified both ahead of time and in the lease agreement.
• Length of the lease: The length of a commercial lease is usually somewhere between three and five years, as commercial landlords prefer longer lease terms. The lease agreement also often specifies the start and end dates of the lease.
• Improvements: This part of the commercial lease agreement lays out the types of improvements and upgrades that can be made to the space and who is responsible for the costs. Many aspects of this section can be negotiated.
• Bottom line: Make sure you understand all of the terms in a commercial lease contract and are comfortable with them before signing on the dotted line.
• Grant of lease: This is the clause that states that the landlord will turn the property over to the tenant once all of the conditions (e.g., paying the security deposit) have been met and the tenant accepts the property from the landlord.
• Commencement date: This is the date on which the tenant takes over the property, more commonly stated as the first day the tenant becomes responsible for paying rent and maintaining the rental property.
• Extension: Both parties can agree to an extension of the agreement in writing, and it must be signed by both parties.
• Late fee: If the tenant is late in paying rent, they will incur a late fee that is outlined by the commercial lease agreement. This can be a flat fee or a percentage of the monthly rent.
• Taxes: This section outlines all of the taxes associated with the property (property taxes, real estate taxes) and who is responsible for paying them. Within this section, there could be subtopics, like Contest of Taxes (the tenant can contest the amount of personal or real property tax they are responsible for paying), Payment of Ordinance Assessments (the tenant usually pays for all ordinary assessments, which are obligatory, and extraordinary, which are by choice) and Change in Method of Taxation.
• Obligation for repair: This section states what types of repairs the landlord is obligated to make – like defects, deficiencies, failures or deviations in materials – that are vital to the operation of the property. It also outlines the repairs that tenants are responsible for.
• Permits: Both parties are to acquire all necessary permits and licenses for making improvements or repairs at the location being rented.
• Covenants: These terms are different for the tenant and the landlord; each has a separate set of covenants. For example, a covenant may state that the tenant is required to pay rent even if the landlord fails to uphold some of their responsibilities as stated in the lease.
• Indemnity by tenant: This clause essentially removes all liability from the landlord in the event of injury, loss, claims or damage, unless those things are a direct result of willful acts or omissions or gross negligence on the landlord’s part.
• Rent abatement/adjustment: This section states if the rent will be adjusted or eliminated in the event of property damage from a fire or other natural disaster.
• Condemnation: This clause is often overlooked, but it’s important. It determines what happens if the rental property is taken from the landlord by a government agency for public use, either by condemnation or eminent domain.
• Option to purchase: This clause states that, at any time during the lease, the tenant has the right to buy the property at an agreed-upon price. This clause isn’t mandatory, but it doesn’t hurt to include it. The clause can also state that the tenant does not have the right to purchase the property during the term of the lease. Either way, it’s good to have it in writing.

Commercial lease FAQ

What is a typical commercial lease deposit, are utilities included in a commercial lease, should you buy or lease commercial property, how long is a typical commercial lease, preparation means finding the best lease for you.

When looking for a commercial property to lease, you’ll need to go into it prepared. That includes the way you negotiate the lease. Following the steps above can help you lock in the best deal for your company, giving you a home in which to grow and terms that support your business’s success.

Tejas Vemparala contributed to this article. Source interviews were conducted for a previous version of this article.

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Assigning a Commercial Lease

(This may not be the same place you live)

  What Is an Assignment of a Commercial Lease?

A commercial lease is a written contract that is used when a commercial tenant rents space from a landlord. Commercial real estate law is the area of law that governs commercial leases and commercial tenant and landlord rights.

Similar to other types of leases, a commercial lease gives a commercial tenant the right to occupy the space and conduct business activities for a specified period of time. These commercial tenant rights are in exchange for the commercial tenant making monthly rent payments to the landlord.

A commercial lease also guides both parties regarding their legal rights and responsibilities associated with the commercial real estate transaction.

The most common example of a commercial lease would be when a tenant leases business property, such as:

• An office space;
• A standalone retail space;
• A restaurant;
• A retail store located in a mall or other similar shopping center.

Depending on the specific type of commercial lease that the parties enter into, the lease agreement will provide instructions, such as which party is responsible for making repairs and which party is liable for paying real property taxes on the space.

An assignment of a commercial lease refers to when one commercial party of the lease transfers all the interest and obligations of their lease to another third party. Generally, in a commercial setting, a commercial tenant will assign their interest in their commercial lease to another commercial tenant. Similarly, a landlord to a commercial lease may also assign their interest in the lease to another landlord.

It is important to note that many commercial leases will include restrictions on the ability of a commercial tenant to assign their lease. As such, it is important that commercial tenants review their lease in order to determine if assigning their lease is possible. A commercial lease will note all of the rights that the commercial tenant maintains over the commercial property, including assignability of the lease.

Additionally, it is also important to note that most consumer protection laws that apply to residential leases do not apply to commercial leases. However, depending on the state laws in which the commercial lease was entered into, restrictions on assignment of commercial leases may be valid if such restrictions are deemed “reasonable.”

What Is a Sublease of a Commercial Lease?

Can a commercial lease be assigned or subleased, what happens if i breach the lease through subletting or assignment, do i need a lawyer for my commercial sublease or assignment issue.

A sublease of a commercial lease occurs when a commercial tenant transfers a portion of their lease rights to a third party for a temporary period. A commercial tenant may either sublet a portion of their commercial space while they continue to work in the same space or sublet the entire commercial location until the end of the lease or a period of time.

