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Tenants of commercial premises wanting to dispose of their premises will usually require the consent of their landlord if they want to transfer (or ‘assign’) the lease to someone else. This also applies to underletting.
Usually, a commercial lease is transferrable with the landlord’s consent, although some leases do completely prohibit assignment. It is therefore important to review the relevant clauses of the lease to determine what the lease allows.
Restrictions on assigning, subletting or other dealings with leased premises are common lease clauses. What is and is not allowed is usually set out in the lease. This is commonly known as the “alienation clause”. The clauses are often to enable the landlord to control who is in occupation of their premises.
Obtaining landlord consent is a common requirement when wanting to assign a lease. Failing to obtain the landlord’s consent when required could result in financial penalties and/or enforcement action. Formal consent should always be obtained writing to avoid future uncertainty or dispute.
We would always recommend obtaining legal advice from a suitably qualified solicitor before proceeding. If you would like to speak to a member of our team about getting out of a commercial lease please call us on 01616 966 229 or complete our online enquiry form and we will contact you directly.
If premises are assigned without consent, the landlord may not recognise the new tenant and continue to hold the original tenant liable for the rent and all other provisions of the lease (including any breaches of covenant by the transferee).
An application for consent to assign should be sent to the landlord, its agents or solicitors.
The current tenant will be liable for the landlord’s costs whether or not the consent is granted, although some tenants negotiation for the proposed new tenant 'the assignee', to meet the cost if the assignment is completed.
The landlord is entitled to ask for further documentation or information regarding the potential tenant, including reference, in order to make a decision.
Landlords may request up to three years audited accounts for the proposed assignee as well as up to date management accounts, trade and professional advisor references. Other references may include from an existing landlord.
A Landlord may refuse consent if the proposed new tenant cannot provide good references or has no previous trading history.
Most leases state a landlord cannot 'unreasonably' withhold consent and this is also implied by law.
The law states that a landlord owes a duty to the tenant to give consent except in a case where it is reasonable not to. The landlord may give consent subject to conditions.
The landlord must deal with an application within a reasonable amount of time and give the tenant written notice of his decision whether or not to give consent. If the consent is withheld the landlord must specify its reasons.
If the landlord does refuse consent, it is possible to challenge the decision in the courts, but this can be difficult and expensive.
There are a significant numbers of case law which considering what accounts to a 'reasonable' refusal to give consent. Specialist advice should be considered in this field.
Some examples where it is reasonable for a landlord to withhold consent include if they withheld consent and the assignment went ahead anyway or where there have been a breach of the lease covenants. Examples include where a new tenant is using the premises for a different type of use than previously used or where the use is not permitted by the lease.
A landlord may give consent subject to the assignee obtaining a guarantor or entering into a rent deposit deed, providing the landlord further security for payment of the rent.
If consent is given, the current tenant is likely to be required to enter into an authorised guarantee agreement. Most leases will require an authorised guarantee agreement as a pre-condition to any assignment.
An authorised guarantee agreement (AGA) means that the outgoing tenant guarantees the performance of the covenants in the lease by the person or company to whom the lease is being transferred.
The potential liability under an AGA could be substantial. Any existing tenant wanting to assign should therefore satisfy themselves as far as possible that the proposed new tenant (the assignee) is a good a reliable tenant.
If the landlord give consent, this is usually recorded in a licence to assign. This formal document is prepared by the landlord’s solicitor or agents and the formal transfer of the lease to the new tenant should not be completed until the landlord has signed this.
There will also need to be a deed recording the transfer/assignment between the outgoing tenant and the incoming tenant detailing the obligations of both parties.
For advice in relation to any aspect of lease assignment call our specialist commercial property solicitors on 01616 966 229 or complete our online enquiry form and we will contact you directly.
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