Commercial Lease Assignments – Protecting The Landlord – Don’t Sign Without Advice

31st October 2019

Commercial leases often contain provision that the tenant can, in certain circumstances, assign their lease and transfer their tenant obligations to a third party, subject to landlord’s consent.

You may find as a landlord you receive a letter from your tenant (particularly where they are a company) or their representatives, advising you that the tenant is looking to assign the lease to a group company or unconnected third party and seeking your consent to the assignment. They may ask you to sign and return to them written confirmation that you agree to the assignment.

However, before you sign and return any consent to your existing tenant, it is worth considering the following to ensure you are fully aware of the circumstances of an assignment before any irrevocable consent is given:

  1. Usually it is a provision of the lease that any landlord’s fees on an assignment are to be paid by the tenant. Therefore any legal or agent’s fees you incur will have to be paid by the outgoing tenant if they want you to consent to their lease assignment. You will be in no way out of pocket by instructing solicitors or agents to advise you and to act on your behalf;
  2. If you sign a letter of consent and not a formal, legally prepared, deed of assignment, you have no direct legally enforceable agreement between you and the incoming tenant in writing.
    On the other hand, a deed of assignment confirms the new direct link between landlord and new tenant and confirms that the new tenant is legally bound by the terms of the existing lease. If there is no formal deed of assignment there is a risk that any attempt to enforce the terms of the existing lease may be unsuccessful. Case law has shown that even where an incoming tenant has taken possession, paid rent to a landlord and obtained landlord’s consent to changes to the property the courts may still decide there is no enforceable lease assignment;
  3. The original lease may contain guarantor provisions entitling you to insist on an authorised guarantee agreement being put in place on the assignment. Again, if you are not legally represented you may not be made aware of this and could lose the added protection of insisting on a guarantor on any assignment. If the incoming tenant does not have a strong trading record, or is less financially robust than the original tenant, you will be taking on more potential risk of tenant default, hence the benefit of obtaining an authorised guarantee as added protection for you;
  4. It may also be as a condition of granting consent to an assignment you want to ensure the incoming tenant enters into further obligations that weren’t in place when the lease was originally created, or amend the rent level, or receive a rent deposit. Involving solicitors enables the consent to be considered in line with all relevant amendments to the lease that can be required or negotiated;
  5. Instructing solicitors and agents on your behalf ensures that any references of the proposed incoming tenant are checked and vetted;
  6. The Landlord & Tenant Act 1954 provides for tenants to have security of tenure. If this has been excluded in the original lease care needs to be taken on any assignment to ensure the incoming tenant’s rights under the 1954 Act are also excluded. If not done correctly the incoming tenant could end up with a right to renew the lease you did not want them to have;
  7. Having a solicitor act on your behalf ensures that the deed of assignment is correctly executed and completed and there are no discrepancies as to when an incoming tenant took the lease. If the assignment is not correctly executed and completed there is a risk that the original written lease cannot be fully relied on, as discussed above.

The process of dealing with an assignment is usually a straight forward one.

It is easy to overlook the need for the landlord to have legal representation as the incoming and outgoing tenant are the ones concerned with the transfer of risk. However, if you as a landlord want to ensure the enforceability of your lease for any incoming tenant and want to ensure that all the protection mechanisms on assignment are in place you should not consent without getting sound professional legal advice first.

Speak to one of our experts about business lease advice.

Before you sign and return any consent to your existing tenant, it is worth ensuring you are fully aware of the circumstances of an assignment before any irrevocable consent is given.

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