For example, suppose that a company is a seasonal commercial business, such as a Halloween or firework store. If such a company has signed a year-long fixed lease term, they may seek to sublet their commercial property for the 8 months in which their store is not operational in order to generate income to pay rent on the commercial space.

It is important to note that when subletting, the original commercial tenant, known as the “sublessor,” is still obligated to the landlord for the original terms of the commercial lease. This means the sublessor maintains “privity of estate” and “privity of contract” with the landlord. The sublessee, or the person that intends to utilize the lease for a temporary period of time, is only liable to the original commercial tenant for the lease, not the landlord.

In other words, the original lease between the original commercial tenant and the landlord remains in full effect throughout the sublease period. Additionally, the original commercial tenant is now responsible for the new tenant. This means that the sublessee would go to the original tenant with any concerns they had regarding the rental property, as well as pay rent directly to them.

Subleases have become increasingly popular for big box retail stores that seek to lease corners of their commercial space to smaller retail stores. They are also popular for startups that do not have enough capital to lease an entire commercial space and prefer to cut costs by sharing a commercial space with other companies.

For instance, in grocery stores or shopping centers , you may see nail salons, ophthalmology services, cell phone repair shops, banks, or even food vendors that are subleasing from the main big box store.

Other common reasons a company may seek out a sublease include:

• Lower Rental Rates: Rates for commercial subleases, especially short-term subleases, are typically less than standard commercial lease rates;
• Flat Rental Payment Structure: Commercial subleases often have a flat rental payment structure with no unusual surprises;
• Fewer Obligations: In a commercial sublease, the sublessee usually has limited obligations to repair and maintain common areas;
• Less Complex Lease: Commercial subleases are usually not as complex as original commercial leases; or
• Additional Income: As noted above, the most common reason for subleasing is for the original commercial tenant to gain an additional source of rental income in order to make or lessen their lease payments.

As mentioned above, whether a commercial tenant may sublease or assign a commercial lease will be governed by the original commercial lease that was entered into by the commercial tenant and the landlord. Once again, the terms of the commercial lease may expressly prohibit the commercial tenant from subletting or assigning their lease entirely.

The lease terms may also allow the tenant to sublease or assign their commercial lease only with the landlord’s consent or if certain conditions have been met. Many states and local jurisdictions prohibit a landlord from withholding consent to assign or sublease a property if the reason is unreasonable.

In the absence of a provision in the executed commercial lease stating otherwise, a commercial lease can generally be assigned or subleased. As such, the ability of a commercial tenant to sublease or assign a commercial lease should always be discussed and negotiated prior to signing or renewing a commercial lease.

Similar to a commercial tenant’s ability to assign or sublet their lease, the penalties for breaching the lease will typically be governed by the terms of the commercial lease that was entered into by the tenant and landlord.

In addition to any legal remedies for breaching the lease, the landlord or tenant may also recover any contractual damages caused by the other party’s breach of the original lease terms. The non-breaching party may also seek to terminate the lease agreement altogether.

As can be seen, assigning or subletting a commercial lease may be a great option for companies seeking to move away from their commercial location permanently or to generate income.

However, commercial lease agreements and contracts can be very complex. As such, it may be in your best interests to consult with an experienced real estate lawyer to help you understand your legal options for assigning or subletting a lease. An experienced real estate lawyer will be able to guide you through the process of assigning or subletting your commercial lease and ensure that your legal position is protected.

Finally, an attorney will also be able to represent you in court, as necessary, should a dispute arise regarding assigning a commercial lease.

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What Is a Commercial Lease Assignment?

A commercial lease assignment happens when a tenant transfers all of the rights to a lease to someone else but remains liable for rent payments to the landlord. 4 min read updated on July 26, 2024

A commercial lease assignment happens when a tenant transfers all of his or her rights to a lease to someone else but remains liable for rent payments to the landlord.

A Tenant's Right to Assign or Sublet a Commercial Lease

Due to difficult financial times, businesses have been forced to downsize.

Often these businesses find themselves in commercial leases for more space than they need. In order to save money, these businesses will consider a commercial lease assignment or subletting the extra space. Both options have pros and cons, but the first step is examining the current lease in order to figure out whether there are any restrictions on assignment or subletting.

Commercial leases are contracts and, as such, are subject to their terms. Thus, the language of the lease will dictate whether or not the tenant is able to assign the lease to someone else or sublet the space.

If a lease doesn't contain any rules against assignment or transfer, then a tenant is allowed to assign or sublet. Unless your lease says otherwise, you do not have to get your landlord's consent to sublet or assign your lease.

Businesses might sublet or assign office or retail space to help with costs or to avoid a penalty if they need to end their commercial lease earlier than their contract stipulates. Sometimes, this may be their only option, regardless of their financial position.

Legal Considerations

When considering your options, you should be aware of the legal differences between assignment and subletting.

There are also several legal and practical aspects to consider when negotiating an assignment or sublease. This includes any legal consequences the tenant may face if the landlord ends the lease.

It is in your best interest to consult an experienced real estate attorney so that you can protect yourself and understand all of your options. Whether you sublet or assign your lease, you will need to find a new tenant. However, there are still differences between the two.

Before subletting or assigning your lease, you should review your lease agreement and talk about your options with your landlord.

It is also important to check your state's laws regarding subleases and assignment because some states require the landlord's consent in order to complete this transfer.

What Happens If I Breach the Lease by Subleasing or Assignment?

Breaching your lease can carry severe consequences, including the following:

• Paying damages to your landlord
• Termination of the lease agreement

What Is an Assignment of Lease?

