assignment clause commercial lease

Assignment and Consent Standards in Commercial Leases

Mar 6, 2020

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. This article presents a brief overview of the assignment provision in commercial leases, both office and retail.

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. When a tenant’s interest in a lease is assigned, the tenant is transferring its entire leasehold interest and 100% of the leased premises to a third party for the entire remaining term of the lease. For the tenant, the assignment provision represents a potential exit strategy, dependent of course on the local market, and increased flexibility for future needs. For the landlord, the assignment offers greater security for its revenue stream and hopefully the avoidance of a tenant bankruptcy or default while keeping its building occupied. The tenant’s desire for flexibility and the landlord’s need for control is where the negotiations are focused. This article presents a brief overview of the assignment provision in commercial leases, both office and retail, with particular attention on the laws of Maryland, Virginia and the District of Columbia. The landlord’s standard for providing consent to a request to an assignment will be reviewed, and we will conclude by offering suggested language.

What If The Lease Does Not Contain An Assignment Provision?

The law traditionally favors the free alienation of property. Therefore, under the laws of almost every state, if the lease is silent on whether the landlord’s consent to an assignment is required, then the commercial tenant has the right to assign its interest. This is true in Maryland, Virginia and the District of Columbia. Given this baseline, almost every lease form will have a detailed provision setting forth the assignment process. Note also, however, that in most states it is also enforceable for a commercial lease to have an outright prohibition against assignments. Such a provision would likely be a non-starting deal point for most sophisticated tenants.

What Does Reasonable Mean?

If a lease simply provides that the tenant requires landlord’s consent to an assignment, but does not include the standard for giving or withholding that consent, then in many states the implied standard is that the landlord’s consent may not be unreasonably withheld. Historically this was the minority view, with the historical rule allowing the landlord to withhold consent for any reason. The implied duty of reasonableness is now more the norm as more states adopt this position when presented with the issue. There is express case law establishing this rule in Maryland, and most courts in Virginia and Washington, DC will imply such a covenant of good faith and fair dealing. Most states, though, do allow a landlord the sole right to grant or withhold its consent if the lease clearly expressly provides, and in Maryland the lease must specifically state that the landlord’s consent may be granted or withheld in the sole and absolute subjective discretion of the landlord. Again though, a sophisticated tenant with any leverage should never agree to such a provision.

Most negotiated leases will instead contain a provision requiring that landlord’s consent to an assignment is required, but such consent will not be unreasonably withheld. The tenant will likely also try to include landlord’s obligation to not unreasonably delay or condition its consent. A short clause without further defining what constitutes “reasonableness” generally favors the tenant, and landlords typically prefer including specific standards as to the criteria it can consider when reasonably deciding whether or not to consent to an assignment. Without such specificity, defining “reasonable” is difficult as the landlord and tenant clearly will have differing viewpoints and it may be left as a factual question to be decided in litigation. The typical definition (set forth in the Restatement (Second) of Property) would be that of a reasonably prudent person in the landlord’s position exercising reasonable commercial responsibility.

Absent a detailed provision listing the criteria a landlord can consider when reasonably reviewing a request to assign, a landlord is typically found to be considered reasonable if it considers certain general broad factors. First, the landlord reviews the assignee’s proposed use. In a retail setting, the landlord will be concerned whether the proposed use fits with the existing center and/or violates any existing exclusives or insurance requirements. In an office setting, the landlord might review the expected traffic and wear and tear on the building. Second, the landlord will consider the creditworthiness of the assignee. The landlord (and the assignor) will want to be confident that the assignee is capable of performing tenant’s obligations under the lease and a large creditworthy tenant increases the value of the asset. The assignor might argue that a strict financial test (such as a minimum net worth, for example) is unfair since the assignor is likely not being released upon the assignment and the landlord can still pursue the assignor in the event of a default. Third, the landlord will review the experience and history of the assignor. As mentioned above, landlords instead prefer a detailed list setting forth the many factors that they can include as part of reasonably reviewing a request for a lease assignment.

Without further establishing the criteria, the landlord puts itself at risk of a challenge by the tenant that a denial of a consent is unreasonable.

In defining “reasonable,” courts typically do not allow a landlord to deny or condition consent to an assignment based purely on economic reasons where the landlord results in substantially increasing what it was entitled to under the lease. In Washington, DC, there is well established case law holding that it is unreasonable for a landlord to withhold consent solely to extract an economic concession or improve its economic position. For example, a court would not consider it reasonable for a landlord to condition its consent on the assignee paying a greatly increased rent. Instead, as discussed below, landlords should look to protect their interests in a market of increasing rents by providing for either the sharing of excess rentals or a right to recapture.

What Are Typical Provisions In an Assignment Clause?

As discussed above, tenants generally prefer a short assignment provision simply requiring the landlord to not unreasonably withhold, condition or delay its consent to an assignment. But most leases are drafted by landlords, and over the years the assignment provisions have evolved to contain many typical provisions in addition to further defining “reasonableness,” including the following below.

Sharing of Excess Rents. Since many states do not permit a landlord to condition its consent on improving its economic position (e. g. , by increasing the rent), most leases instead contain a provision where the landlord is entitled to all or a portion of the profits. The profits may mean increased rent, or it may even be construed more broadly to consider the value of the location in a sale of the tenant’s business. The landlord’s argument is that it doesn’t want the tenants competing in the real estate market. The tenant should push back here, and certainly try to lower the percentage shared, carve out any consideration received in the sale of tenant’s business, and only share profits after all of the tenant’s reasonable costs incurred in connection with the assignment were first deducted.
Corporate Transfers. Since a purchase of the entity constituting tenant is likely not deemed an assignment under the law, most leases make clear that any such corporate sale, including the sale of either a controlling interest in the stock or substantially all of the assets of the tenant, is deemed an assignment for purposes of the lease. The tenant should carve out permitted transfers for typical mergers and acquisitions under certain conditions, and also carve out routine transfers of stock (or other ownership interests) between existing partners or for estate planning purposes. The landlord will likely accept a permitted transfer concept provided they receive adequate notice and the successor entity succeeds to all of the assets of the original tenant with an acceptable net worth.
Assignment Review Fee. Most landlords include in their form lease the requirement that the tenant reimburse them for legal and administrative expenses incurred in reviewing the request for consent and preparing the assignment. The tenant clearly wants to keep these fees reasonable and in keeping with the local market.
Recapture Rights. Landlords like to include the express right to recapture the premises in the event the tenant comes to it to request a consent for an assignment. A recapture clause allows the landlord to terminate the lease if market rents have increased or if it needs the space for another use. Sophisticated tenants should push back here as much as leverage allows, try to limit the time periods, and if nothing else try for the right to nullify the recapture by rescinding its request for the consent.
Tenant’s Remedy. To protect themselves from claims for damages from the tenant if the landlord withholds its consent to a requested assignment, landlords often include a provision where the tenant waives its rights to monetary damages in such a situation and can only seek injunctive relief. The tenant should try to delete this provision, or at least, if leverage permits, provide for the right to seek damages if the landlord is subsequently found to have acted in bad faith.

Assignment provisions are heavily negotiated and both the commercial landlord and tenant need to be advised to the applicable local law and know the market for a comparable transaction. ( Note: The author represents office and retail landlords and tenants throughout Virginia, Maryland and the District of Columbia.) Sample reasonableness provisions for both office and retail uses are copied below for reference.

Retail Lease

Landlord and Tenant agree, by way of example and without limitation, that it shall be reasonable for Landlord to withhold its consent if any of the following situations exist or may exist: (i) In Landlord’s reasonable business judgment, the proposed assignee lacks sufficient business experience to operate a business of the type permitted under this Lease and to a quality required under this Lease; (ii) The present net worth of the proposed assignee is lower than that of Tenant’s as of either the date of the proposed assignment or the date of this Lease; (iii) The proposed assignment would require alterations to the Premises affecting the Building’s systems or structure; (iv) The proposed assignment would require modification to the terms of this Lease, or would breach any covenant of Landlord in any other lease, insurance policy, financing agreement or other agreement relating to the Shopping Center, including, without limitation, covenants respecting radius, location, use and/or exclusivity; (v) The proposed assignment would conflict with the primary use of any existing tenant in the Shopping Center or any recorded instrument to which the Shopping Center is bound; and/or (vi) The proposed assignment or subletting would result in a reduction in the Rent collected by Landlord during any portion of the term of this Lease.

Office Lease

Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply: (i) The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building; (ii) The Transferee intends to use the Premises for purposes which are not permitted under this Lease; (iii) The Transferee is a governmental agency; (iv) The Transfer occurs prior to the first anniversary of the Lease Commencement Date; (v) The Transferee has a net worth of less than $10,000,000.00; (vi) The proposed Transfer would cause a violation or trigger a termination right of another lease for space in the Building; or (vii) Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Building at the time of the request for consent, or (ii) is negotiating with Landlord to lease space in the Building at such time, or (iii) has negotiated with Landlord during the six (6)-month period immediately preceding the Transfer Notice.

Reprinted with permission from the March edition of the Commercial Leasing Law & Strategy© 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected] .

John G. Kelly

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Assignments & Subleases in Commercial Real Estate Leases

Assignments and Subleases

For many businesses, entering into a lease is an essential and important part of their businesses. Other than payroll, lease payments are often a business’s largest expense. However, given the complexity and sheer length of a typical commercial lease, it is a daunting proposition to review and negotiate a lease on your own. This is the third in a series of articles discussing the major issues to be considered in a typical commercial lease.

This week, we’ll explore assignments and subleases. While assignments and subleases will have varying terms and conditions on a case-by-case basis, we’ll discuss generally about the issues involved in most assignments and subleases.

An assignment of a lease occurs when an existing tenant (“Assignor”) assigns its rights and obligations under the lease to a new tenant (“Assignee”). Another form of assignment occurs when a landlord sells the property and a new landlord takes over the lease. A sublease is often used when the existing tenant (often referred to as “Sublandlord” or “Sublessor”) rents a portion of, or the entire leased premises to another tenant (“Sublessee”), typically for a limited term. Some leases provide landlords the right to terminate the lease if an existing tenant requests an assignment or lease.

Assignment clauses may also be triggered unwittingly by change of ownership, or equity transfers, in a corporate or LLC tenant. Leases frequently state that a transfer of a certain percentage of the shares or membership interest in a corporate or LLC tenant shall be construed an assignment. A tenant should always check its lease for such provisions prior to entering into an equity transfer transaction.

PRACTICAL COUNSEL: In both assignments and subleases, the rights and obligations of the existing and incoming tenants are delineated in the underlying lease document. A prospective tenant should take care when reviewing a proposed lease to ensure that they understand the implications of an assignment or sublease, as they may be faced with unfavorable consequences. Whether a business needs to move out of a leased space due to growth, sell itself, or has space that is not being used, the assignment and sublease clauses will come into play and it is imperative to understand their implications. The actual assignment of lease or sublease agreements should also be drafted and negotiated carefully to conform to the underlying lease, as well as protect the best interests of the Assignor, Assignee, Sublessor or Sublessee.

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A Full Guide to Commercial Lease Assignment (Lease Transfer)

a full guide to commercial lease assignment or lease transfer stamped with a red CONFIRM mark image at offices.net

Dealing with a fixed-term lease agreement and looking to move offices or downsize? The topic of commercial lease transfer can be confusing to navigate, particularly when you are unsure of your rights and obligations under the lease.

If you’re renting a commercial property, you signed a contract at the beginning of your tenancy called a lease agreement , which contains all the details of your rights and obligations while occupying and conducting business operations at the commercial property. Your agent is required by law to give you a copy of the lease agreement if you don’t already have one.

The following article will serve as a full guide to commercial lease assignment, providing business owners with an overview of the legal considerations and elements required for an assignment of lease.

1 What is a Commercial Lease Assignment?
2 Current Market Conditions Boosting Lease Transfers and Flexible Arrangements
3 What is the Difference Between Commercial Lease Assignment and Subleasing?
4 Why Would You Want to Transfer a Lease?
5 How to Go About Transferring Your Commercial Lease
6.1 Goals and obligations of the original lessee and new tenant
6.2 Starting date of lease assignment
6.3 Pitfalls and consequences
7.0.1 Further Insights

What is a Commercial Lease Assignment?

Also known as a lease transfer, a commercial lease assignment involves a tenant transferring all of their interests and rights in a lease to a new party. This new tenant will take on the responsibilities of the existing lease, including rent and any other obligations, leaving the original tenant free to exit the agreement.

