What do you need to consider when assigning a Commercial Lease?
If you are a Landlord of commercial premises and you want to assign (the legal term for “selling”) your Lease, you will need to consider certain factors before transferring the Lease to a third party.
- Is this allowed under your Lease?
There is a clause in your Lease called an “alienation” clause. This is just a complicated word to reflect the part of the Lease which considers how a Lease is to be assigned and if this is allowed. Some Leases have an absolute provision which prevents a Tenant assigning their Lease. The majority of Leases do however allow the Lease to be assigned but only if the Landlord provides his consent which should not be unreasonably withheld or delayed.
- You must find a willing Tenant to take on the Lease. If you do find a new Tenant who wants to take on the Lease, this will need to be negotiated just as with the sale of any asset; you may wish to use a commercial agent who specialises in marketing such types of commercial property which you are looking to assign the Lease of.
- Applying for the consent from the Landlord
If the Landlord’s consent is required, you will need to apply for the consent to the assignment. The Lease will set out those obligations and will set out the situations in which a Landlord can withhold consent.
- Can the Landlord withhold consent to the Assignment?
The Lease will set out the circumstances where it will be reasonable for the Landlord to withhold its consent to the assignment and which commonly include:-
- If sums are not paid under the Lease up-to-date then they will need to be paid before the consent will be given;
- The new Tenant must be sufficiently creditworthy and have sufficient financial covenant strength to perform the obligations under the Lease: A Landlord will typically request copies of the proposed new Tenant’s accountants and also will ask for references.
- Can the Landlord impose conditions on the proposed assignment?
The Landlord will often require that the existing Tenant guarantees the incoming Tenant so that if the new Tenant breaches the terms of the Lease, the Landlord will be able to pursue the original Tenant.
- Other Practical Points to Consider
- If you have provided a Rent Deposit to your Landlord this will typically be repayable on the assignment of the Lease.
- You will need to give notice of the assignment to the Landlord which usually attracts a nominal fee of say £50.00-£150.00.
- A new Tenant will need to register the assignment of the Lease if there is more than 7 years left on the Lease; the outgoing Tenant should also ensure that their Lease, if previously registered at the Land Registry is taken off the records at the Land Registry.
If you would like any assistance regarding any commercial property matters including the assignment of the Lease whether you are a Tenant or a proposed assignee or indeed a Landlord, please contact Andrew Foley Jones or Sara Parry at afj@macjones.com or sara.parry@macjones.com.