A lease assignment happens when the tenant transfers all of his or her rights and interest in a lease to another party. Although the new tenant takes on these rights and interests, the assigning tenant is still liable to the landlord.

If the new tenant breaches the lease, the landlord can enforce the terms of the lease on both the new tenant and old tenant. The former, or assigning, tenant is still liable to the landlord according to the original commercial lease agreement.

A lease assignment can also be called:

• A lease transfer
• Assignment agreement
• Assignment of lease
• Lease assignment

Sometimes, a tenant has to leave before their lease is up. In this case, they might be allowed to assign, or transfer, their lease to a new tenant. The old tenant, or assignor, transfers his rights to a new tenant, the assignee.

You can assign both residential and commercial leases. In an assignment, the assignor transfers their lease to a new tenant using a lease assignment agreement. The new tenant then takes the place of the assignor, but the former tenant is still responsible for missed rent checks and damages.

What Does a Lease Assignment Agreement Contain?

A lease assignment agreement is a document that transfers a commercial or residential lease from one party to another. When a tenant needs to break a lease and has a new tenant lined up, they can use a lease assignment agreement.

A lease assignment agreement contains basic information:

• Identifying information
• Assignment start date
• Landlord name

Lease assignment agreements are pretty simple because they reference the original lease. This means that all of the terms in the old lease are automatically included in the new agreement.

A lease assignment agreement transfers the entire lease, whereas sublease agreement does not. Assignments transfer the whole lease from one tenant to another.

The most important thing to know about lease assignment agreements is that they usually need the landlord's permission. If you're considering assigning your lease, you should make absolutely sure that your landlord agrees to the arrangement because you are transferring your lease to a new party.

If you need help with commercial lease assignment, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Commercial Lease Assignment When Selling Your Business

by Neal Isaacs, MBA, CBI, CM&AP

• Latest Posts

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Have a Question?

 ask your question below, one of our investors or advisors will answer., commercial lease assignment problems.

As part of selling your business, the lease can be one of the most overlooked barriers to completing the deal.   The buyer and seller may have a “meeting of the minds” when it comes to the lease, but if it isn’t assigned they have nothing to buy or sell.  

Let’s explore a few of the common issues that come up related to a lease in the sale of a small business.

Inadequate Time Remaining on the Lease

Ideally a tenant should sell a small business with more than three years left on the lease.  The takeaway here is the longer the better. It’s not uncommon for me to meet a seller who is going “month-to-month” on a lease and proud of it.  In their mind they’ve reduced their commitment to the business, but in the buyer’s mind one of the largest expenses of the business is unsecured and at risk of inflation.  The buyer’s ideal scenario is a monthly rent price that is known and set into infinity, and for this reason many buyers ask if there is an option to buy the real estate. When sellers go month to month, the lease negotiation with the landlord is shifted further towards the advantage of the landlord/property management firm.

Landlord Approval is often a Condition to Close in Asset Purchase Agreements

When a business is sold the buyer must be approved by the landlord to be granted an assignment or a new lease.  The seller normally only cares if the buyer has the funds to pay for the business, but the landlord doesn’t want the buyer “squeaking in” with nothing left in the bank account, or even worse bringing debt into business. Landlords want to see reserves for a buyer to be able to pay the rent for up to six months, and they will ask for a “PFS” or personal financial statement to judge the rent worthiness of a tenant.  Much like an SBA loan, they may also want to see some experience from the tenant that’s relevant to the business they are buying. While the landlord can’t tell an owner how to run a business if they pay the rent and follow the rules of the lease, they can make it difficult to get in.

Assignment Fees From a Landlord may be Excessive

It’s not uncommon for a landlord or property management group to ask to see the contract for the sale of the business before considering a new tenant.  They do this because they want to know how much the seller will make when they sell the business, and they may want a piece of the action. This is called an assignment fee.   For the right to transfer a lease, or what is often justified as “attorney’s fees,” an assignment fee is demanded to release the current tenant from their obligations.  The fee is normally between $2K-$5K, but in one case I’ve seen a landlord ask for 10% of the contract price, which was $33,000. Assignment fees are negotiable, and a good broker and/or business attorney can assist a seller in negotiating this amount.   It also highlights the value of having a good relationship with the landlord.

Security Deposits on Commercial Lease Assignment may be Necessary

While the assignment is typically the responsibility of the seller, the landlord can and will also ask for a security deposit from the buyer.  A reasonable security deposit is one month’s rent, but this too is subject to negotiation. I’ve seen up to six months requested, and again it’s highly negotiable.  Both the term and how long it’s held can be negotiated. While the seller of the business may think this isn’t his or her problem, it can be a problem if the security deposit makes the acquisition prohibitive for the buyer. Landlords may ask for longer term security deposits as a deterrent to acquiring the space if they’re not trusting of buyers.  Having a strong personal financial statement and experience to run the business is the best defense against an unreasonable security deposit.

Assignment Conditions may Surprise Everyone

Just when you think it couldn’t get any worse, there’s more.  Landlord’s often don’t like letting the original tenant off the hook. If a seller gets his or her lease assigned, the landlord will most likely insist that the seller stays on the lease as back up in case the buyer doesn’t pay the rent.   Why have one “throat to choke” when you can have two? The best defense here for a seller is to negotiate the removal of a personal guarantee when renewing a lease years before selling the business. If the business is strong and long lived, and the landlord likes you, renewing for a long term but removing your personal obligations will best position you to exit your business without the associated liabilities attached.

