If you lease a commercial property to operate your business, circumstances may arise where you need to transfer the lease. A tenant transfers (also known as assignment) a commercial lease to another party (the assignee) before the end of a lease term where the tenant:

1. Is selling their business, and the purchaser agrees to accept the existing lease rather than enter into a new lease with the landlord; or
2. proposes to exit the lease and has found an assignee who will take on the existing lease.

Seek your landlord’s consent

When a tenant proposes an assignment, they should:

1. review the existing lease to identify if the lease can be assigned;
   1. identify the requirements of landlord’s consent upon assignment; and
   1. correspond with the landlord or agent regarding consent and approval of the proposed assignee under the lease.

When seeking your landlord’s consent for the assignment, the proposed new tenant must usually provide their financial and business references to the landlord.

Can a landlord refuse to assign a retail lease? 

If the lease is a retail lease, the landlord will not be able to withhold consent to an assignment unreasonably. The Retail Leases Act 1994 provides the grounds on which the landlord can withhold their consent including that the:

1. assignee proposes to change the permitted use;
2. assignee’s financial resources or retailing skills are inferior to the assignor’s, and
3. assignor has not complied with the procedure for obtaining consent to assignment., including providing an updated disclosure statement.

Always check the Retail Leases Act 1994 when undertaking an assignment.

Deed of assignment

After obtaining the landlord’s consent, a deed of consent to assignment is prepared.

A deed of consent to assignment outlines that the:

1. landlord confirms their consent to the transfer of lease;
2. tenant agrees to transfer their interest in the lease to the assignee from a specified date (the assignment date); and
3. assignee (the new tenant), agrees to assume from the assignment date the rights and obligations of the lease as if they were the original tenant (e.g. repairs, security and payment of rent and outgoings) for the term of the lease and any options or renewals.

The Landlord

Generally, the landlord’s key concern is that the transfer does not affect their rights under the lease. They can address this concern by ensuring that the original tenant (assignor) complies with their obligations under the lease until the assignment date. The landlord can take action against the tenant after the assignment date for an existing breach of the lease.

The landlord will also want to ensure that the assignee can comply with the lease obligations. This is likely to involve an assessment of the assignee as a tenant. Before confirming their consent to the transfer, the landlord examines information about the assignee such as:

1. financial statements;
2. business history; and
3. professional references.

Finally, there is usually an agreement about who is liable for the costs of the deed of assignment. The landlord’s lawyer usually prepares the agreement. However, the outgoing tenant or the incoming tenant pays these costs (not the landlord).

The deed of assignment usually requires the assignee to give the relevant security and guarantees.

The outgoing tenant

The outgoing tenant’s key concern is to be released from their obligations under the lease from the assignment date. The deed of assignment can address this concern by specifying that:

1. the tenant is released from the assignment date from any claims or liabilities under the lease (provided there is no existing breach of the lease); and
2. if the tenant has provided any security, it is to be returned or refunded.

The tenant is bound to the terms of the lease until the transfer of the commercial lease is formalised through the deed of assignment and should comply with their obligations under the lease until the assignment date.

With retail leases, the assignor usually organise the registration of the transfer of deed and divides the costs with the new tenant (the assignee).

The assignee

The assignee’s key concern is for the landlord to accept the transfer of the commercial lease from the assignment date. The deed of assignment can address this concern by providing that the:

1. landlord accepts the assignee as tenant from the assignment date;
2. landlord will observe their obligations specified in the lease in favour of the assignee; and
3. parties sign and register a transfer of lease form with Land Registry Services.

The assignee should review the contents of the commercial lease (including the disclosure statement if it is a retail lease) before signing the deed of assignment. The tenant’s obligations may include providing security and a personal guarantee.

A personal guarantee is taken on by an individual to guarantee the obligations of another individual or entity. For example, the assignee may provide a personal guarantee where a party is a guarantor. If the assignee cannot meet their obligations (such as to pay the lease), then the guarantor will have to meet that obligation.

Costs

Before finalising the deed of assignment, the assignor, landlord and assignee must agree on who bears the costs of preparing, negotiating and registering the deed of assignment. Generally, the assignee bears the costs. However, you may negotiate to cap the amount or exclude negotiation costs.

Here to Help

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