Why Consider a Lease Assignment?
Businesses evolve, and so do their property needs. A business which occupies its commercial premises as a tenant may decide to:
- Sell its business
- Downsize to smaller premises
- Expand to a larger space to accommodate growth
What is a Commercial Lease Assignment?
A Lease Assignment is the transfer of an existing lease from one tenant (the assignor) to another (the assignee). The lease does not end - all obligations and rights pass to the new tenant.
Points to consider with a Lease Assignment
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Review the lease terms
Before proceeding, check whether your lease permits assignment. Most commercial leases do permit assignment, but require landlord consent before an assignment can occur.
Landlords often wish to maintain control over who occupies their property to maximise the value of their investment.
Landlord’s consent is usually not to be unreasonably withheld but is often conditional on a variety of requirements, as set out in the lease.
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Landlord’s Consent and Legal Requirements
Under the Landlord and Tenant Act 1988, when a lease states that landlord consent is needed, and where the landlord is not to unreasonably withhold consent, the landlord must:
- Give consent unless it is reasonable to refuse it
- Respond to the application for consent within a reasonable timeframe
- Provide written notice of the decision, stating reasons or conditions
- Forward the application to any other party whose consent is required
Failure to comply with these duties could make the landlord liable for damages.
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Financial Checks and Guarantees
The landlord will typically assess the financial strength of the proposed assignee. It may request:
- Business accounts
- A rent deposit
- References
- A personal guarantor
In many cases, the assignor will need to sign an Authorised Guarantee Agreement (AGA), guaranteeing the new tenant’s performance under the lease.
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Licence to Assign
Once consent is granted, a Licence to Assign is prepared. This legal document formalises the landlord’s consent and outlines the terms of the assignment.
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Costs and fees
- The assignor and assignee usually pay their own legal costs
- The landlord’s legal and surveyors’ costs are usually paid by the assignor or assignee, so budget for this
- Stamp Duty Land Tax (SDLT): payable by the assignee only rarely. Normally only the grant of the lease will give rise to an SDLT charge.
- Land Registry fee: payable by the assignee to move the title to its name, if the lease is registered.
Key Takeaways
- Always review your lease terms before planning an assignment
- Obtain landlord consent
- Budget for your own legal fees and landlord’s costs
- Consider financial strength and possible guarantees