Conclusions

Some things like the “month to month” phenomenon of sellers are counter-intuitive.  A final example are below market rents. While below market rents can be great for a seller for cash flow, it’s all the more reason to expect a landlord to “correct” the rent when a new tenant arrives.  Market rates are what you want to be paying to avoid any unpleasant surprises when it’s time to sell the business. When it comes to leases, the landlord has most of the cards.  Even when neighboring spaces are unrented, landlords see a small business sale as their opportunity to make some money and adjust market prices to current levels.  

Here again we see the difference in the renter versus owner perspective; the renter thinks “they need my business because these other units are unrented, so I’m going to get a great price” while the landlord thinks “this tenant needs to pay market rate or higher because these other units are unrented.”

As a landlord, is it appropriate for me to ask for the business P&L from my tenant who has requested an assignment of the lease and is trying to sell the business? My attorney did not put this on the list of information required. Neither the potential buyer or her guarantors appear to be liquid enough to support the rent.

Hey Robert,

As a broker, we do see landlords ask for P&Ls on the businesses their tenants own.

As you surmised, they want to see if the business model in their space is viable if it’s going to transfer to the next buyer/tenant.

The net worth and experience related to the business buyer would matter more to me, and what I see is that most landlords are interested to see that the business buyer/prospective tenant could pay around 6 months of rent with the money they have available in a “go forward position” after they get into the business.

I hope this helps!

I am a landlord and my tenant who is selling the business is having the potential buyer communicate with me directly. This feels inappropriate. Is it?

Hey Robert. In my opinion it is not.

That buyer will need your approval as the landlord to become your next tenant if he does a deal with your current tenant, so this is inevitable.

As a broker, we do this work with business buyers with the landlord to ensure that the business buyer/prospective tenant can get approved for the space, as their is normally a contingency in the deal that the deal won’t go through without the lease.

If there is no broker in your tenant’s deal I’m not surprised that the buyer is going directly to you.

Hi, I have a small restaurant business getting ready to sell with 3 months left on the lease. I found a buyer who has a great credit history but the problem is the landlord is making our business sale difficult by increasing the rent to 45% more which deters our buyer. There’s 8 other empty spaces in the shopping center but he’s eyeing on our business and want to keep it for himself to sale. What should I do?

Sorry to hear you’re in this predicament Jane.

The challenge is having 3 months left on your lease, this has left you in a prone position that your landlord appears to be taking advantage of.

To take a balanced viewpoint, it’s possible that the market rate has increased and 45% is the new going rate in your market, but that does significantly hurt the value of your business.

It sounds like you’ve done a great job already by isolating a buyer/tenant with a great credit score. Helping the landlord realize that you’re presenting this new tenant and saving the landlord the cost of acquiring a new tenant (Landlords pay big fees to source tenants sometimes) is your best option.

A less fun option would be to adjust your sale price to make the increased rent more palatable for your business buyer.

I have a buyer who has their own existing business but want a bigger space so they like my shop and have agreed on a purchase price. We have bakery leased in NJ and am wondering if we should assign the lease to them under our bakery name and ask the landlord if he’s amenable to it or if we can just assign the lease and close our business. We are afraid the landlord will say no because rent prices are much higher than ours in the area. We have a good relationship but he’s smart. We have 5 months left on the lease with a 5 year option to renew. How should we go about this and do I need an attorney if we have a drafted contract for sale we both agreed to?

Hi Ale, If you want to assign your lease to the buyer, you should first take a look at whether there is an assignment clause or paragraph in your existing lease. If there is, the terms you’ve agreed to with your landlord about a potential assignment will be spelled out for you. If not, you’ll have to address the assignment separately with your landlord. In either case, please consult with your attorney about the lease assignment and the sale of your business. All the best…

Ale- sorry for the delay. Did you decide what to do? Holly is right you can only assign your lease if the lease says you can (which is probably does if landlord consents). What is your plan for your own bakery? Do you want out? Feel free to set up a call with someone at our firm if you want to discuss further. I would recommend you have an attorney review any sale of business agreement.

i have 2 years lease and still valid.sign with pre vious share holder; and now they sell to new share holder, ane the new force me to sign new lease that same lease but in the lease that i have in clude property tax and building insurrane that i never pay because the previous shareholder take care and pay it . i only pay rent., and the lease ask me to pay . how can i should do? i have not enough mony to pay

I don’t totally understand your situation, but it sounds like you are referring to TICAMs, which are a commonly misunderstood add on to base rent.

Your original lease may have had a base rent at a fixed rate, plus additional rents to include Taxes, Insurance & Common Area Maintenance (TICAM), if the lease was extended those cost would likely be extended as well.

My recommendation would be to review the lease and communicate with your landlord, and possibly a real estate attorney to discover your best options to move forward.

Greetings Vy,

That sounds odd that he’d take that long to write a lease, I’d ask why and if there’s a way to expedite this (probably money). I’d also ask about assuming the existing lease if there’s any remaining term, landlords normally like this option.

The risk to you would be for you to get into the space that the landlord could kick you out or make the terms onerous on you to stay.

Space is a vital component of a business like a salon, so you need to take the time and diligence to protect the space.

If it will cost you more than 10% of annual revenues for the space you’ll probably loose money with your business.

Hi, I’m buying a salon business and the landlord said it would take him 3 months to draw a lease agreement. Should I buy the business now, or wait 3 months to sign the lease first then buy the business? I’m just confused with the proper timeline. Thanks

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Commercial lease assignments: A guide for businesses

Business owners often consider commercial lease assignments to enhance flexibility, mitigate financial burdens, or adapt to evolving operational requirements. 