Commercial lease assignment often occurs when tenants want to leave their commercial property prior to the end of a fixed-term agreement. This often happens when a business quickly needs to upsize or downsize their space, move to a new city, or go out of business.

State law dictates whether tenants require their landlord’s consent prior to transferring a lease or subletting a part of their space. However, most lease agreements will clearly outline full transfer provisions prior to being signed and, whilst it is possible for lease assignment to be forbidden, the vast majority of agreements allow for transfers.

close up of two men shaking hands image at offices.net

Current Market Conditions Boosting Lease Transfers and Flexible Arrangements

There has been a marked increase in the number of lease transfers and sublets of commercial properties in recent years, largely as a result of increased instances of remote work and downsizing seen across multiple industries. This reduced need for workspace has persisted, as many workers have continued to show a preference for remote and hybrid work arrangements if and when suitable.

Changing employee priorities have forced many businesses to reconsider their existing lease agreements, resulting in an increase in both commercial lease assignments and sublease agreements .

Landlords have adapted their offerings in the face of this changed market demand. Many are now offering flexible, month-to-month leases, allowing tenants to rest easy knowing that they won’t be stuck in a long-term lease agreement if their situation changes.

However, in the case of premium office spaces in highly sought-after locations or warehousing facilities close to major transport links, traditional leases are still very much the norm. In these cases, landlords may have realized that fully reconfiguring their offerings for flexible-usage is financially unrealistic. This may be due to a number of factors, including high-levels of existing demand for traditional leases, the saturation of the flexible workspace market, and the requirements of their typical target tenants.

So, if you’re leasing long-term commercial property and need out of the agreement, or at least to downsize, a lease transfer is a great solution that can leave all contracted parties satisfied.

three business people finalizing a sublease agreement in a well-lit office space image at offices.net

What is the Difference Between Commercial Lease Assignment and Subleasing?

A commercial sublease, which is a type of lease transfer, occurs when a tenant who currently leases property agrees to let another tenant use the space concurrently. The agreement involves all three parties: the original tenant, the new tenant, and the property owner.

When you sublease your space, you become the sub-lessor (or sub-landlord), and your new tenant is now the sublessee (or subtenant). Your agreement with them will normally allow them to reside in your space – or a specified portion of it – for either the remaining term of your lease or some other pre-determined length of time.

It’s important to keep in mind that, as the original lessee, you’re still liable and responsible for making monthly lease payments on a sublet agreement. Therefore, you must collect rent from your subtenant each month while continuing to make rental payments directly to your landlord.

a man sitting on the phone at a desk whilst enjoying a coffee image at offices.net

Why Would You Want to Transfer a Lease?

Lease transfers can be done to adjust the leased property size and monthly rent. A business owner may decide that they need to upsize or downsize their leased premises prior to the end of their original lease term.

Also, a lease transfer may be sought because the current tenant wants to vacate the rental property entirely, with no plans to lease elsewhere. This may be due to outside factors (e.g. a global pandemic) or the forced closure of a business.

A lease transfer, or a sublease arrangement, may also be desired so that two businesses with complementary strengths can share a workspace and mutually benefit from their operational proximity. No matter how complementary the proposed new tenant is to the existing tenant, this new business relationship will require the landlord’s permission (unless they have been given prior written consent providing them with sole discretion over subletting)

How to Go About Transferring Your Commercial Lease

The only necessary requirement for lease transfer is to identify a new lessee. In the vast majority of cases, your landlord cannot deny your request for a lease transfer unreasonably , yet it’s still in your best interest to find a new tenant with an established rental history and who can financially afford the rent on time. The only situation in which a commercial landlord can instantly deny a lease transfer request is if this provision was established in the initial lease agreement, however, this type of provision will often scare off prospective tenants.

If you’re looking to transfer your lease, most agents will request that the new tenant apply as if they were renting any other property as a primary lessee. Be sure that, in addition to their application , the prospective tenant provides documentation like company financials and past rental receipts to support your transfer request. This way, there’s no doubt of their ability to be a reliable tenant.

If you wish to transfer your lease, you must have written consent from your landlord – mere verbal agreement will not suffice. Without your landlords’ express permission in writing, any attempted transfer of lease will be considered null and void. You will then need to fill out a lease assignment agreement, outlining the proposed assignee, current tenant, landlord, and existing lease term.

four colleagues planning a workplace strategy by writing on a clear glass window image at offices.net

Important Things to Keep in Mind

To avoid any unnecessary stress or surprises, it helps to understand your rights and responsibilities before beginning the commercial lease transfer process.

Goals and obligations of the original lessee and new tenant

When considering a lease transfer, it is crucial to first identify the goal you hope to achieve through this deal. Most commercial leases have restrictions on transferring the lease, so before beginning any negotiations, all rights and obligations of the involved parties must be closely analyzed. If everyone’s interests are clear from the start, then agreement upon terms should run much more smoothly.

Starting date of lease assignment

In most cases , tenants need to pay their rent a month before move-in date. Confirm that the party being assigned the lease understands when they are responsible for making their first rent payment, so there are no delayed payments. This is also important for sublease agreements, because existing tenants are often liable for any missed rental payments made by the sublessee.

Pitfalls and consequences

Depending on the terms of the lease transfer and the legal documentation, the original lessee may find themselves responsible for any actions or defaults of the new leaseholder.

As commercial leases often last several years, this could result in a heavy financial burden and significant legal consequences. Careful negotiation at the outset will always lead to a more positive outcome, so it’s important to tick all appropriate procedural and legal boxes when pursuing a commercial lease assignment.

close up of a commercial lease assignment form image at offices.net

Wrapping up

Before you begin subletting or transferring/assigning a lease, be sure that you understand the objectives of both parties and identify the correct method of altering the lease. Both lessors and lessees should also review all clauses in the lease and negotiate based on everyone’s incentives and interests. If there is any confusion about preparing or reviewing documents related to this process, it’s important to consult with legal advisors for the sake of all parties concerned.

Further Insights

Looking for more articles about the US office market and general office matters? You can find a number of recent posts below! Alternatively, if you’re a business or freelancer looking for flexible workspace in the US, we can help to connect you to a wide range of serviced offices and coworking spaces in highly sought-after locations such as New York City , Los Angeles , Houston , Atlanta , Miami , Chicago , and Dallas . You can also call us to have a discussion about your requirements on 972-913-2742 .

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Tags: 2022 , commercial lease assignment , commercial property , guides , landlords , lease transfer , Office Space , subleasing , tenants This entry was posted on Tuesday, November 8th, 2022 at 8:46 am and is filed under 2022 , Business Advice , Leases , Office Talk .

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Comparing and Contrasting Commercial Sublease and Assignment Clauses

Business is unpredictable. To protect yourself as a corporate tenant, your real estate should allow for flexibility. So whether you are looking to outline your rights in a new lease, discard extra space, or want to learn about your best option to get out of an existing lease, this article is for you.

As tenant reps , we have seen how critical sublease and assignment clauses are to the interests of our corporate clients. If improperly negotiated or omitted from your lease, your company could suffer extreme budgetary and financial complications.

To avoid this possibility, we have included our three decades of market knowledge in this article so you can properly understand these two commonly misconstrued clauses. In the process, you will be able to identify which one may be right for your situation and will best protect your interests and budget.

What are the basics of the assignment clause?
What are the basics of the sublease clause?
What do assignment and sublease clauses have in common?

The Assignment Clause

In the event of a lease assignment, the original tenant relinquishes all the rights they held in the leasehold estate , transferring them to a new tenant. This means that they can no longer access the premises, and all stipulations of the original lease fall on the new party.

The original tenant is no longer legally or financially bound by their lease. Instead, the new tenant takes over all obligations and deals with the landlord directly.

The assignment clause does not give new tenants the freedom to negotiate for lower rent, new features, or less space. Rather, they simply adopt the master lease as their own for the remainder of the term.

When Would Assignments Take Place?

Assignment clauses are rarely observed. Think about it from the landlord’s perspective. They already have a party on the hook with a binding legal and financial document. Often, it is not within their interest to pass along this obligation to a new tenant. However, when assignment clauses do go into action, it is likely due to the following reasons:

The landlord would prefer to work directly with the new tenant
The landlord won't permit the cancellation of a lease and is willing to work with new tenant
The original tenant sells their business, and the buyer adopts their commercial real estate

There are multiple reasons why the landlord would rather work directly with the new tenant. For example, if the landlord and the original tenant have an adverse relationship, the former may wish to cut out the original tenant as the middleman.

More commonly, the landlord will wish to work directly with the new tenant if they have a substantially higher credit rating than the original tenant. In some cases, this could turn into a direct deal rather than an assignment.

Assignment clauses will usually take place, though, when a new party assumes the assets of the original tenant. For example, if they go bankrupt or are bought out, the new tenant will assume the property rights of their commercial real estate.

The Sublease Clause

When a corporate tenant puts their sublease clause into action, it is likely because their organization’s spatial needs have changed. Sublease clauses are often observed when the tenant has more space than needed for their employees. Properly executing a sublet will allow the tenant to mitigate the wasted space’s drain on their budget.

Then, if you find that you have extra space , you could make back some of the funds lost to under-utilized square footage.

Why is Subleasing so Important Now?

Commercial subleasing is especially pertinent following the COVID-19 epidemic. Many businesses transformed their operations to at-home or hybrid models. As a result, offices were left empty or underpopulated.

To make back some of these expensive rental payments, many listed portions or their entire leased space for under-market value.

The original tenant will forge a new agreement with the subtenant when subleasing. The original tenant becomes the sublandlord and acts as a medium between the subtenant and the landlord. The subtenant does not have a relationship with the landlord.

How Does Subleasing Work?

Since the sublandlord acts as a middle man, they are responsible for any missing rent payments from the subtenant and are the party to deal with landlord defaults. The original tenant will likely transfer some or all of their premises but maintains all legal rights (and consequences) of the property. This is one of the most significant differentiating points of the sublease from the assignment clause.

The original tenant likely cannot profit from subleasing. The rent rate the subtenant is charged will be dependent on many factors.

The remaining length of the lease term
Supply and demand of the current market
The desperation of the original tenant to discard space
The creditworthiness of the subtenant.

As such, the subtenant has the power to negotiate the price and terms of their agreement with the sublandlord. This is unique to subleasing. It also makes it a desirable option for tenants looking for shorter periods than landlords would agree to, a space mostly prepared for occupancy , and cheap rent. Often subleased space is listed for 10-50 cents on the dollar compared to other Class A properties on the market.

Subleases & Assignments

The sublease and assignment clauses both relieve the original tenant (to some extent) of the burden of a property that no longer fits their needs. Wasted space is expensive, and these clauses mitigate its effects. They are crucial to lightening the responsibilities of the original lease without breaking it, which carries severe financial and legal consequences.

The Clauses Must Already Be Laid Out

However, it is to be noted that the sublease and assignment clauses cannot go into effect without being specified in the original lease. This means that when you are negotiating a new corporate lease, it should be of paramount concern to get these clauses outlined . If not, you could find yourself victim to unforeseen circumstances that change your spatial needs without anything to do about it.

If you attempt to exercise these clauses without them priorly specified in your lease, you are likely violating the agreement which may hold the same ramifications as breaking your lease.

Even if these clauses are laid out in your lease, you will require landlord approval before they can go into effect. Since you are occupying the landlord’s property, this is known as reasonable consent.

There are No Rights Outside of the Master Lease

You also cannot promise rights outside of what was specified in the master lease. The subtenant (new tenant) will be held to the same stipulations that you were. Any clauses or perks outside the original lease cannot be included in future documents.

Similarly, with both these clauses, the original tenant (almost assuredly) cannot profit. Landlords want to dissuade their tenants from the business of renting space and, as such, will require stipulations that forbid listing rent for rates higher than the original tenant pays.

These clauses benefit both new and old tenants. Existing tenants can either partially make back funds lost to wasted space or get out of a lease that no longer suits them. New tenants can find shorter-term leases than what a landlord would normally want to sign. The spaces will likely be move-in ready and cheaper than comparable market rent rates.

How a Tenant Rep Can Help Your Sublease and Assignment Clauses

These clauses are critical to a lease that benefits the tenant. They allow the corporate tenant to adapt to changing internal demands and unforeseen external circumstances flexibly. Failure to properly outline these clauses could lead to extreme financial losses and legal ramifications. Why would you want any room for mistakes? There's more than meets the eye with these clauses. They can be either simple or complex. The important thing to remember is that working with a real estate expert will minimize any chance of errors. Seeking out expert advice from not only a competent attorney, but a tenant rep as well, will lead to the most successful real estate outcomes.

