What is an assignment of a lease?
An assignment transfers the benefit of a lease from one party to another, for instance where the tenant’s business needs change and they want to move premises, or are approached by a new venture seeking a property to move into. On assignment the tenant is selling their interest in the property under the lease. In most cases a commercial lease will contain a restriction on assignment, enabling the landlord to retain control over the property and approve potential assignees.
The ability to assign, or lack thereof, will be in the lease so the first step for any tenant thinking of assigning their interest will be to check their lease.
Key Points for Landlords
Nearly all modern leases will require landlord’s consent to an assignment. For the landlord the key considerations are likely to be:
- What is the strength of the assignee’s business, can they meet the tenant obligations under the lease? It is common practice to request three years of accounts, bank statements or proof of profits to determine how well the business has been doing.
- Would the new business expect to share occupation, perhaps with another group company or a concession? It’s helpful to find out how they intend to configure the space, and to confirm with the tenant what the current permitted use under planning laws is.
- Is there a guarantor involved? If so, the same due-diligence points apply to the guarantor, as they’d need to step into the Tenant’s shoes if required
Key Points for Tenants
For any consent application to run smoothly it’s a good idea to:
- Check the terms of your lease at the very start- there may be wording about how to apply for consent, and you will have to act in accordance with this.
- There will almost certainly be a section about ‘service of notices’ which will supply the correct address or contact to send such an application to. Don’t assume that you will know who needs to see it, the lease may say different!
- Provide the landlord with necessary supporting information in one package. This will help prevent confusion and miscommunication which can cause ill-feeling on both sides.
- If the application is urgent for any reason, let the landlord know the reason (if you can), together with a suitable timescale from the outset.
- The key concept for a landlord in all of this is that of ‘reasonable’ behavior. This is what a Court would look at should a tenant feel their application had been treated unfairly. Every application will be different, but regardless of the complexity, amount of information or urgency, bear in mind that responses should be prompt, balanced and considered.
- Court cases on assignments and consent to assign show that it is vital to read and respect the terms of the lease, and that consent to an assignment cannot be taken for granted.