What does it mean to assign a lease?
Simply put, it is a transfer of an existing lease (including all its rights and liabilities) by the current Tenant (known as ‘the Assignor’) to a new Tenant (known as ‘the Assignee’) with the consent of the Landlord. For example, if you sign a lease for 5 years and you wish to get out of it after 3 years, you (‘the Assignor’) would ask the Landlord to consent to the lease transfer through a document called “License to Assign”. Your solicitor and the landlord’s solicitor would then prepare an “Assignment of Lease Agreement”.
What happens when you assign a lease?
The outgoing Tenant transfers their existing Lease to the incoming Tenant.
The Landlord is likely to do his due diligence on the Assignee in advance (to ensure they will be a good Tenant), which is likely to involve such things as sight of previous trading accounts, bank reference, trading references, possibly credit checks, etc.
The Landlord may also require additional collateral from the new Tenant, perhaps in the form of a Director’s personal guarantee (where the Assignee is a Limited Company) or a Rent Deposit, particularly where the new Tenant is a start-up, or the Landlord has concerns as to the new Tenant’s solvency, trading history or lack of suitable references.
It is worth noting that the Landlord may lawfully refuse their consent to an Assignment where they have valid reasons, such as the unsuitability of the new Tenant. Other circumstances that may allow the landlord to withhold consent can usually be found under the “Alienation” section of the lease agreement.
Will I still be responsible for the lease after I assign it?
No, but the Landlord is may require the Assignor to enter into an Authorised Guarantee Agreement.
Who pays to assign a lease?
It is normal for the tenant requesting the lease assignment to pay for all legal costs. These can vary enormously depending upon the complexity of the lease and the term still remaining.
As a buyer, do I have to take a lease assignment?
If, as a buyer, you are not happy with the terms of the existing lease, you may wish to try and negotiate a new Lease directly with the Landlord. Of course, the Landlord is not obliged to do so, and can simply say no.
However, it might be in the Landlord’s interests to agree a new lease with new terms with an incoming Tenant. The Landlord could negotiate a new, lengthy, contractual term, thus securing a new Tenant who is likely to be revitalising the business and its premises and possibly enhancing the freehold asset value.