Tenant reps are experts in lease negotiation and work on the tenants' behalf . By spending over three decades protecting tenants’ interests, we know how to ensure that our corporate clients receive the lease that is most advantageous to them. We have worked extensively with both sublease and assignment clauses. We can walk you through these critical lease aspects to forge a document that works for you.

Check out this article to learn more about why you shouldn’t negotiate without a rep!

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Assignment of commercial lease: How-to guide

Occasionally, tenants wish to leave a rental property before the end of their lease. Individuals may take new jobs in new cities, and companies may go out of business or sell their enterprises to a third party.

Whatever the reason, tenants can transfer their original commercial lease to new parties by completing an assignment of the lease.

An assignment transfers one party's interest and obligations under a lease to another party.

During these tenant transfers, the new tenant takes on the lease responsibilities, including paying rent and property maintenance of the leased premises, and the original tenant is released from most of their duties.

Successful property management begins with good documentation and a properly drafted, executed assignment:

Ensures that all parties involved understand the obligations being transferred

Defines the responsibilities that each party will have under the new arrangement

Lays the foundation for a long-lasting landlord and new tenant relationship

Important aspects to consider when drafting commercial leases

Laws about the original commercial lease agreement.

State laws governing real estate, renting, leasing, and assignments vary widely and can tremendously affect your arrangement.

Since the tenant is legally responsible for this document, they must include specific information like financial statements in the commercial lease assignment. Consider your state and local laws for additional information required in your area.

Criteria for commercial landlords in providing consents

A landlord may consider only proper factors when deciding whether or not to consent to an assignment.

Some criteria will be regarded as impermissible by courts, such as refusal based on race or sex of the proposed new tenant. If your landlord does not consent to your attempted assignment, ensure they give you clear written reasons for the decision. Failure to provide such reasons can itself be deemed unreasonable.

Consequences of not providing consent

It is essential to seek the landlord’s permission for the proposed transfer of the duties.

Depending on your jurisdiction or the terms of your original lease, a landlord’s failure to respond to your request for consent to assignment within a specific time may be deemed consent. Sometimes, it may give the assigning tenant grounds to terminate the lease. Review the original lease and your state’s laws for additional details.

Although a landlord is not required to consent to a lease assignment agreement, in some cases, your lease will state that a landlord’s consent will not be “unreasonably” withheld. This is more common in commercial leases than in a residential lease. What is considered unreasonable varies from jurisdiction to jurisdiction, and you should review the laws in your area (and the assignment clause in your original lease agreement) for additional information. On the other hand, if the lease states that the landlord may use their “sole discretion” to evaluate the new tenant, they can veto this assignment without any reason.

Rights of the original tenant

The original tenant cannot assign more rights than the original lease. For example, if the lease term is one year, the assignment term cannot be two years.

Review the lease assignments before signing

Most leases require the landlord’s written consent before an assignment becomes effective. Review the assignment provisions and the original lease agreement for additional information and see if other requirements must be met to make the lease assignment agreement valid.

Get the assignment signed

Sign three copies of the assignment, one for you, the other party, and the landlord. Depending on the nature of its terms, you may decide to have the document witnessed or notarized. This will limit later challenges to the validity of a party’s signature.

Be sure the assignee gets a copy of the original lease by attaching it to the assignment. Its terms will bind them, and they should know their new obligations and rights.

If your agreement is complicated, contact an attorney to help draft a document that meets your needs.

Key components of a commercial lease assignment

The following instructions will help you understand the terms of your assignment.

Introduction

In this section, identify the parties and, if applicable, what type of organization(s) they are. Write down how the document identifies each party. For example, the current tenant can be addressed as the “original tenant” or “assignor” as they assign the lease to the new tenant, and the new tenant can be called the “new tenant” or “assignee.”

Furthermore, add the date on which the assignment will become effective – when it is signed.

The “whereas” clauses, referred to as recitals, define the world of the agreement and offer essential background information about the parties.

In this assignment, the recitals include a simple statement of the parties’ intent to assign the original tenant’s interest in the lease and the new tenant’s intent to assume it. Provide a brief description of the rented property and the landlord’s name under the lease.

You don't need to include a complete legal description for the property description, but provide enough information to identify it. For individual houses, the address will usually be sufficient. If the property has a specific name (e.g., “Lincoln Towers”), include that as well. If only a section of the premises is assigned, clarify that in this description.

This section mentions the assignor’s assignment of their right and interest in the lease to the assignee. This assignment clause allows you to determine whether all of the assignor’s interest in the lease is being assigned or only part of it. For example, if interest in only one-half of the premises is being assigned, the document should note this.

Assumption of rights and duties

This section clarifies the assignor’s responsibilities for the duties listed under the lease (e.g., rent, maintenance of property, etc.). For example, whether:

The assignor is ultimately released from any liability they had under the lease. For example, if the assignee defaults, the landlord cannot seek payment from the assignor.

The assignor will be liable to the landlord if the assignee defaults.

In any event, the assignor will remain responsible for any obligations that occurred before the assignment. In other words, if the damage happened to the apartment before the transfer or the assignor did not fulfill another obligation under the lease, the assignor remains responsible for the building occupied.

Reimbursement

In many rental relationships, amounts are paid in advance or deposited as security for the landlord.

At the end of the lease, this security deposit (with deductions subtracted or interest added) is returned to the tenant. If an entire interest is assigned, the lease does not end, and the assigning party cannot get this money back. This paragraph requires the assignee to pay those amounts to the assignor, and any later return of that money by the landlord will be made to the assignee.

Indemnification

In such clauses, the assignee promises to bear the financial cost of any injury the assignor suffers due to its assignment and any lawsuits arising from its activities on the premises. Note that there is an exception for things done by the assignor before the effective date of the assignment — the assignor remains responsible for those actions.

Continuing effectiveness of lease

Here, emphasize that the original lease terms are still effective to the assignee, except for the assignment.

Assignor’s representations and warranties

List the assignor’s promises under the assignment. Note that this is not a detailed list of services to be provided. Instead, this is the assignor’s assurance that the lease and the rental interest it’s providing are helpful (i.e., no one else lives or has an interest in the place, the lease is still in effect, the assignor is not behind in rental payments, etc.). If there are additional representations the assignor should be making, feel free to include those here.

Condition of premises

Here, mention that the premises are not warranted to be perfect or valuable in a particular way. Instead, the assignee is taking the rented property for what it is and is accepting it in that state.

Additional terms of assignment

This optional provision allows the assignor and the assignee to include any representations, warranties, or other provisions particular to their situation.

Interpretation

This section provides information that both parties were on equal footing in negotiating the consent to assignment. In many cases, a contract is interpreted favorably by the individual who did not draft it. This clause clarifies that both parties were involved in the drafting, so the document should not be read in favor of (or against) either.

Here, list the addresses to which all official or legal correspondence should be delivered. This can be the tenant’s business address or the mailing address for both the assignor and the assignee.

Modification

This section indicates that any changes to the document are only effective if they are made in writing and signed by both parties.

Governing law

This section allows the parties to choose the state laws used to interpret the document.

Counterparts; electronic signatures

This section explains that even if the parties sign the assignment in different locations or use electronic devices to transmit signatures (e.g., fax machines or computers), the separate pieces will be considered part of the same agreement. In a modern world where signing parties are often not in the same city—much less the same room — this provision ensures that business can be transacted efficiently without sacrificing the validity of the agreement as a whole.

Entire agreement

This clause mentions that the document parties are signing is “the agreement” about the issues involved. Unfortunately, the inclusion of this provision will not prevent a party from arguing that other enforceable promises exist, but it can provide you some protection from these claims.

Landlord’s consent and release

Review the terms of the original lease agreement to determine whether or not the landlord’s consent is required to make the assignment effective. This is usually the case. If so, have the landlord sign the document.

Frequently asked questions

What is the purpose of an assignment of lease.

Whether it's because it's time to move to a new space or city, business isn't booming, a company gets sold, or otherwise, sometimes commercial tenants must leave a lease before it ends. And sometimes, they may want to transfer the responsibilities of their lease to someone new. A lease assignment occurs in this case.

Here's the information you'll need to have handy to complete your assignment of commercial lease:

Who the old tenant is : Have their name and contact information ready

Who the new tenant is : Have their information available

What is the difference between an assignment and a sublease?

An assignment transfers one party's interest in an agreement to a third party. In this case, the original tenant gives all their interest to a new tenant. That new tenant steps into the shoes of the old tenant and the old tenant is released from most of their obligations under the lease (although this can be changed by agreement).

This is not the same as a sublease. Under a sublease , a third party is granted only those specific rights provided in the sublease. The original tenant remains ultimately liable for residual obligations under the lease or any failures of the new tenant to meet their obligations. This means that the original tenant will be responsible (in equal measure with the new tenant) for any skipped rent payments or damage to the property.

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Landlord Consent to Assignment

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Lease Assignment Agreement

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A Lease Assignment Agreement is a short document that allows for the transfer of interest in a residential or commercial lease from one tenant to another. In other words, a Lease Assignment Agreement is used when the original tenant wants to get out of a lease and has someone lined up to take their place.

Within a Lease Assignment Agreement, there is not that much information included, except the basics: names and identifying information of the parties, assignment start date, name of landlord, etc. The reason these documents are not more robust is because the original lease is incorporated by reference , all the time. What this means is that all of the terms in the original lease are deemed to be included in the Lease Assignment Agreement.

A Lease Assignment Agreement is different than a Sublease Agreement because the entirety of the lease interest is being transferred in an assignment. With a sublease, the original tenant is still liable for everything, and the sublease may be made for less than the entire property interest. A Lease Assignment transfers the whole interest and puts the new tenant in place of the old one.

The one major thing to be aware of with a Lease Assignment Agreement is that in most situations, the lease will require a landlord's explicit consent for an assignment. The parties should, therefore, be sure the landlord agrees to an assignment before filling out this document.

How to use this document

This Lease Assignment Agreement will help set forth all the required facts and obligations for a valid lease assignment . This essentially means one party (called the Assignor ) will be transferring their rights and obligations as a tenant (including paying rent and living in the space) to another party (called the Assignee ).

In this document, basic information is listed , such as old and new tenant names, the landlord's name, the address of the property, the dates of the lease, and the date of the assignment.

Information about whether or not the Assignor will still be liable in case the Assignee doesn't fulfill the required obligations is also included.

Applicable law

Lease Agreements in the United States are generally subject to the laws of the individual state and therefore, so are Lease Assignment Agreements.

The Environmental Protection Agency governs the disclosure of lead-based paint warnings in all rentals in the States. If a lead-based paint disclosure has not been included in the lease, it must be included in the assignment. Distinct from that, however, required disclosures and lease terms will be based on the laws of the state, and sometimes county, where the property is located.

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At the end, you receive it in Word and PDF formats. You can modify it and reuse it.

A guide to help you: Tenants and Subtenants Obligations under a Sublease Agreement

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Commercial Lease Assignment and Sublet Provisions

A balancing act for landlords and tenants, july 2020 by adam f. aldrich.

This article identifies common problems involved in commercial lease transfers through assignments and subleases. It offers both landlords and tenants tips for solving these problems when negotiating assignment and sublease provisions in leases.

The modern commercial lease is a complex, integrated document that attempts to balance the competing interests of the landlord and tenant. As a result, commercial leases are the subject of much negotiation and are never “one size fits all.” In fact, commercial leases are one of the least standardized documents in real estate practice.

When any commercial lease is to be transferred in part through a sublet or in its entirety through an assignment, the issues multiply. The transfer provisions, which once seemed moot, become operative to determine whether the lease can be transferred and, if so, under what conditions. If, during lease negotiations, the parties overlooked the lease transfer provisions or gave them cursory consideration, they may be unpleasantly surprised by the result. While landlords and tenants have divergent economic interests with respect to transferring the lease, their legitimate concerns can be appropriately addressed through thoughtfully crafted transfer provisions.

This article explores common problems, issues, and solutions encountered in commercial lease transfers through assignments and subleases. It is intended to be useful both to the lawyer who infrequently encounters lease transfer problems and the seasoned practitioner who deals with lease transfer issues every day.

