An assignment of a lease is essentially a sale or transfer of the lease to a third party.
There are several circumstances when a tenant may want to assign their lease to another individual or company, for example, if they are selling their business, or they need to move to different premises before the term of the lease has ended.
Our Commercial Property lawyers explore the process of assigning a lease and what tenants and landlords need to know.
Step 1: Checking the Lease Terms
The first step for a tenant intending to assign their lease is to check the lease to make sure it can be assigned and, if so, what the conditions of an assignment are.
Most leases will permit assignment subject to the landlord’s consent and will state that the landlord’s consent can’t be unreasonably withheld or delayed.
Step 2: When a Landlord Can Refuse Consent
The lease will usually set out circumstances when a landlord can refuse consent, for example if there is any annual rent outstanding, if the current tenant (“the assignor”) is in material breach of any of their covenants under the lease, or if the proposed tenant (“the assignee”) is not of sufficient financial standing.
This list is not exhaustive, and generally, a landlord can refuse consent for any reasonable ground.
Step 3: Common Conditions for an Assignment
The lease will also specify the conditions that the landlord might require for an assignment.
These commonly include an authorised guarantee agreement (AGA) from the outgoing tenant, the assignee providing a rent deposit, and/or the assignee providing a guarantor.
Any of the conditions might be qualified as only being required where it is reasonable for the landlord to ask for them.
As with the grounds for withholding consent, this list is not exhaustive and a landlord can typically impose any reasonable condition.
Step 4: The Licence to Assign
The landlord’s consent to the assignment will be documented in a licence to assign.
This is a tripartite document between the landlord, the assignor and the assignee.
Step 5: Applying for the Landlord’s Consent
The landlord’s consent to the assignment will be documented in a licence to assign.
This is a tripartite document between the landlord, the assignor and the assignee.
The assignor will need to make an application to the landlord for their consent to assign the lease.
They will need to provide the details of the assignee and any other information that may be required for the landlord to make a decision, such as copies of the assignee’s accounts and details of any proposed guarantor.
The landlord or their solicitor should respond in a reasonable tim,e specifying their requirements. The assignor usually pays the landlord’s legal and agent’s fees, and the assignor’s solicitor will need to provide an undertaking for these.
Step 6: Due Diligence and Drafting the Documents
Meanwhile, the assignor’s solicitor should send all necessary documents to the assignee’s solicitor to enable them to carry out their due diligence on the lease and the property.
This will include a copy of the lease and any ancillary documents (for example, any licences to alter, deeds of variation or rent review memoranda), the Land Registry title documents (for both the lease, if it is registered, and the landlord’s title) and replies to pre-contract enquiries.
The assignor’s solicitor will also need to draft the assignment document, which will either be a deed of assignment if the lease is not registered at the Land Registry or a TR1 if it is registered.
The assignor and assignee may want to enter into a contract whilst securing the landlord’s consent; in which case, the assignor’s solicitor will also need to draft a conditional contract.
Step 7: Completion of the Assignment
Once the documents have been agreed upon, they will need to be completed.
Typically the licence to assign and deed of assignment/TR1 are completed on the same day, with the licence being completed first.
Step 8: Post-Completion Matters
After completion, either the assignor’s solicitor or the assignee’s solicitor (depending on what the licence to assign says) will need to serve a notice of assignment on the landlord within a specified time, along with sending them a certified copy of the assignment document and a notice fee.
The assignee’s solicitor will need to deal with the Land Registry application to register the assignment if the lease is registered.
Contact Our Commercial Property Team
Need help with a lease assignment? Speak to one of our commercial property specialists for practical, cost-effective advice.
0161 941 4000
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Charlotte Hook
Senior Associate
Charlotte is a senior associate in the Real Estate team at Myerson. She trained at Myerson and qualified in September 2017. Charlotte has been recognised in the Legal 500 several times as a “Rising Star” and a “Leading Associate”.
Charlotte specialises in sales and purchases, landlord and tenant work and secured lending matters. She has acted for both sellers and purchasers on various types of properties including offices, retail units, industrial units and land for development. Charlotte has expertise in negotiating conditional contracts, option agreements and overage provisions.
About Charlotte Hook