By Claire Miller, Partner, Head of Property, Penman Sedgwick LLP
Assignment (i.e. transfer) of a lease is one way a tenant might look to dispose of its interest. However, most commercial leases will contain restrictions on the tenant’s ability to assign the lease.
The key issues to consider are:
- Check what restrictions apply – these will be set out in the lease, but be sure to check any supplemental documents too e.g. side letters, deeds of variation, rent deposit deed, superior lease, agreement for lease
- Landlord’s consent – most leases will require the tenant to obtain the landlord’s consent before the assignment may take place, and the tenant will usually have to pay the landlord’s legal costs and other professional costs of dealing with the application for consent
- Superior landlord’s consent – if there is a superior lease, consent may also be required from the superior landlord (and the tenant will usually have to pay the costs of obtaining this too)
- Authorised Guarantee Agreement (AGA) – the landlord may require an AGA as a condition of granting consent to the assignment of the lease. An AGA is a guarantee by the outgoing tenant that the assignee will observe and perform the covenants in the lease, and will typically remain in place for the whole period that the assignee is liable
- What additional security can the landlord require from the buyer? – e.g. a rent deposit of a guarantor
- Circumstances for refusal – the lease might specify circumstances in which it would be reasonable for the landlord to refuse consent, e.g. due to arrears of rent, or breach of covenant, or the financial standing of the assignee
- Offer back clauses – some leases require the tenant to offer the lease back to the landlord before proceeding with an assignment
- Permitted use – is a change of use proposed, and if so is landlord’s consent required to this change and/or any application for planning permission?
This is just a brief summary: there are many other issues to consider, and it is important to obtain appropriate professional advice before proceeding, not least so that the tenant ensures that it complies with the terms of its lease.
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