Distinguishing Between an Assignment and Sublease

Assignments and subleases have fundamental differences that are frequently misunderstood. A lease is both a conveyance of an interest in property and a contract. 1 After executing the lease, the landlord and tenant are bound to one another by privity of contract and by privity of estate. As a result, they may each enforce the provisions of the written lease through privity of contract and the promises that arise from privity of estate. 2 Privity of contract allows enforcement of the lease provisions, while privity of estate allows enforcement of only those promises that run with the land. 3

Whether the landlord, tenant/assignor, and subtenant/assignee call their arrangement an assignment or a sublease, courts typically look at the substance of the transaction. In an assignment, a tenant transfers its entire interest in the lease. 4 After assigning its interest in the lease, the assignee has privity of estate with the landlord, but the assignee and the landlord are not in privity of contract unless the assignee assumes the tenant’s obligations under the lease. 5 Assignment of the lease ends the original tenant’s rights to possession, but absent an express release under the lease terms, its liability under the lease continues. 6 This means the original tenant remains secondarily liable for the assignee’s obligations under the lease. Thus, the tenant/assignor may find itself liable at a future date if the assignee fails to perform its obligations under the lease.

In a sublease, however, the tenant transfers less than the remaining term or less than the tenant’s entire interest in the lease, leaving the original tenant with a reversionary interest in the lease. 7 The relationship between the original landlord and the original tenant, including both privity of contract and privity of estate, remains intact, thereby creating the relationship of landlord and tenant between the original tenant (sublandlord) and the new tenant (subtenant). The original landlord and the subtenant have no privity of estate or privity of contract with one another, so the original tenant remains liable for the actions and omissions of the subtenant. 8 However, the subtenant’s rights will terminate with the original lease or when the landlord declares a forfeiture of the tenant’s lease term. 9

A third, less common type of transfer is a partial assignment of a lease. Such assignments are called assignments “pro tanto,” not subleases, because they grant possession of a portion of the leased premises to the new tenant for the balance of the lease term. 10 The landlord now has two tenants and, in effect, two leases. There is little guiding case law on this hybrid lease transfer, so it is not entirely clear whether the assignee has a contractual relationship with the landlord. 11 Due to the vagaries and uncertainties that can result when a transfer of possession encompasses less than all of the space, partial assignments should be avoided. To avoid assignments pro tanto, landlords should consider prohibiting assignments of less than the original tenant’s entire interest in the lease. If a landlord proceeds with a partial assignment, it should clearly document the arrangement, including the rights and remedies of the landlord, original tenant, and new tenant, and acknowledge the transaction as a partial assignment and not a sublease. 12

The accompanying table illustrates the many differences between an assignment, sublease, and partial assignment. 13

Restrictions on Assignments and Subleases

Colorado law favors the free transferability of rights. 14 As a result, landlords frequently attempt to limit the tenant’s right to transfer the lease by including lease provisions specifically restricting the tenant’s right to assign or sublet. Under Colorado law, outright prohibitions against assignments are permissible and are not considered invalid restraints on alienation. 15 Even if outright prohibitions on assignments or subletting are enforced, such provisions “are construed against the restriction.” 16 This means a court generally will construe such stipulations “against the party invoking them.” 17 A breach of the restriction against transfer does not terminate the lease, 18 but may give rise to a claim for default. 19 Generally, tenants in commercial leases negotiate exceptions to strict prohibitions against assignments or subletting because transfer provisions may be their only viable exit strategy if they find they can no longer afford the space or no longer need it.

Consent to Assignments and Subleases

Recognizing that absolute prohibitions are neither favored by the courts nor acceptable to most tenants, some landlords include modified prohibitions in their leases that limit the tenant’s rights to transfer the lease and, if a transfer is permitted, allow the landlord to enforce the lease against both the original tenant and the new tenant to the maximum extent possible. Such provisions may reserve to the landlord, either in its sole discretion or without unreasonably withholding its consent, the right to approve a proposed lease transfer. Although the reservation of the landlord’s right to approve a proposed assignment or sublease is for the landlord’s benefit, 20 the landlord is bound to the standards set out in the lease for consents to an assignment or sublease. 21 Accordingly, once the landlord has established the standards for its consent in the lease, it cannot object to a proposed assignment or sublease if the tenant has met the appropriate requirements.

It is well established in Colorado law that “without a freely negotiated provision in the lease giving the landlord an absolute right to withhold consent, a landlord’s decision to withhold consent must be reasonable.” 22 Thus, if a lease contains a provision against subletting or assignment, but is silent on a landlord’s right to withhold consent, Colorado law forbids the landlord from withholding its consent unreasonably if the tenant tenders a suitable subtenant or assignee to the landlord. 23

Disputes often arise as to what is a ‘‘reasonable” withholding of the landlord’s consent. This debate has led to the enunciation of specific standards of reasonableness. If a lease provision “requires that consent to an assignment will not be unreasonably or arbitrarily withheld, a landlord is held to the standard of conduct of a reasonably prudent person.” 24 Therefore, a landlord must only consider “those factors that relate to a landlord’s interest in preserving the value of the property,” 25 which do not include “[a]rbitrary considerations of personal taste, convenience, or sensibility . . . .” 26 Whether a landlord has acted reasonably is a fact-specific inquiry. 27 Most courts have held that the tenant bears the burden of proving that the landlord acted unreasonably in withholding consent, 28 but some courts have required the landlord to prove it acted reasonably. 29 Courts have been divided on a tenant’s right to terminate a lease where the landlord has been found to have unreasonably withheld consent. 30

There are several reliable rules that courts follow in determining whether a landlord acted reasonably. First, a landlord cannot refuse consent for racial or other discriminatory reasons. 31

Second, a landlord may not deny consent to improve its general economic position or to receive increased rent. 32 However, a landlord may deny consent to protect its interest in the value, condition, and operation of the property or the performance of lease covenants. 33 For example, in Cafeteria Operators L.P. v. AMCAP/Denver Limited Partnership , the tenant leased the premises to run a cafeteria-style restaurant. 34 After several failed attempts to operate the restaurant, the tenant marketed the space to prospective subtenants, including non-cafeteria restaurant owners. 35 When a non-cafeteria restaurant owner expressed interest in subleasing the premises, the tenant sought the landlord’s approval to the proposed sublease, but the landlord refused. The Court found that the landlord reasonably withheld consent because the proposed sublessee would have changed the “character” of the shopping center by operating “the largest restaurant of its kind, raising concerns about lighting, maintenance, traffic, and parking.” 36 Moreover, the subtenant would sell alcohol and stay open late, and its proposed occupancy raised “concerns about security, safety of patrons, and parking requirements.” 37 Similarly, the Court in List v. Dahnke found that the landlord reasonably withheld consent where the landlord determined that a Thai-American restaurant operated by the assignee would not be successful at that location, but the Court did not identify the facts that led the landlord to such conclusion. 38

Third, a court may make a finding of unreasonableness if a landlord refuses consent to a proposed transfer without obtaining relevant information to make its decision. 39 Before making the decision, the landlord should obtain sufficient information on the transferee’s financial condition; the transferee’s experience in operating its business; how the premises are to be used; projected sales, gross income, and income per square foot; and, in the case of a sublease, the size of the subleased space. 40

Fourth, courts may consider how long it takes the landlord to make the decision on the requested assignment. If the landlord instantly refuses consent or waits too long to make a decision, the court could make a finding of unreasonableness. 41 Conversely, if the tenant fails to allow the landlord a reasonable amount of time to issue a decision, the withholding of consent can be found reasonable. 42 In Parr v. Triple L&J Corp. , the Court found that the landlord unreasonably withheld consent when it deferred making a decision on the proposed assignment, thereby delaying the sale of the tenant’s business until the prospective buyer withdrew his offer. 43 The tenant sought approval from the landlord for an assignment of the lease as part of the sale of its business. The landlord requested all personal and financial information on the proposed assignee and the assignee’s business plan, and the tenant provided prompt responses that demonstrated the assignee’s experience in restaurant management and “perfect credit score.” 44 Because the landlord unreasonably withheld consent, the landlord was held liable to the tenant under a breach of contract theory, as well as for lost profits on the sale of its business. 45

Similarly, the Court in Bert Bidwell Investors Corp. v. LaSalle and Schiffer, P.C. addressed whether the landlord unreasonably withheld consent to the tenant’s request to transfer the lease where the assignee was “ready, willing, and able to assume the lease as written, and to use the premises for the same business as that of the tenants.” 46 The landlord ultimately refused consent because it “didn’t like” the proposed assignee. 47 Based on the lease, which required the landlord’s consent to assign, the landlord argued that it “had the right to relet the premises as it saw fit and to be arbitrary in doing so.” 48 Relying on List , the Court found that the landlord acted unreasonably in refusing to accept the proposed new tenant. 49 Nevertheless, parties may create their own standards and definition of reasonableness, and if they do, courts will enforce and apply such standards. 50

As these cases illustrate, if a landlord wishes to withhold consent absent a sole and unconditional contractual right to do so, it must have fact-based reasons for doing so and cannot arbitrarily withhold or delay its consent. The landlord should communicate its decision in writing to the tenant and enumerate all fact-based reasons to preserve all arguments for reasonableness. 51 Before making the request to assign or sublet the premises, the tenant should gather information about the proposed assignee’s or subtenant’s financial status, business acumen, and proposed operations, and then submit this information to the landlord, along with an assignment or sublease document signed by the tenant and assignee or subtenant. While the landlord must still consent to the transaction, 52 such documentation places the tenant in a stronger position to rebut any superficial or arbitrary reasons the landlord may proffer for denying consent. And if litigation ensues, it will be critical for the tenant’s case to show that it supplied the landlord with as much information as possible concerning the assignee’s or subtenant’s financial status and operations, to avoid having the trier of fact determine that the landlord acted reasonably in denying consent due to a lack of information from the tenant.

Recapture, Termination, and Renewal Rights

Leases may grant the landlord the right to terminate the lease and to retake the tenant’s space if the tenant wishes to assign its lease or sublet its space, or if the tenant transfers the lease without the landlord’s consent. Replacing the tenant by recapturing the premises can benefit both the landlord and the tenant, but each party will want to weigh the pros and cons of such an agreement.

Terminating the lease allows the landlord to eliminate existing lease weaknesses and to enter into a new lease with a potentially better tenant on a clean slate. Moreover, recapturing the premises and directly leasing it to the proposed assignee can save the landlord substantial dollars in tenant improvements that can be passed on to the new tenant through reduced or free rent for a portion of the lease term. But the landlord must pay close attention to market conditions before terminating the lease. Terminating the lease in a strong market when space is at a premium and rents are high allows the landlord to enter into a new lease with a new tenant at a higher rate, but the landlord may take a loss on its investment in the premises in a down market when rates are depressed and there is an oversupply of space.

The tenant, on the other hand, risks losing its investment in its business and the leased premises. Before requesting a transfer, the tenant should closely scrutinize the lease to determine the potential outcome. Under some leases, the act of notifying the landlord of an intent to assign or sublet can trigger the recapture provision. 53 Similarly, if the lease is assigned without the landlord’s consent, it may trigger the recapture right if that right is expressly provided in the lease. 54 Landlords should closely review the recapture language before terminating the lease because restraints on alienation and lease forfeitures are disfavored. 55

When a tenant violates the transfer provisions by transferring the lease without the landlord’s consent, the landlord should send a notice of default to the tenant and demand that the default be cured by nullifying the transfer, 56 unless the lease provides that transferring the lease is an automatic termination. If the tenant is unable to nullify the transfer when it receives the notice, it could be liable for default damages incurred by the landlord. 57 If the tenant does not cure the default and the landlord will not approve (and has the right not to approve) the assignee or subtenant, the landlord may terminate the lease (or the tenant’s right to possession) if the lease so permits. 58 If the landlord fails to terminate the lease 59 or accepts rent after breach of the anti-assignment clause, 60 it may be deemed to have waived the right to terminate. Once the lease is terminated as a result of the default, the landlord must consider its duty to mitigate damages. 61

If the space is recaptured and the lease terminated, the tenant’s lease obligations will be terminated with respect to all recaptured space, including the payment of rent. 62 Moreover, the tenant will no longer have privity of contract or estate with the landlord, assignee, or subtenant because the lease will be terminated as to the tenant. 63 If the landlord recaptures the premises, the tenant is spared the rent expense while it finds a transferee. But if the landlord does not recapture, the tenant can make a transfer without fear that the landlord will then exercise its recapture rights.