The work landscape, particularly in cities like London, is also evolving with the widespread adoption of remote and hybrid models, with many tenants seeking to streamline their footprints and reduce overhead costs.

Whether your business is looking for a more suitable space or navigating market fluctuations, this article will give you an overview of the lease assignment process and the essential legal aspects to consider.

What is the assignment of a lease?

The assignment of a lease refers to the legal process through which a tenant transfers their lease obligations and rights to another party, known as the assignee. This strategic move allows businesses to exit their premises before the lease term ends, with the assignee assuming responsibility for complying with the lease terms and obligations.

Businesses may consider lease assignment for various reasons, such as relocation, financial constraints, or changes in business needs. For instance, a company experiencing rapid growth may seek more extensive premises, making lease assignment an attractive option to exit the current arrangement.

What role does a solicitor play?

Understanding the legal complexities is vital when considering the assignment of a commercial lease. In this process, solicitors offer expert advice and can negotiate with the landlord to secure favourable terms within the assignment agreement, safeguarding the client's interests. 

Their pivotal role extends to drafting and finalising essential legal documents associated with lease assignments, such as:

• Licence to assign: A solicitor can assist in drafting this document, ensuring that it covers all necessary conditions and terms for the assignment, meets legal requirements, and protects the interests of both parties.  
• Rent deposit deed: Solicitors can draft the rent deposit deed, specifying the details of the deposit arrangement, its purpose, and the conditions under which the landlord can use the deposit, providing legal clarity for both parties.  
• Authorised guarantee agreement (AGA): Solicitors are instrumental in creating an AGA, outlining the legal commitment by the outgoing tenant to guarantee the new tenant's performance. They ensure that the agreement is comprehensive and legally sound, protecting the interests of the landlord and the outgoing tenant.

Avoiding the legal pitfalls of lease assignments

While every commercial lease assignment is unique, several legal aspects require careful consideration.

1. Leasehold covenants: Ensuring compliance 

Understanding leasehold covenants is essential in the lease assignment process as it involves recognising and complying with the agreed-upon obligations and restrictions outlined in the lease agreement. These covenants dictate how the property can be used, any alterations or improvements allowed, and other conditions the current and potential tenants must adhere to. 

For example, if a leasehold covenant stipulates that the premises can only be used for office purposes, you cannot assign the lease to a manufacturing company.

Failure to understand and meet these covenants could lead to complications, including the landlord's refusal to consent to the assignment or potential legal issues. Comprehending these covenants is essential for a smooth and legally compliant lease assignment.

2. Securing the landlord's consent: A prerequisite

Before proceeding with a lease assignment, obtaining the landlord's consent is paramount. This process involves submitting a formal request providing details about the proposed assignee and their financial stability.

While landlords cannot unreasonably withhold consent, specific lease terms may give them grounds to do so. Understanding the particular conditions for refusal is crucial, so it is important to seek legal advice as soon as possible.

3. Liabilities when assigning a commercial lease

Understanding liabilities when assigning a lease is crucial for business owners as it directly impacts their ongoing responsibilities and potential financial obligations. Transferring a lease doesn't automatically absolve the original tenant of all liabilities; they may still be held accountable if the new tenant defaults on payments or breaches lease terms. 

An authorised guarantee agreement (AGA) is a legal commitment often used in the context of commercial lease assignments. When a tenant assigns its lease to a new tenant, the outgoing tenant (assignor) may be required to provide an AGA. This agreement serves as a guarantee by the original tenant to the landlord, ensuring that the obligations of the new tenant (assignee) under the lease will be fulfilled.

The AGA means that if the new tenant defaults on the lease obligations, the outgoing tenant remains liable, guaranteeing the landlord a level of financial security. The original tenant can be pursued for any unpaid rent or other breaches of the lease terms by the new tenant. The AGA provides a legal mechanism for the landlord to seek redress from the outgoing tenant if issues arise with the assigned lease. 

Clear comprehension of these liabilities ensures informed decision-making and risk mitigation during the lease assignment process.

4. Navigating regulatory changes

The evolving regulatory landscape, particularly factors like Energy Performance Certificates (EPCs), can add additional challenges to lease assignments. For example, if you took on a lease before Minimum Energy Efficiency Standards (MEES) came into effect on April 1, 2018, the regulations did not apply at the time of the lease's inception. However, if you are now considering assigning the lease, MEES regulations would be applicable. 

A landlord may be less willing to agree to the lease assignment if it becomes essential to ensure that the property meets the required EPC standards to comply with the current regulations. 

5. Formalising with Land Registry: A vital step

Registering an assignment with the Land Registry is an important step in the lease assignment process. If a lease is granted with a term of over seven years, it must be registered to record the change of tenant officially. 

Failure to complete this registration can have significant consequences, including potential challenges to the validity and enforceability of the assignment. 

What are the alternatives to assigning a commercial lease?

When considering an exit from a commercial lease, it's crucial to recognise that assignment is just one of several options. Exploring these options is vital, and seeking guidance from a solicitor ensures a comprehensive understanding of the available choices.

• Assignment vs. subletting: Assignment involves permanently transferring your lease obligations to a new tenant. On the other hand, subletting a commercial property allows you to lease a part of your space to another party, retaining your responsibility for the entire lease.  
• Taking advantage of a 'break clause': A break clause is a provision in the lease allowing either party to terminate the agreement early, typically at predefined intervals. It provides a strategic exit, but conditions and notice periods must align with the lease terms.  
• Early termination with landlord's consent: Seeking your landlord's agreement to terminate the lease prematurely can be challenging. It requires negotiations and may involve financial considerations. Legal advice is essential to navigate this complex process and safeguard your interests.

