Transferring a Commercial Lease

Posted on Jun 24, 2017 by Matthew Wicks   |   Categories: Commercial & Business Law

Attempting to assign, or transfer, a commercial Lease can be a tricky business, but it is a practice that is becoming more and more common in today’s commercial market.

The primary question which needs to be asked is, do the terms of the Lease allow for an assignment or transfer to take place, or does the Lease prohibit any transfer from occurring? It is common for an assignment to be permitted, subject to the prior consent of the landlord, but this should never be assumed to be the case.

There are also additional matters that may differ in importance, depending on the party to the transaction:

 

The Tenant

  1. Obtaining Consent

A tenant should never assume that the landlord will consent to having a Lease transferred. Any application for consent should be made in writing.

Usually the landlord will provide consent if certain conditions are met, including being satisfied that the new tenant has adequate financial resources, provision of security and entry into a Deed reflecting the agreed terms.

 

  1. Release of Guarantors

Unless the outgoing tenant and guarantor are specifically released from their obligations under the terms of the assignment, then they will remain liable for any breaches of the Lease by the incoming tenant.

 

  1. Return of Security

The Lease document is likely to be silent on whether the bank guarantee or bond will be returned on transfer of the Lease; therefore, the release of the any security should be negotiated as a condition.

 

The Landlord

  1. The Proposed Tenant

A concern of any landlord is going to be whether the proposed tenant has adequate experience and resources to meet the Lease obligations, and isn’t going to be a worse tenant than the assignor.

A Lease should contain provisions allowing the landlord to request information about the business acumen of the proposed assignee, and to require the provision of details of the experience and resources of the assignee’s directors, if the potential assignee is a company. However, the landlord should keep in mind that, if the current tenant has been trading unprofitably, placing hurdles in the way of an assignment to an experienced and financially sound new tenant is to the detriment of all parties.

 

  1. Maintaining Guarantors

Obviously the aim of the outgoing tenant to completely release itself from the Lease, but it is in the landlord’s interests for any existing guarantors to remain liable after the assignment. The landlord should aim for the continuation of existing guarantors to be a condition of its consent to the transfer of the Lease.

 

The Incoming Tenant

Although in an assignment it is generally not possible to completely renegotiate the Lease, there are some issues the assignee should be mindful of:

 

  1. That the balance of the Lease term provides sufficient tenure, and the Lease terms are reasonable;
  2. Obtaining written confirmation from the landlord that there is no current breach of the Lease (so the Lease is not liable to forfeiture);
  3. Any problems between the landlord and the outgoing tenant, relating to the premises or the Lease, are resolved when the assignment takes place.