Another important issue is whether an option to renew contained in a lease assigned or subleased to a third party remains exercisable following the transfer. If the assigned lease gives the original tenant a renewal option, the assignee can extend the term unless the renewal option is reserved from the assignment. 64 If a tenant/sublandlord grants its subtenant an option to renew based on the tenant’s option in the prime lease, the subtenant is dependent on the tenant/sublandlord for a lease extension because it does not have contractual privity with the landlord. 65 If the tenant/sublandlord refuses to exercise its renewal option so as to enable the subtenant to take advantage of the rights that were granted to it, the tenant may be liable to the subtenant. 66 To protect its option to renew, the subtenant should request or require a recognition agreement from the landlord when negotiating a sublease, whereby the landlord agrees to recognize the sublease if the prime lease terminates due to the tenant/sublandlord’s default. 67

The Impact of Bankruptcy Proceedings on Assignments and Subleases

Bankruptcy laws can have a significant impact on commercial leases when the tenant files for bankruptcy protection. Generally, a trustee is appointed to administer the bankruptcy estate, except in Chapter 11 cases where the debtor-in-possession is the tenant. 68 For debtors with executory contracts and/or unexpired leases, 11 USC § 365 contains a series of rules that govern those documents. Section 365 of the bankruptcy code provides the tenant/debtor with the statutory right to assume or reject executory contracts and unexpired leases to which it is a party, subject to objections by creditors and other parties-in-interest, and ultimately the court’s approval. 69 The debtor may, in turn, assign the lease if the assignee provides “adequate assurance of future performance.” 70 During the period between filing the bankruptcy petition and the date on which the lease is assumed or rejected, the tenant must continue to pay rent and perform the material terms of the lease. 71 It should be noted that written waivers of § 362’s automatic stay have been found to be unenforceable unless they are part of a previous bankruptcy proceeding. 72 Thus, landlords should not assume that a waiver in the lease is enforceable if the tenant files for bankruptcy.

From the debtor’s perspective, the right to reject the lease is “vital to the basic purpose of Chapter 11” because it can free the tenant from the obligation to pay all future rent under the lease. 73 If a lease is rejected with bankruptcy court approval, the debtor has no legal interest in the lease or the leased premises, and it must vacate the leased premises. If, however, the debtor fails to vacate the premises, the landlord can file a motion to lift the automatic stay so it can file or continue an eviction action in state court. If the debtor rejects the lease, the landlord may have a claim for “rejection damages” pursuant to 11 USC § 502(b)(6), subject to the mitigation-of-damages duty. 74

As a condition to assuming the lease, the debtor must cure all monetary defaults and provide adequate assurances of future performance under the lease. 75 A debtor who assumes the lease may be able to assign the lease free of restrictions on transfer set forth in the lease and over the landlord’s objection, 76 which may turn out to be a significant right for the debtor if it holds a below-market lease with sufficient time remaining on the lease term. However, a bankruptcy court has discretion to reject an assignment if it finds, for example, that the assignment would disrupt the tenant mix by changing the image of a shopping center or violating the use restriction in the lease. 77 A landlord may favorably view the debtor’s assumption because it assures continuation of the lease and the cure of existing defaults. But if the tenant is holding a below-market lease, the landlord may favor rejection to enable it to negotiate a new lease. A landlord may object to the debtor’s attempted lease assumption if the landlord disagrees with the debtor’s plan to cure the default or believes the debtor has not provided adequate assurance that the default will be cured or the debtor will perform in the future.

Section 365(b)(3)(C) of the bankruptcy code provides specific protections for “a lease of real property in a shopping center” by providing that no assignment can occur without assurances that use clauses and other provisions vital to the operation of the shopping center will continue to be performed, “including (but not limited to) provisions such as a radius, location, use, or exclusivity provision, and will not breach any such provision contained in any other lease, financing agreement, or master agreement relating to such shopping center.” The purpose of § 365(b)(3)(C) “is to preserve the landlord’s bargained-for protections with respect to premises use and other matters that are spelled out in the lease with the debtor-tenant.” 78 Moreover, § 365(b)(3)(D) requires adequate assurance “that assumption or assignment of such lease will not disrupt any tenant mix or balance in such shopping center.” Despite the bankruptcy code’s language protecting shopping centers, some bankruptcy courts have found lease provisions that limit the use of the shopping center premises to be per se restraints on alienation. 79 To avoid an adverse ruling if a shopping center tenant files for bankruptcy, a landlord should arm itself with as much evidence and expert testimony as possible to show a disruption in tenant mix or a real potential for violating other tenants’ rights if an assignment is allowed. 80

While a tenant’s bankruptcy filing places the lease in limbo, a landlord can be proactive by approaching the tenant to determine whether it intends to reject or assume the lease. Landlords and tenants should not treat the existing lease as a static document that presents the tenant with a “take it or leave it” proposition for assumption. If the tenant voices concerns about the current lease, the landlord can renegotiate the lease to entice the tenant to assume a modified lease (subject to court approval) that keeps the tenant in the premises and paying rent.

Negotiating Lease Transfer Provisions

Negotiating lease transfer provisions is an important process for both the landlord and the tenant because, at some time in the future, the landlord or the tenant may be forced to accept a previously unknown or undesirable counterparty to the lease. It is critical that attorneys impress upon their respective clients the short-term and long-term ramifications that could result from their negotiations of the lease transfer provisions. Landlords and tenants should consider the following issues when negotiating assignment and subletting provisions.

The Landlord’s Perspective

The landlord’s primary objective in negotiating assignment and subleasing provisions is control , including control over the mix of tenants and control over the use of the leased premises. Thus, the landlord will use the transfer provisions to protect its interests in the premises.
A landlord’s foremost concern is almost always the tenant’s ability to pay rent, in full, on a timely basis. A landlord should negotiate requirements that a prospective assignee or subtenant must meet, such as minimum net worth and minimum gross sales.
The landlord can protect itself by including a right to recapture the premises if a tenant seeks to assign its lease or to sublet its premises. However, landlords should carefully consider whether to include language that terminates the lease automatically upon receipt of an assignment request because it could constitute a restraint on alienation, which is disfavored, and the landlord may prefer the leasehold to continue. 81
The landlord should keep the original tenant on the hook. Landlords should oppose any transfer provision that relieves the original tenant of its obligations under the lease upon an assignment. Having a tenant with a vested interest in the assignee’s ability to perform the lease is helpful to ensure that a lease is transferred to a worthy transferee. Additionally, in the event the assignee does default, if the original tenant’s liability has been preserved, the landlord’s chances of recovery are improved.
The landlord should limit the use rights of a subsequent assignee or subtenant. A landlord should seek to protect its right to control the mix of tenants, particularly in retail settings, so as not to violate exclusive use provisions. 82 Moreover, exclusives and use restrictions held by other tenants at a shopping center must be considered in conjunction with a potential change in use that may occur upon assignment or subletting.
The landlord should seek to share in excess rent. 83 For example, where a tenant assigns its lease or subleases its premises, it may be paid more than the amount the tenant is obligated to pay the landlord under the lease. If the assignment or sublease had not been entered into, those same financial accommodations would theoretically have been available to the landlord if it had leased directly to the assignee or subtenant. Accordingly, a landlord should seek the right to share in this excess financial consideration along with the tenant, or if it has the leverage, to obtain 100% of such excess.

The Tenant’s Perspective

The tenant’s goal is maintaining flexibility. The tenant’s ability to maintain flexibility through the lease largely depends on its leverage to negotiate favorable lease terms. A new business seeking space in a desirable retail shopping center may have little or no leverage to negotiate the transfer provisions, but a large corporation leasing significant space may have considerable negotiating strength. Thus, it is imperative that the tenant’s leasing broker and attorney understand the market forces at play in any lease negotiation.
The tenant should seek flexibility to share the leased premises or certain portions of it (i.e., floor space, utilities, and parking) with its related entities and affiliates with which it has a business relationship, without having to seek the landlord’s consent in each instance. This issue is particularly important for large companies with divisions that operate under different business names.
The tenant should also seek flexibility to restructure its organization without the landlord and the lease acting as an impediment to such alteration, by negotiating into the lease specific language permitting such changes. The tenant’s ability to reorganize its business, either through a merger, consolidation, or sale, could be delayed or impeded by the landlord under the transfer provisions if these provisions are not properly negotiated at the letter of intent stage or before the lease is executed.
The tenant should maintain an exit strategy if the premises no longer satisfy its business needs because it has outgrown the space or needs less space. This is particularly important in the era of COVID-19. For example, start-up companies can quickly outgrow their leased premises, but if the landlord does not have more space available, the company must seek out new or additional space, frequently at a higher rate. Conversely, a change in economic forces can cause the tenant’s business to quickly retract. Thus, prospective tenants should be mindful to negotiate termination and rights of first refusal options for newly available space in the same building, with the end goal of ensuring that the size of their leased space does not impair their business objectives. 84
The tenant should insist that the landlord’s right to approve a lease transfer not be unreasonably withheld, if the landlord insists on reserving such right. The lease should detail the specific standards the tenant must meet to obtain approval, such as the transferee’s minimum net worth and minimum business experience.
Counsel for the tenant should attempt to include a provision for automatically releasing the tenant and any guarantor from further liability at the time of the lease transfer or after the transfer occurs if the assignee or sublessee can meet or exceed certain financial marks, such as net worth, sales, or revenue.
The tenant should negotiate (1) the right to revoke a transfer request during a defined period after the landlord issues a notice to terminate and recapture the premises, and (2) a reasonable period to vacate the premises before the tenant will be subject to eviction proceedings if the tenant does not revoke the transfer request. Where the landlord insists on a termination and recapture provision, this rescission right provides a tenant the flexibility to stop the recapture process according to the tenant’s particular circumstances and commercial exigencies.

The relationships established between the parties to a lease, sublease, or assignment can be complicated. While the ability to transfer the lease can be a valuable tool for the tenant, the landlord’s interest in protecting its investment by choosing its occupants is equally compelling. However, a balance can be struck that provides the tenant the flexibility it needs while preserving the landlord’s control and minimizing its risk. During lease negotiations, both parties should recognize that changing circumstances during the lease term could trigger the need to assign the lease or sublet the premises. If thoughtful attention is given to negotiating the transfer provisions, the parties can assure themselves that, if the need arises to transfer the lease, their respective interests will be reasonably protected.

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Adam F. Aldrich is the founder of Aldrich Legal, LLC, a Denver-based law firm focused on real estate and business transactions and litigation—(303) 325-5683. Coordinating Editor: Christopher D. Bryan .

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1 . Schneiker v. Gordon , 732 P.2d 603, 606 (Colo. 1987) (recognizing the “dual nature of a lease” as both a contract and a conveyance of an interest in land).

2 . Id. at 606–07.

3 . Shaffer v. George , 171 P. 881, 882 (Colo. 1917).

4 . Gordon Inv. Co. v. Jones , 227 P.2d 336, 340 (Colo. 1951).

5 . Shaffer , 171 P. at 882.

6 . Roget v. Grand Pontiac, Inc. , 5 P.3d 341, 345 (Colo.App. 1999) (“after the assignment, the assignee becomes primarily liable for the obligations under the contract, while the assignor remains secondarily liable”).

7 . Gordon Inv. Co. , 227 P.2d at 340.

8 . J.E. Martin, Inc. v. Interstate 8th St. , 585 P.2d 299, 301 (Colo.App. 1978) (“the delegation of duties under a lease and their assumption by a third person do not absolve the original lessee, absent the lessor’s knowledge and consent, simply by virtue of the conduct of the lessee and third party”). See also 1 Friedman and Randolph Jr., Friedman on Leases § 7:7.2 (Practising Law Institute 5th ed. 2013).

9 . V.O.B. Co. v. Hang It Up, Inc. , 691 P.2d 1157, 1159 (Colo.App. 1984).

10 . Friedman and Randolph Jr. , supra note 8 at § 7:4.2.

11 . Barbuti, “Assignments Pro Tanto And Why To Avoid Them,” 22 The Practical Real Estate Lawyer 24, 24–25 (Sept. 2006).

12 . Id. at 24.

13 . Id. at 23 (reprinted in part).

14 . Parrish Chiropractic Ctrs., P.C. v. Progressive Cas. Ins. Co. , 874 P.2d 1049, 1052 (Colo. 1994) (“Contract rights generally are assignable, except where assignment is prohibited by contract or by operation of law or where the contract involves a matter of personal trust or confidence”).

15 . Union Oil Co. of Cal. v. Lindauer , 280 P.2d 444, 447 (Colo. 1955). See also Malouff v. Midland Fed. Sav. and Loan Ass’n , 509 P.2d 1240, 1243 (Colo. 1973) (recognizing that “[t]he common law doctrine of restraints on alienation is a part of the law in Colorado”).