Business owners can make informed decisions that align with their strategic objectives by understanding the intricacies, exploring alternatives, and leveraging legal expertise.

Commercial lease expertise

Our team of experienced commercial property solicitors is dedicated to guiding you through the lease assignment process. Every business has unique needs, so we offer tailored advice that aligns with your objectives. 

In addition to lease assignments, we can provide guidance on alternative options for ending a commercial lease, such as subletting, break clauses, and lease termination. 

With solicitors in London, Brighton, East Sussex, and Cumbria, we assist commercial landlords and tenants nationwide.

Looking to assign a commercial lease?

You might also like to read:

Subletting strategies: maximising flexibility in commercial leases, how to surrender a commercial lease: a guide for landlords and tenants.

How to end a commercial lease early: A quick guide

Repair clauses in commercial leases: what tenants need to know.

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An assignment of a commercial lease is a process by which the current tenant of a leased commercial property transfers its leasehold rights to a new tenant.

The new tenant takes over the obligations and responsibilities of the lease, including paying rent and maintaining the property during the remaining lease term. The assignment process involves various legal and administrative steps, including obtaining the landlord’s consent and preparing and executing a lease assignment agreement.

Do you need help with the assignment of a commercial lease? Call our fixed-fee commercial property solicitors on 020 3417 3700 or fill in the enquiry form .

Our commercial lease solicitor in Wembley, London will help you to understand the rights & obligations of all parties involved in the lease assignment process. We can provide guidance and ensure that the process is conducted correctly.

No matter where your commercial property is, our commercial lease solicitors provide legal services regarding the assignment of commercial leases throughout England and Wales.

Table of Contents

What is an assignment of a lease?

5 things you should know about lease assignments, what is the process of assigning a lease in the uk, what is the difference between assignment and transfer of lease, do you need a solicitor to assign a lease, how much do solicitors charge for the assignment of the lease.

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An assignment of a lease is a legal process that allows the original tenant (assignor) to transfer their rights and obligations under the lease agreement to a new tenant (assignee).

When a lease is assigned, the assignee effectively takes over the remaining term of the lease and assumes all the responsibilities and liabilities outlined in the original lease agreement. The assignor is usually released from their obligations, but this depends on the terms negotiated with the landlord.

Here are a few key points to understand about lease assignments in the UK:

• Legal Documentation
• Leasehold Covenants
• Landlord's Rights

Lease assignments typically require the consent of the landlord or the freeholder, as most lease agreements have clauses that restrict or regulate assignments. The landlord may have specific criteria or conditions for approving an assignment.

2. Legal Documentation

To complete an assignment of a lease, the assignor and assignee must typically enter into a legal agreement known as a Deed of Assignment. This document outlines the terms of the transfer and ensures that all parties involved are aware of their rights and obligations.

3. Leasehold Covenants

The assignee is bound by the original lease's covenants, which are the terms and conditions that govern the lease. These may include payment of rent, maintenance responsibilities, restrictions on use, and other obligations.

4. Liability

While the assignor is usually released from future obligations, it is important to note that they may still be liable for any breaches of the lease agreement that occurred before the assignment.

5. Landlord's Rights

The landlord typically retains the right to review and approve the proposed assignee, ensuring they are financially capable and suitable to take over the lease. The landlord may also have the power to request reasonable fees or costs associated with reviewing and processing the assignment.

The process of assigning a lease in the UK typically involves the following steps:

• Review the Lease Agreement
• Obtain Landlord's Consent
• Negotiate Terms
• Deed of Assignment
• Land Registry Notification
• Completion and Handover

1. Review the Lease Agreement

The assignor (current tenant) should review the existing lease agreement to understand the terms and conditions associated with the lease assignment. It is important to check for any clauses or restrictions on assignments and seek legal advice.

2. Obtain Landlord's Consent

The assignor must seek the landlord's consent to assign the lease. This usually involves making a formal request in writing by providing details of the proposed assignee and their financial standing. The landlord may request additional information or documents as part of their assessment process.

3. Negotiate Terms

The assignor and assignee negotiate the terms of the assignment, including any financial arrangements and responsibilities. This may include agreeing on rent apportionment, security deposits, and any other relevant terms. Legal professionals can assist in ensuring that the negotiation process is fair and comprehensive.

4. Deed of Assignment

Once the terms are agreed upon, a Deed of Assignment is drafted. This document outlines the specifics of the lease assignment, including the names & details of the parties involved, the property address, the assignment effective date, and any additional terms or conditions. The Deed of Assignment must be signed by both the assignor and assignee in the presence of witnesses.

5. Land Registry Notification

After the Deed of Assignment is signed, it is typically submitted to the Land Registry. This ensures that the assignment is officially recorded and that the assignee's interest in the property is registered.

6. Completion and Handover

Upon completion of the assignment, the assignee assumes all rights and obligations under the lease. This includes paying rent, fulfilling maintenance responsibilities, and adhering to any other lease terms. The assignor is typically released from future liabilities, subject to the terms negotiated with the landlord.

Throughout the process, it is advisable for both parties to seek legal advice to ensure that their interests are protected and that all necessary legal requirements are met. Additionally, consulting with the landlord or a property professional can help navigate any specific requirements or conditions set by the landlord regarding lease assignments.

