Commercial Lease Assignment
Lease assignment means transferring a commercial lease to someone else. It is a part of commercial property law.
Commercial leases can change hands for a variety of reasons such as market conditions making business untenable, or in a happier turn of events a business may need to move to larger premises to suit demand.
Assigning a lease can be a complex process, however, following the right legal processes can simplify the matter considerably.
Whatever the reasons for an assignment of a lease our network of commercial property solicitors is ready to guide you.
Contact our legal assessment team today to discuss your matter and get a personalised no-obligation quote.
What does assigning a lease mean?
Assigning a lease is when a tenant, also known as an assignor, transfers a lease and their legal interest in it to another party usually a business. The other party is known as the assignee.
The new tenant will have the same rights and responsibilities under the lease as the assignor when the transfer is signed and completed.
In essence, assigning a lease means selling a lease to the assignee.
Your commercial lease may have a clause allowing the assignment of a lease, if you want to transfer your lease in this manner it will be your responsibility to find a new tenant to see out your lease.
When and why would you want to assign a lease?
There are many reasons to assign a lease. It could be that you are retiring and have decided to end your business, you may need new tenancy because you can no longer afford the rent in your current premises. Or, happily, you may be looking to expand as your business is thriving.
Another reason for an assignment of a lease is a rival business contacting a tenant stating that they would like to take over their lease, if the original tenant agrees an assignment of lease process would follow.
Who can assign a lease?
The following need to be involved in the assignment of a lease:
The Landlord and their solicitor
The current tenant (assignor) and their solicitor
The proposed new tenant (assignee) and their solicitor
Are there any restrictions or limitations on who can assign a lease?
There may be restrictions or limitations in your lease specifying whether you can assign your lease. Short leases typically do not allow lease assignments.
Additionally, a lease that only has a few years left on it or is about to run out may not be transferable as per the lease agreement.
You will need to read your lease’s wording carefully to determine if you are allowed to assign your lease and any restrictions or limitations that prevent you from doing so.
Our commercial property solicitors can assist you in understanding what your lease permits.
What checks will a landlord make before allowing the assignment of a lease?
Of course, a landlord wants a continuation of the lease without gaps to ensure they continue to receive rent.
However, before consenting to the transfer of a lease a landlord will need to do their due diligence to ensure prospective tenants meet their standards. Landlords also have obligations in commercial leases.
These checks are similar to those carried out by a landlord when they screen any prospective tenant.
The landlord’s solicitor will check the following related to the proposed incoming tenant, including:
Financial status and affordability.
References from previous landlords.
How the premises will be used.
Whether they need to make alterations to the premises (some landlords won’t accept tenants who want to make large-scale changes).
Landlords are advised to carry out the same in-depth screening processes that they would for any initial tenant screening. After these comprehensive checks have been carried out a landlord can be confident that they have mitigated their risk.
Why might a landlord refuse to consent to the assignment of a lease?
A landlord may refuse to consent to an assignment of lease if the assignee fails any of their screening checks.
For example, after examining the businesses’ bank statements, the landlord may decide that they won’t be able to afford the rent after their current obligations and outgoings have been taken care of.
Or, they may receive a worrying reference from past landlords. This could include some concerning reports from late payment of rent to suspicious or illegal uses of the premises.
When a tenant wishes to make alterations to a property, they must inform the landlord before an assignment of a lease can go ahead. They may need written permission in some cases via a License to Alter.
When a new tenant wants to make significant changes to the layout of the premises a landlord may be inclined to decline the assignment because after the changes are carried out a landlord’s ability to attract future tenants may be limited.
What responsibilities come with lease assignment?
When a lease assignment has been completed the new tenant will have the same responsibilities the previous tenant did under the lease terms.
This will include payment due dates and rules around maintaining the property.
How to assign a lease
Here’s how the process usually plays out:
An assignor instructs their solicitors that they would like to assign their lease
The assignee instructs their solicitors that they would like to take over the same lease
The assignor’s solicitors get in touch with the landlord’s solicitors regarding the agreed assignment requesting the landlord’s consent for the transaction.
As you might imagine, with three solicitors involved assigning a lease can get quite complex and time-consuming with different legal letters bouncing around between the three parties.
How to register assignment of a lease
When an assignment of a lease is registered the new lease is valid, legally binding, and enforceable. This is a crucial step for landlords. The assignor must also register the lease if it has seven years or more left on the term. Again, the assignor needs to register the lease assignment if the lease has already been registered with the Land Registry.
To ensure that everything is legally above board, a landlord will need to submit a Deed of Assignment to the Land Registry that covers the area where their property is based.
The process involves completing the Land Registry form AP1 and paying the application fee. When the form is received, the new tenant’s name will be entered on the property title.
How much does it cost to assign a commercial lease?
The cost of assigning a commercial lease will vary with a few factors, including the complexity of the lease, the type of lease, the location, and how long is remaining on it.
The cost for a licensed solicitor to help with lease assignment is dependent on many factors including the complexity and specific requirements of the case. On average it is expected to range from £250-£300 but in some cases, it could cost as much as £500.