16 . Friedman and Randolph Jr., supra note 8 at § 7:3.3. See also Malouff , 509 P.2d at 1243 (holding “that the question of the invalidity of a restraint depends upon its reasonableness in view of the justifiable interests of the parties”).

17 . Beck v. Giordano , 356 P.2d 264, 265 (Colo. 1960).

18 . Lindauer , 280 P.2d at 447.

19 . Fink v. Montgomery Elevator Co. of Colo. , 421 P.2d 735, 738 (Colo. 1966).

20 . Routt Cty. Mining Co. v Stutheit , 72 P.2d 692, 693 (Colo. 1937).

21 . Parr v. Triple L & J Corp. , 107 P.3d 1104 (Colo.App. 2004).

22 . Cafeteria Operators L.P. v. AMCAP/Denver Ltd. P’ship , 972 P.2d 276, 278 (Colo.App. 1998).

23 . Id. See also Basnett v. Vista Vill. Mobile Home Park , 699 P.2d 1343, 1346 (Colo.App. 1984) (holding that a landlord may not unreasonably refuse consent under a silent consent clause because that result “incorporates the principles of fair-dealing and reasonableness and also preserves freedom of contract”), rev’d on other grounds , 731 P.2d 700 (Colo. 1987).

24 . List v. Dahnke , 638 P.2d 824, 825 (Colo.App. 1981).

25 . Cafeteria Operators L.P. , 972 P.2d at 279.

26 . List , 638 P.2d at 825.

28 . Ring v. Mpath Interactive, Inc. , 302 F.Supp.2d 301, 305 (S.D.N.Y. 2004); Toys “R” Us, Inc., No. 88 C 10349, 1995 U.S. Dist. LEXIS 14878 at *111 (N.D.Ill. Sept. 29, 1995); Restatement (Second) of Prop.—Landlord and Tenant § 15.2 cmt. g (American Law Inst. 1976).

29 . E.g., Campbell v. Westdahl , 715 P.2d 288, 293 (Ariz.Ct.App. 1985).

30 . Friedman and Randolph Jr., supra note 8 at § 7:3.4 (citing cases).

31 . Cent. Bus. Coll. v. Rutherford , 107 P. 279, 280 (Colo. 1910); List , 638 P.2d at 825 (dictum).

32 . Kendall v. Ernest Pestana, Inc. , 709 P.2d 837, 845 (Cal. 1985).

33 . Id. at 845. See also Econ. Rentals, Inc. v. Garcia , 819 P.2d 1306, 1317 (N.M. 1991).

34 . Cafeteria Operators L.P. , 972 P.2d at 277.

36 . Id. at 279.

38 . List , 638 P.2d at 825.

39 . Toys “R” Us, Inc. , U.S. Dist. LEXIS 14878 at *124 (landlord’s refusal before it has relevant information that should be obtained in making the consent decision may be unreasonable).

40 . Shaffer, The Sublease and Assignment Deskbook at 80–81 (American Bar Ass’n 2d ed. 2016).

41 . Compare Parr , 107 P.3d at 1107 (affirming trial court’s ruling that the landlord unreasonably withheld consent where the landlord delayed consent, which caused the proposed assignees to withdraw their offer to purchase the business) with Toys “R” Us, Inc. , 1995 U.S. Dist. LEXIS 14878 at *124 (landlord’s refusal before it has relevant information that should be obtained in making the consent decision may be unreasonable).

42 . Fahrenwald v. LaBonte , 653 P.2d 806, 811 (Idaho Ct.App. 1982).

43 . Parr , 107 P.3d at 1106.

45 . Id. at 1107.

46 . Bert Bidwell Inv. Corp. v. LaSalle and Schiffer , P.C., 797 P.2d 811 (Colo.App. 1990).

47 . Id. at 811.

48 . Id. at 812.

50 . Toys “R” Us, Inc. , 1995 U.S. Dist. LEXIS 14878 at *115 (citations omitted) (“where a lease contains provisions giving further meaning to a reasonableness clause, the standard of reasonableness varies”); Shaffer, supra note 40 at 80–81.

51 . Golden Eye, LTC v. Fame Co. , No. 0603166/2007, 2008 N.Y. Misc 8571 at *16 (N.Y. Gen Term Jan. 16, 2008) (“the Court may not determine reasonableness if withholding consent is based on grounds that were not included in the letter refusing consent”).

52 . Shaffer, supra note 40 at 74–75.

53 . Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc. , 826 P.2d 710 (Cal. 1992).

54 . Lindauer , 280 P.2d at 447.

55 . Murphy v. Traynor , 135 P.2d 230, 231 (Colo. 1943).

56 . Shoemaker v. Shaug , 490 P.2d 439, 441 (Wash.Ct.App. 1971) (finding that the tenant was not in default of the anti-assignment provision because it could reassign the lease back to itself).

57 . La Casa Nino, Inc. v. Plaza Esteban , 762 P.2d 669, 672 (Colo. 1988) (citing Schneiker v. Gordon , 732 P.2d 603 (Colo. 1987)).

58 . Gordon Inv. Co. , 227 P.2d at 260–61 (tenant’s subletting was held a breach that permitted landlord to terminate the lease).

59 . Shakey’s Inc. v. Caple , 855 F.Supp. 1035, 1043–44 (E.D.Ark. 1994) (holding that the landlord was estopped from terminating a lease on account of an unapproved sublease because the landlord did not act promptly).

60 . Merkowitz v. Mahoney , 121 Colo. 38, 42 (Colo. 1949) (“It is the general rule that any act done by a landlord, with knowledge of an existing right of forfeiture, which recognizes the existence of the lease is a waiver of the right to enforce the forfeiture”); Werner v. Baker , 693 P.2d 385, 387 (Colo.App. 1984) (“the lessor’s acceptance of rent accruing after the breach of an anti-assignment clause, with knowledge of the breach, constitutes a waiver of the right to terminate the lease for breach of that clause”). Cf. Nouri v. Wester & Co. , 833 P.2d 848, 851 (Colo.App. 1992) (holding that waiver of conditions against assignment by accepting rent did not carry over to other provisions in the lease).

61 . La Casa Nino, Inc. , 762 P.2d at 672.

62 . Carma Developers (Cal.), Inc. , 826 P.2d 710.

63 . Schneiker , 732 P.2d at 611.

64 . Friedman and Randolph Jr., supra note 8 at §§ 7:5.1 and 7:7.1.

65 . Tiger Crane Martial Arts Inc. v. Franchise Stores Realty Corp. , 235 A.D.2d 994, 995 (N.Y.App.Div. 1997) (“It is well settled that where, as here, a sublease is expressly made subject to the terms of a master lease, the subtenant has no legal right to compel the tenant to exercise an option for renewal of the entire demised premises in order to permit the subtenant to exercise an option for renewal of its subleased premises, absent proof of an agreement on the part of the tenant to exercise its option to renew for the benefit of the subtenant or evidence of special circumstances entitling the subtenant to such relief”).

66 . Burgess Pic-Pac, Inc. v. Fleming Cos. , 190 W. Va. 169, 175 (W.Va. 1993) (discussing liability of sublandlord to subtenant for failure to exercise renewal option after request from subtenant).

67 . Senn, Commercial Real Estate Leases: Preparation, Negotiation, and Forms , § 13.14 (Wolters Kluwer 6th ed. 2019).

68 . 11 USC § 1107.

69 . 11 USC § 365(a).

70 . 11 USC § 365(f)(2)(B).

71 . 11 USC § 365(d)(3).

72 . In re DB Capital Holdings, LLC , 454 B.R. 804, 816 (Bankr. D.Colo. 2011) (“waivers, unless they were part of a previous bankruptcy proceeding . . . should not be enforced”).

73 . NLRB v. Bildisco & Bildisco , 465 U.S. 513, 528 (1984); 11 USC § 502(b)(6).

74 . In re Shane Co. , 464 B.R. 32, 38–41 (Bankr. D.Colo. 2012) (discussing damages claim under 11 USC § 502(b)(6)).

75 . 11 USC § 365(b)(1).

76 . 11 USC § 365(f); In re Bricker Systems, Inc. , 44 B.R. 952 (Bankr. E.D. Wis. 1984) (recognizing that § 365(f) invalidates restrictions on assignment of contracts or leases by a debtor or trustee and allows assignment of assumed contracts at a later date).

77 . In re Federated Dep’t Stores, Inc. , 135 B.R. 941 (Bankr. S.D. Ohio 1991); In re Martin Paint Stores , 199 B.R. 258 (Bankr. S.D.N.Y. 1996), aff’d , S. Blvd., Inc. v. Martin Paint Stores , 207 B.R. 57 (S.D.N.Y. 1997).

78 . In re Trak Auto Corp. , 367 F.3d 237, 244 (4th Cir. 2004) (internal citation omitted).

79 . In re Bradlee Stores, Inc. , No. 00-16033, 2001 U.S. Dist. LEXIS 14755 (S.D.N.Y. Sept. 20, 2001) (holding that restriction on assignment violated the anti-assignment provisions of § 365(f)); In re Rickel Home Ctrs., Inc. , 240 B.R. 826, 832 (D.Del. 1998) (striking restrictive use provision).

80 . In re Trak Auto Group , 367 F.3d at 242 (enforcing use provision concerning the sale of automobile parts and accessories in shopping center lease); In re J. Peterman Co. , 232 B.R. 366 (Bankr. E.D.Ky. 1999) (rejecting assignment of shopping center lease where proposed assignment would violate radius restriction in lease and assignee did not sell similar merchandise as the original tenant). But see In re Toys “R” Us, Inc. , 587 B.R. 304, 307 (Bankr. E.D.Va. 2018) (overruling landlord’s objection to the debtor’s assignment on the grounds that it would violate the exclusivity provision of another lease in the shopping center and would disrupt the shopping center’s tenant mix and balance).

81 . Friedman and Randolph Jr., supra note 8 at § 7:1.1.

82 . In re Ames Dept. Stores, Inc. , 127 B.R. 744, 752–54 (Bankr. S.D.N.Y. 1991) (discussing rights of landlord to protect the tenant mix at the shopping center in the context of the lease and a subsequent bankruptcy filing of the tenant).

83 . Carma Developers (Cal.), Inc. , 826 P.2d 710 (upholding the landlord’s contractual right to capture excess rent).

84 . For an interesting discussion on the assignability of rights of first refusal, see Mitchell, “Can a Right of First Refusal Be Assigned?” 985 U. Chi. L. Rev. (2001).

As these cases illustrate, if a landlord wishes to withhold consent absent a sole and unconditional contractual right to do so, it must have fact-based reasons for doing so and cannot arbitrarily withhold or delay consent.

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Assigning a Commercial Lease

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What Is an Assignment of a Commercial Lease?

A commercial lease is a written contract that is used when a commercial tenant rents space from a landlord. Commercial real estate law is the area of law that governs commercial leases and commercial tenant and landlord rights.

Similar to other types of leases, a commercial lease gives a commercial tenant the right to occupy the space and conduct business activities for a specified period of time. These commercial tenant rights are in exchange for the commercial tenant making monthly rent payments to the landlord.

A commercial lease also guides both parties regarding their legal rights and responsibilities associated with the commercial real estate transaction.

The most common example of a commercial lease would be when a tenant leases business property, such as:

An office space;
A standalone retail space;
A restaurant;
A retail store located in a mall or other similar shopping center.

Depending on the specific type of commercial lease that the parties enter into, the lease agreement will provide instructions, such as which party is responsible for making repairs and which party is liable for paying real property taxes on the space.

An assignment of a commercial lease refers to when one commercial party of the lease transfers all the interest and obligations of their lease to another third party. Generally, in a commercial setting, a commercial tenant will assign their interest in their commercial lease to another commercial tenant. Similarly, a landlord to a commercial lease may also assign their interest in the lease to another landlord.

It is important to note that many commercial leases will include restrictions on the ability of a commercial tenant to assign their lease. As such, it is important that commercial tenants review their lease in order to determine if assigning their lease is possible. A commercial lease will note all of the rights that the commercial tenant maintains over the commercial property, including assignability of the lease.

Additionally, it is also important to note that most consumer protection laws that apply to residential leases do not apply to commercial leases. However, depending on the state laws in which the commercial lease was entered into, restrictions on assignment of commercial leases may be valid if such restrictions are deemed “reasonable.”

What Is a Sublease of a Commercial Lease?

Can a commercial lease be assigned or subleased, what happens if i breach the lease through subletting or assignment, do i need a lawyer for my commercial sublease or assignment issue.