The assignment involves transferring the rights and obligations of the lease from one party (the assignor) to another party (the assignee). The assignor is typically the current tenant, while the assignee becomes the new tenant.

On the other hand, a lease transfer refers to transferring the leasehold interest from the current tenant (transferor) to a new tenant (transferee). In a lease transfer, the existing tenant is completely replaced by the new tenant.

It is crucial to consult with legal professionals, such as solicitors or commercial property specialists when dealing with lease assignments in the UK. They can provide guidance and ensure that the process is conducted correctly, protecting the interests of all parties involved.

At Wembley Solicitors, we offer affordable legal services regarding the assignment of a commercial lease on a fixed fee basis with no hidden costs or nasty financial surprises.

Our commercial property solicitors in London charge a fixed fee between £1000-£1500 (Plus VAT) for complete services regarding the assignment of a lease.

Why choose Wembley Solicitors for the assignment of a commercial lease?

• We have extensive knowledge and experience in drafting commercial leases and assignments of leases.
• Our commercial lease solicitors provide legal services on a fixed fee basis without blowing your budget and with no hidden costs.
• We provide professional legal advice and assistance at every step and keep you updated as your matter progresses.
• We provide legal services remotely throughout England and Wales. You do not need to physically attend our office.
• We have a team of qualified and accredited solicitors.
• We are authorised and regulated by the Solicitors Regulation Authority (SRA), so you know you are in safe hands.

We provide legal advice and services to both landlords and tenants. Call our property solicitor today at 020 3417 3700 for more information about the services.

Who pays lease assignment fees?

The responsibility for paying lease assignment fees can vary depending on various factors, including the terms negotiated between the parties involved and any legal or contractual provisions.

Usually, the current tenant (the assignor) and the new tenant (the assignee) bear their own legal costs.

How long does it take to assign a commercial lease?

In general, the assignment of the lease process takes around 3-4 weeks. However, it could take anywhere from a few weeks to several months, depending on how complex the lease is and how long it takes to obtain the landlord's consent.

The amount of time it takes to assign a commercial lease in the UK can vary depending on several factors, including the agreement between the parties, the complexity of the lease and the involvement of third parties, such as solicitors and landlords.

Need legal advice & assistance?

Do you need legal advice or assistance with a commercial property lease? Our expert property solicitors are ready to help you. We're authorised and regulated by the Solicitors Regulation Authority (SRA), so you know you're in safe hands.

Contact our solicitor today to get legal advice and assistance with your legal matters. You can call us on 02034173700 or leave your details here for a callback request regarding your legal matter.

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More From Forbes

Lease audits: understanding the value companies give away in commercial leases.

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Jason Aster, Managing Director of KBA Lease Services .

There is a provision, buried in many commercial leases, that can cost tenants millions. There are no monetary figures or calculations directly attached to it, and the parties responsible for drafting the provision rarely challenge it, so even the best financial stewards routinely overlook this common source of wasted spending.

In commercial leases, the rent is the simple part. It’s more complicated once landlords start passing on operating expenses—utilities, maintenance and other variable services and expenses—that can comprise up to 40% of the total cost of leasing space. Costly errors in the apportionment and calculation of these expenses can creep into your bill and throw off projections.

Leases offer tenants options to check these expenses, but with a myriad of procedural limitations. One of these roadblocks may seem like an anodyne requirement, but in reality is one of the most malignant—the independent CPA requirement.

Lease Audit Rights And Independence

Many contemporary leases set forth a formal process by which tenants can review landlords’ financial information to verify compliance with lease terms. This provision has been somewhat inaccurately coined the “lease audit rights” clause. To exercise their “lease audit right,” tenants must give notice of their desire to inspect their landlord’s books and records, and then follow the stipulated rules of engagement. Mistake number one.

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Most of these matters can be researched and resolved without resorting to such a protracted process. The term “lease audit rights” tends to fool tenants into thinking that any attempt to question a landlord’s charges must follow the lease’s prescribed path, and by design.

“Lease audit rights” often come with a caveat—a formal inspection must be carried out by an "independent" CPA firm. At first blush, this may seem reasonable; after all, CPAs know their way around general ledgers and trial balances and are trained on the proper way to account for various expenditure types. What’s more, many landlords will have their books reviewed and certified by an independent CPA firm before billing their tenants. What could go wrong? Mistake number two.

Why Independent CPAs Aren't The Answer

In practice, the word independence takes the teeth out of tenants’ ability to check and challenge material overpayment issues. A truly independent party must be both financially and intellectually removed from the outcome; and therein lies the rub.

Independent CPAs must simply confirm that a landlord used the right controls, applied the right accounting treatment and followed the arithmetic and objective requirements in the lease. The chances that a tenant’s independent CPA will find anything materially different than its landlord’s independent CPA is virtually nil since they’re all playing by the same rules and should arrive at roughly the same conclusions.

The Best Interests Of The Tenant

Independent representation is the last thing tenants need when reviewing such a complicated financial arrangement. Instead, a zealous advocate can help them investigate potential sources of overpayment. Tenants and landlords spend millions of dollars and employ specialist brokers and lawyers to represent their specific interests when drafting and negotiating every consideration in each lease. The result is a nuanced, imperfect and often highly interpretational document that, through no fault of the parties, cannot perfectly predict the future nor perfectly represent the parties’ intent with respect to every possible charge.

To reverse engineer the plain reading of a lease, as well as the financial intent behind a deal, tenants need advocates at least as skilled, experienced and zealous as their original brokers and lawyers. The most material overpayment issues are often far from objective and may require experts in post-deal legal interpretation and building operations to identify and resolve.