A sublease of a commercial lease occurs when a commercial tenant transfers a portion of their lease rights to a third party for a temporary period. A commercial tenant may either sublet a portion of their commercial space while they continue to work in the same space or sublet the entire commercial location until the end of the lease or a period of time.

For example, suppose that a company is a seasonal commercial business, such as a Halloween or firework store. If such a company has signed a year-long fixed lease term, they may seek to sublet their commercial property for the 8 months in which their store is not operational in order to generate income to pay rent on the commercial space.

It is important to note that when subletting, the original commercial tenant, known as the “sublessor,” is still obligated to the landlord for the original terms of the commercial lease. This means the sublessor maintains “privity of estate” and “privity of contract” with the landlord. The sublessee, or the person that intends to utilize the lease for a temporary period of time, is only liable to the original commercial tenant for the lease, not the landlord.

In other words, the original lease between the original commercial tenant and the landlord remains in full effect throughout the sublease period. Additionally, the original commercial tenant is now responsible for the new tenant. This means that the sublessee would go to the original tenant with any concerns they had regarding the rental property, as well as pay rent directly to them.

Subleases have become increasingly popular for big box retail stores that seek to lease corners of their commercial space to smaller retail stores. They are also popular for startups that do not have enough capital to lease an entire commercial space and prefer to cut costs by sharing a commercial space with other companies.

For instance, in grocery stores or shopping centers , you may see nail salons, ophthalmology services, cell phone repair shops, banks, or even food vendors that are subleasing from the main big box store.

Other common reasons a company may seek out a sublease include:

Lower Rental Rates: Rates for commercial subleases, especially short-term subleases, are typically less than standard commercial lease rates;
Flat Rental Payment Structure: Commercial subleases often have a flat rental payment structure with no unusual surprises;
Fewer Obligations: In a commercial sublease, the sublessee usually has limited obligations to repair and maintain common areas;
Less Complex Lease: Commercial subleases are usually not as complex as original commercial leases; or
Additional Income: As noted above, the most common reason for subleasing is for the original commercial tenant to gain an additional source of rental income in order to make or lessen their lease payments.

As mentioned above, whether a commercial tenant may sublease or assign a commercial lease will be governed by the original commercial lease that was entered into by the commercial tenant and the landlord. Once again, the terms of the commercial lease may expressly prohibit the commercial tenant from subletting or assigning their lease entirely.

The lease terms may also allow the tenant to sublease or assign their commercial lease only with the landlord’s consent or if certain conditions have been met. Many states and local jurisdictions prohibit a landlord from withholding consent to assign or sublease a property if the reason is unreasonable.

In the absence of a provision in the executed commercial lease stating otherwise, a commercial lease can generally be assigned or subleased. As such, the ability of a commercial tenant to sublease or assign a commercial lease should always be discussed and negotiated prior to signing or renewing a commercial lease.

Similar to a commercial tenant’s ability to assign or sublet their lease, the penalties for breaching the lease will typically be governed by the terms of the commercial lease that was entered into by the tenant and landlord.

In addition to any legal remedies for breaching the lease, the landlord or tenant may also recover any contractual damages caused by the other party’s breach of the original lease terms. The non-breaching party may also seek to terminate the lease agreement altogether.

As can be seen, assigning or subletting a commercial lease may be a great option for companies seeking to move away from their commercial location permanently or to generate income.

However, commercial lease agreements and contracts can be very complex. As such, it may be in your best interests to consult with an experienced real estate lawyer to help you understand your legal options for assigning or subletting a lease. An experienced real estate lawyer will be able to guide you through the process of assigning or subletting your commercial lease and ensure that your legal position is protected.

Finally, an attorney will also be able to represent you in court, as necessary, should a dispute arise regarding assigning a commercial lease.

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Real Property Management
Commercial Property for Sale Lawyers
Commercial Landlord Rights
What Is a Real Estate Business Plan?
Negotiating a Commercial Lease
Commercial Leases: Assignment vs. Sublet
What is a Commercial Lease Agreement?
Commercial Property Legal Issues
Commercial Lease Disputes
Commercial Real-Estate Law From the Tenant's Perspective
Commercial Lease Security Deposit
The Law of Commercial Subleases
Commercial Landlord
Holdover: Commercial Lease
Eviction of Medical Marijuana Dispensaries
Evicting a Commercial Tenant: Medical Marijuana Dispensaries
Evicting a Commercial Tenant in Illinois
Commercial Tenant Eviction in New York
Commercial Eviction Process in Florida
Commercial Tenant Rights and Eviction Process in California
Right of Assignee or Sub-lessee to Enforce a Purchase Option
Commercial Landlord Refuses to Allow Sublease or Assignment
Implied Warranty of Suitability In Commercial Leases
Subletting or Assigning Commercial Leases: New York
Commercial Lease Trade Fixture Laws
Commercial Landlord's Reasonable Consent to Sublease or Assign
Pros and Cons in Buying or Leasing a Commercial Real Estate
Laws Regarding Shopping Center Lease
Percentage Lease Lawyers
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Assignment and Subletting Clause (Commercial Lease) (Pro-Tenant) | Practical Law

Assignment and Subletting Clause (Commercial Lease) (Pro-Tenant)

Practical law standard clauses w-005-4943 (approx. 17 pages).

Subleasing and Assignment Provisions in Commercial Leases

June 17, 2020

Before the COVID-19 pandemic, many business owners paid little attention to subleasing and assignment provisions when negotiating commercial leases . It was common to focus on rent, maintenance, taxes, and insurance, which affect a tenant’s bottom line, and options to renew the lease if the business thrives. Recently, however, one of the top concerns of commercial tenants is flexibility in case they no longer need to use a portion, or all, of the leased space. In this context, subleasing and assignment provisions are key deal terms.

The Difference Between Subleasing and Assignment

A sublease does not alter the relationship between the landlord and the tenant, who remains liable for all of the tenant’s obligations under the lease. However, the tenant enters into a subordinate lease (the sublease) with a subtenant regarding a portion, or all, of the leased space. After a sublease is signed, the landlord interacts with the tenant, and the tenant interacts with the subtenant.

An assignment alters the relationship between the landlord and the tenant by assigning the tenant’s rights and obligations from the first tenant (the assignor) to the second tenant (the assignee). The assignee steps into the shoes of the assignor, and has a direct contractual relationship with the landlord. After an assignment of the lease, the landlord interacts directly with the assignee.

Important Deal Points Regarding Subleasing and Assignment

Leases may include many provisions regarding subleasing and assignment. Some of the most common issues include the following:

In what circumstances is landlord consent required? Leases typically require the landlord’s consent for any sublease or assignment. However, some leases have different provisions for special circumstances, such as subleasing or assignment to a related entity, or assignment of the lease in connection with the sale of the tenant’s business.
What is the standard for landlord consent? Provisions that require the landlord’s consent may be followed by a standard such as “in the landlord’s sole discretion,” or “which may not be unreasonably withheld.” Obviously, the second standard is more favorable to the tenant. However, as a practical matter, if a dispute arises regarding whether a landlord’s denial was reasonable or unreasonable, arbitration or litigation would be expensive, the outcome would be uncertain, and the prospective subtenant or assignee may be unwilling to wait to see how the dispute is resolved.
What information must be provided regarding the proposed subtenant or assignee? Many leases require confidential financial information regarding the proposed subtenant or assignee. The proposed subtenant or assignee may be more comfortable providing information if the lease contains confidentiality and non-disclosure requirements to restrict the landlord’s use of the information. An argument can be made that less information should be required regarding a proposed subtenant than a proposed assignee, because the landlord will not enter into a direct contractual relationship with the subtenant and the tenant will remain liable under the lease.
What are the landlord’s alternatives? A tenant might assume that if the tenant requests consent to a sublease or assignment, the landlord’s alternatives will be limited to granting or withholding consent. However, many leases give the landlord a third alternative, to cancel the lease if the tenant requests a sublease or an assignment. This is known as a right of recapture.
When is the landlord’s response due? Some leases do not set a deadline for the landlord’s response to a request for consent to a sublease or assignment. A delayed response would prevent the tenant from moving forward until the response is received. A delayed response also may result in a lost opportunity, if the proposed subtenant or assignee is under time constraints.
What is the effect if the landlord fails to provide a timely response? A lease may provide that if the landlord fails to respond to a request for consent within a specified period of time, then consent is deemed granted, or a lease may provide that in such circumstances, consent is deemed denied. The first alternative is more favorable for a tenant, but the prospective subtenant or assignee might not be willing to rely on a “deemed consent” provision and may require actual consent before moving forward.
What are the landlord’s remedies if a sublease or assignment is made without requesting consent? Generally, if a tenant subleases or assigns a lease without obtaining required consent from the landlord, then the tenant is in default and the landlord can exercise all remedies under the lease. The lease also may provide that a sublease or assignment without the landlord’s consent is invalid and unenforceable.
Will the assignor be released from liability for the tenant’s obligations after an assignment? It may seem like common sense that if a lease is assigned with the landlord’s consent, then the original tenant (assignor) will no longer be responsible for the tenant’s obligations under the lease. However, a lease may provide that the assignor will remain liable under the lease after an assignment. Similarly, the landlord’s written consent may state that both the assignor and the assignee will be responsible for the tenant’s obligations after the lease is assigned. In order to be released, the assignor should obtain a written agreement from the landlord stating that after an assignment, the assignor will no longer be responsible for the tenant’s obligations under the lease.
Will a guarantor be released from liability for the tenant’s obligations after an assignment? Many landlords require a personal guaranty from an individual, or a corporate guaranty from a related entity, to ensure payment of the tenant’s obligations under a commercial lease. Guarantees typically provide that they will remain in effect even if the lease is assigned. However, the tenant may be able to negotiate for the termination of the guarantee in the event that the lease is assigned. In some cases, the landlord may require a substitute guarantor.
What is the effect of subleasing on the obligations of the tenant and the guarantor? A sublease does not affect the tenant’s obligations to the landlord under the lease, or the guarantor’s obligations to the landlord under the guaranty.

If a business owner is considering entering into a new lease, it is important to carefully review the subleasing and assignment provisions and negotiate any necessary changes before signing the lease. If a tenant desires to sublease or assign an existing lease, it is important to review the applicable requirements and restrictions before taking any action. An experienced real estate attorney can assist the tenant by spotting issues, explaining alternatives, and negotiating with the landlord to help the tenant accomplish its business objectives.

ABOUT THE AUTHOR(S)

Michael D. Klemm

Phone: 952-746-2198, email: [email protected], due diligence in commercial real estate transactions, three alternatives for a buyer to keep a seller’s low mortgage interest rate, webinar replay: hoa fall legal updates 2022, escalation clause tips and traps for buying a home (or an island), webinar replay: hoa fall webinar, on-demand webinar – covid-19 and hoas: how to operate during the pandemic, covid-19 and commercial real estate leases in minnesota, january 1 deadline for preventative maintenance plans, schedules and budgets, crossing the line obtaining building permits for decks in cic’s.

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Assignment clause defined.

Assignment clauses are legally binding provisions in contracts that give a party the chance to engage in a transfer of ownership or assign their contractual obligations and rights to a different contracting party.

In other words, an assignment clause can reassign contracts to another party. They can commonly be seen in contracts related to business purchases.

Here’s an article about assignment clauses.

Assignment Clause Explained

Assignment contracts are helpful when you need to maintain an ongoing obligation regardless of ownership. Some agreements have limitations or prohibitions on assignments, while other parties can freely enter into them.

Here’s another article about assignment clauses.

Purpose of Assignment Clause

The purpose of assignment clauses is to establish the terms around transferring contractual obligations. The Uniform Commercial Code (UCC) permits the enforceability of assignment clauses.

Assignment Clause Examples

Examples of assignment clauses include:

Example 1 . A business closing or a change of control occurs
Example 2 . New services providers taking over existing customer contracts
Example 3 . Unique real estate obligations transferring to a new property owner as a condition of sale
Example 4 . Many mergers and acquisitions transactions, such as insurance companies taking over customer policies during a merger

Here’s an article about the different types of assignment clauses.

Assignment Clause Samples

Sample 1 – sales contract.

Assignment; Survival . Neither party shall assign all or any portion of the Contract without the other party’s prior written consent, which consent shall not be unreasonably withheld; provided, however, that either party may, without such consent, assign this Agreement, in whole or in part, in connection with the transfer or sale of all or substantially all of the assets or business of such Party relating to the product(s) to which this Agreement relates. The Contract shall bind and inure to the benefit of the successors and permitted assigns of the respective parties. Any assignment or transfer not in accordance with this Contract shall be void. In order that the parties may fully exercise their rights and perform their obligations arising under the Contract, any provisions of the Contract that are required to ensure such exercise or performance (including any obligation accrued as of the termination date) shall survive the termination of the Contract.