However, the independent CPA requirement in leases restricts tenants from employing the right resources with the proper expertise—after all, CPAs don’t draft the financial legalese in leases—and means tenants’ representatives must review the landlord’s books and records without the tenant’s best interests in mind.

Strategies For Companies

Because this seemingly innocuous requirement restricts the best interests of tenants and costs them money, it's important for tenants to approach their lease negotiations with a clear strategy to amend or remove these unfair impediments to what would otherwise be a normal business process to confirm proper expense treatment. Here are some strategies for doing so:

1. Raise awareness.

Lawyers and brokers may overlook the value forfeited by failing to negotiate more favorable expense review terms for tenants. Before entering lease negotiations, ensure that your legal/CRE experts fully appreciate the impact of restrictive “lease audit rights” and will advocate for your best interests. Make sure draft RFPs and letters of intent indicate your unwillingness to entertain restrictive "lease audit rights," like the requirement to engage an "independent" CPA firm.

2. Negotiate the ability to hire specialists.

Consider negotiating lease drafts to reserve the right to hire specialist representatives who can assess compliance with objective lease terms and identify where the lease is unclear or the financial result is not what you anticipated. As detailed above, independent CPA firms, by definition, are not appropriate advocates, and are unlikely to discover the most extortionate errors of lease misinterpretation or misalignment.

3. Propose fair compromises.

If a landlord resists, ask what you are getting in return for giving away your ability to control potentially significant financial exposure. Suggest practical modifications to standard “lease audit” clauses to balance the needs of both parties, such as providing strict professional criteria around the type of advisor tenants can hire to help research and resolve overpayment matters. For example, require the party to be a regional or national expert with 20-plus years of experience in the practice of reviewing landlords’ books and records without limiting the type of firm or degree the advisor must have.

The ability to safeguard your organization’s financial interests hinges on the latitude you are given to reconcile operating expenses against the nuances of your lease. By increasing awareness of these provisions, finding the right experts and striking fair compromises with landlords, companies can stave off this source of wasted cash and more assiduously guide the organization’s financial success.

The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.

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Elektrostal, Moscow Oblast, Russia

Elektrostal is a city in Moscow Oblast, Russia, located approximately 40 kilometers east of Moscow. It has a population of approximately 150,000 inhabitants, making it one of the largest cities in the oblast. The city was founded in 1916 and became a major industrial center during the Soviet era, with a focus on the production of steel, machinery, and chemicals.

One of the nicest areas in Elektrostal is the city center, which has undergone significant renovation in recent years. The central square, Pobedy Square, is a popular gathering spot for locals and features a large fountain and a monument to the Soviet soldiers who died in World War II. The surrounding streets are lined with shops, restaurants, and cafes, making it a vibrant area to spend time in. Housing prices in the city center are generally higher than in other parts of Elektrostal, with apartments ranging from 2 million to 10 million rubles (approximately $27,000 to $135,000 USD).

Another popular suburb is Kuchino, which is located on the outskirts of the city. It is known for its quiet, leafy streets and proximity to the Klyazma River, which provides ample opportunities for outdoor recreation. Housing prices in Kuchino are generally lower than in the city center, with apartments ranging from 1 million to 6 million rubles (approximately $13,500 to $81,000 USD).

One of the outstanding aspects of Elektrostal is its transportation infrastructure. The city is well-connected to Moscow and other neighboring towns via a network of buses, trains, and highways. The Elektrostal railway station is a major transportation hub, with regular trains to Moscow and other destinations. In addition, the city has an extensive network of bike lanes and pedestrian walkways, making it easy to get around on foot or by bicycle.

In terms of safety, Elektrostal is generally considered to be a safe city. The crime rate is relatively low, and the city has a well-trained and equipped police force. However, as with any city, it is important to take basic safety precautions and be aware of your surroundings.

Elektrostal is home to several landmarks and cultural institutions that are worth visiting. The Elektrostal Museum of Local Lore is a popular destination for history buffs, with exhibits on the city's history, culture, and industry. The city also has several parks and green spaces, including Park Pobedy and Central Park, which are great places to relax and enjoy the outdoors.

In terms of public figures, Elektrostal has been home to several notable people over the years. One of the most famous is Sergei Prokofiev, the renowned composer who was born in Sontsovka, a small village near Elektrostal. Other notable people who have lived in Elektrostal include Alexei Leonov, the first person to perform a spacewalk, and Viktor Zin, a world champion weightlifter.

The people of Elektrostal are known for their industriousness and love of culture. The city has a thriving arts scene, with regular concerts, theater performances, and art exhibitions. In addition, the city is home to several annual festivals and celebrations, including the Day of the City, which takes place in early September and features a parade, fireworks, and other festivities.

Elektrostal is a vibrant and dynamic city that offers something for everyone. With its rich history, cultural institutions, and natural beauty, it is a great place to live, work, and play. Whether you are interested in history, the arts, or outdoor recreation, you are sure to find something to love in Elektrostal.

Zhukovsky International Airport

Zhukovsky International Airport, formerly known as Ramenskoye Airport or Zhukovsky Airfield - international airport, located in Moscow Oblast, Russia 36 km southeast of central Moscow, in the town of Zhukovsky, a few kilometers southeast of the old Bykovo Airport. After its reconstruction in 2014–2016, Zhukovsky International Airport was officially opened on 30 May 2016. The declared capacity of the new airport was 4 million passengers per year.

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