Reference :

Security Exchange Commission - Edgar Database, EX-10.29 3 dex1029.htm SALES CONTRACT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1492426/000119312510226984/dex1029.htm >.

Sample 2 – Purchase and Sale Agreement

Assignment . Purchaser shall not assign this Agreement or any interest therein to any Person, without the prior written consent of Seller, which consent may be withheld in Seller’s sole discretion. Notwithstanding the foregoing, upon prior written notice to Seller, Purchaser may designate any Affiliate as its nominee to receive title to the Property, or assign all of its right, title and interest in this Agreement to any Affiliate of Purchaser by providing written notice to Seller no later than five (5) Business Days prior to the Closing; provided, however, that (a) such Affiliate remains an Affiliate of Purchaser, (b) Purchaser shall not be released from any of its liabilities and obligations under this Agreement by reason of such designation or assignment, (c) such designation or assignment shall not be effective until Purchaser has provided Seller with a fully executed copy of such designation or assignment and assumption instrument, which shall (i) provide that Purchaser and such designee or assignee shall be jointly and severally liable for all liabilities and obligations of Purchaser under this Agreement, (ii) provide that Purchaser and its designee or assignee agree to pay any additional transfer tax as a result of such designation or assignment, (iii) include a representation and warranty in favor of Seller that all representations and warranties made by Purchaser in this Agreement are true and correct with respect to such designee or assignee as of the date of such designation or assignment, and will be true and correct as of the Closing, and (iv) otherwise be in form and substance satisfactory to Seller and (d) such Assignee is approved by Manager as an assignee of the Management Agreement under Article X of the Management Agreement. For purposes of this Section 16.4, “Affiliate” shall include any direct or indirect member or shareholder of the Person in question, in addition to any Person that would be deemed an Affiliate pursuant to the definition of “Affiliate” under Section 1.1 hereof and not by way of limitation of such definition.

Security Exchange Commission - Edgar Database, EX-10.8 3 dex108.htm PURCHASE AND SALE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1490985/000119312510160407/dex108.htm >.

Sample 3 – Share Purchase Agreement

Assignment . Neither this Agreement nor any right or obligation hereunder may be assigned by any Party without the prior written consent of the other Parties, and any attempted assignment without the required consents shall be void.

Security Exchange Commission - Edgar Database, EX-4.12 3 dex412.htm SHARE PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1329394/000119312507148404/dex412.htm >.

Sample 4 – Asset Purchase Agreement

Assignment . This Agreement and any of the rights, interests, or obligations incurred hereunder, in part or as a whole, at any time after the Closing, are freely assignable by Buyer. This Agreement and any of the rights, interests, or obligations incurred hereunder, in part or as a whole, are assignable by Seller only upon the prior written consent of Buyer, which consent shall not be unreasonably withheld. This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns.

Security Exchange Commission - Edgar Database, EX-2.1 2 dex21.htm ASSET PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1428669/000119312510013625/dex21.htm >.

Sample 5 – Asset Purchase Agreement

Assignment; Binding Effect; Severability

This Agreement may not be assigned by any party hereto without the other party’s written consent; provided, that Buyer may transfer or assign in whole or in part to one or more Buyer Designee its right to purchase all or a portion of the Purchased Assets, but no such transfer or assignment will relieve Buyer of its obligations hereunder. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors, legal representatives and permitted assigns of each party hereto. The provisions of this Agreement are severable, and in the event that any one or more provisions are deemed illegal or unenforceable the remaining provisions shall remain in full force and effect unless the deletion of such provision shall cause this Agreement to become materially adverse to either party, in which event the parties shall use reasonable commercial efforts to arrive at an accommodation that best preserves for the parties the benefits and obligations of the offending provision.

Security Exchange Commission - Edgar Database, EX-2.4 2 dex24.htm ASSET PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1002047/000119312511171858/dex24.htm >.

Common Contracts with Assignment Clauses

Common contracts with assignment clauses include:

Real estate contracts
Sales contract
Asset purchase agreement
Purchase and sale agreement
Bill of sale
Assignment and transaction financing agreement

Assignment Clause FAQs

Assignment clauses are powerful when used correctly. Check out the assignment clause FAQs below to learn more:

What is an assignment clause in real estate?

Assignment clauses in real estate transfer legal obligations from one owner to another party. They also allow house flippers to engage in a contract negotiation with a seller and then assign the real estate to the buyer while collecting a fee for their services. Real estate lawyers assist in the drafting of assignment clauses in real estate transactions.

What does no assignment clause mean?

No assignment clauses prohibit the transfer or assignment of contract obligations from one part to another.

What’s the purpose of the transfer and assignment clause in the purchase agreement?

The purpose of the transfer and assignment clause in the purchase agreement is to protect all involved parties’ rights and ensure that assignments are not to be unreasonably withheld. Contract lawyers can help you avoid legal mistakes when drafting your business contracts’ transfer and assignment clauses.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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Sublet and Assignment Clauses In California Commercial Leases

There are a myriad of provisions in commercial leases that benefit either the lessor, lessee, or, in certain circumstances, both. As the provisions contained in a commercial lease can drastically impact the rights and obligations of the parties, it is of particular importance that each party effectively negotiate its position in order to obtain the most favorable terms possible. Sublet and assignment clauses are important provisions that should be considered carefully by both landlords and tenants when negotiating the terms of a commercial lease.

Sublease and assignment clauses accomplish similar results. They allow tenants to transfer their lease obligations to another individual or entity. However, each clause operates in a different way. With a sublease, a tenant transfers part of the leased property to another tenant while remaining on the premises, or transfers the entire property to another tenant for a period of time during the term of the lease. An assignment occurs when a tenant transfers all of its rights and obligations under the term of the lease to another individual or entity for the entire remaining term of the lease. Essentially, the new tenant takes the place of the old tenant and releases the old tenant of its obligations to the landlord. The extent of the obligations released depends on the terms of the assignment clause.

Assignment and Subletting Clauses

Consent Conditions : Most assignment and subletting clauses in commercial leases require landlord consent. Generally, landlord’s will insist on a consent requirement in order to retain the ability to properly “vet” a sublessor or assignee. When negotiating these provisions, the landlord and tenant should be careful to clarify under what circumstances the landlord may withhold consent. Often, landlords will be willing to include language indicating that the landlord “will not unreasonably withhold consent”.

Cost of Sublet/Assignment : Some clauses impose an application fee on tenants in order for the landlord to review a sublease or assignment request. The clause may also require that the tenant pay any attorney fees or other costs associated with the preparation of a sublease/assignment agreement. In some cases, the clause may allow the landlord to increase the rental rate upon sublease or assignment. Such clauses tend to discourage potential sublessors and assignees.

Continuing Obligations : Most assignment clauses also require that the old tenant remain liable to the landlord in the event that the sublessor or assignee default for any reason. This means that, should the sublessor or assignee fail to pay rent or default for any reason, the assignor (prior tenant) becomes liable for the breach. From a landlord’s perspective, the original lease is entered into after significant scrutiny. As such, landlords typically want to retain as much control as possible. By insisting on a tenant’s continuing liability, they afford themselves an additional layer of protection. However, in cases where tenants anticipate selling their business prior to the end of the lease term, it is advisable to negotiate with landlords for more liberal assignment language. Depending on the parties relative bargaining positions , landlords may be willing to include a novation provision wherein the assigning tenant will be absolved from any obligations under the lease. More likely, however, tenants will have a better chance seeking novation after presenting landlord with a viable assignee at the time an assignment is requested.

Recapture Clauses : Recapture clauses provide landlords with maximum advantage. Generally, a recapture clause allows landlords to terminate the lease merely because a tenant requests a sublease and/or assignment. In essence, where a commercial lease includes a recapture clause tenants are effectively precluded from assigning the lease. Otherwise, the risk of termination is too great. Recapture clauses allow landlords to decide whether they wish to withhold consent to an assignment, consent to the assignment or to terminate the lease and, at least in theory, approach the proposed assignee to negotiate a new lease independently of the assignor. Tenants should always try and negotiate for the removal of recapture clauses. For landlords desirous of retaining maximum control over who their tenants are, recapture clauses are beneficial. Partnership and Corporate Concerns : Assignment clauses are also generally triggered where a corporation, limited liability company or partnership transfers more than twenty-five percent (25%) of its ownership to a third party. Often, unsuspecting tenants trigger assignment provisions when they decide to bring on additional investors. Ideally, tenants should negotiate for a higher percentage such as fifty percent (50%). Either way, it’s important for tenants to be aware of these provisions to avoid breaching the assignment provisions in their lease. For instance, if a corporation sells 30% of its shares and the triggering percentage is 25%, it will be in violation of the lease assignment provisions if it does not obtain the landlord’s consent.

To ensure maximum legal protections, it is important for landlords and tenants to consult with an attorney before and during the negotiation of a commercial lease. If you have questions about commercial leasing, contact a San Diego business attorney today.

What Is a Commercial Lease Assignment?

A commercial lease assignment happens when a tenant transfers all of the rights to a lease to someone else but remains liable for rent payments to the landlord. 4 min read updated on February 01, 2023

A commercial lease assignment happens when a tenant transfers all of his or her rights to a lease to someone else but remains liable for rent payments to the landlord.

A Tenant's Right to Assign or Sublet a Commercial Lease

Due to difficult financial times, businesses have been forced to downsize.

Often these businesses find themselves in commercial leases for more space than they need. In order to save money, these businesses will consider a commercial lease assignment or subletting the extra space. Both options have pros and cons, but the first step is examining the current lease in order to figure out whether there are any restrictions on assignment or subletting.

Commercial leases are contracts and, as such, are subject to their terms. Thus, the language of the lease will dictate whether or not the tenant is able to assign the lease to someone else or sublet the space.

If a lease doesn't contain any rules against assignment or transfer, then a tenant is allowed to assign or sublet. Unless your lease says otherwise, you do not have to get your landlord's consent to sublet or assign your lease.

Businesses might sublet or assign office or retail space to help with costs or to avoid a penalty if they need to end their commercial lease earlier than their contract stipulates. Sometimes, this may be their only option, regardless of their financial position.

Legal Considerations

When considering your options, you should be aware of the legal differences between assignment and subletting.

There are also several legal and practical aspects to consider when negotiating an assignment or sublease. This includes any legal consequences the tenant may face if the landlord ends the lease.

It is in your best interest to consult an experienced real estate attorney so that you can protect yourself and understand all of your options . Whether you sublet or assign your lease, you will need to find a new tenant. However, there are still differences between the two.

Before subletting or assigning your lease, you should review your lease agreement and talk about your options with your landlord.

It is also important to check your state's laws regarding subleases and assignment because some states require the landlord's consent in order to complete this transfer.

What Happens If I Breach the Lease by Subleasing or Assignment?

Breaching your lease can carry severe consequences, including the following:

Paying damages to your landlord
Termination of the lease agreement

What Is an Assignment of Lease?

A lease assignment happens when the tenant transfers all of his or her rights and interest in a lease to another party. Although the new tenant takes on these rights and interests, the assigning tenant is still liable to the landlord.

If the new tenant breaches the lease, the landlord can enforce the terms of the lease on both the new tenant and old tenant. The former, or assigning, tenant is still liable to the landlord according to the original commercial lease agreement.

A lease assignment can also be called:

A lease transfer
Assignment agreement
Assignment of lease
Lease assignment

Sometimes, a tenant has to leave before their lease is up. In this case, they might be allowed to assign, or transfer, their lease to a new tenant. The old tenant, or assignor, transfers his rights to a new tenant, the assignee.

You can assign both residential and commercial leases. In an assignment, the assignor transfers their lease to a new tenant using a lease assignment agreement. The new tenant then takes the place of the assignor, but the former tenant is still responsible for missed rent checks and damages.

What Does a Lease Assignment Agreement Contain?

A lease assignment agreement is a document that transfers a commercial or residential lease from one party to another. When a tenant needs to break a lease and has a new tenant lined up, they can use a lease assignment agreement.

A lease assignment agreement contains basic information:

Identifying information
Assignment start date
Landlord name

Lease assignment agreements are pretty simple because they reference the original lease. This means that all of the terms in the old lease are automatically included in the new agreement.

A lease assignment agreement transfers the entire lease, whereas sublease agreement does not. Assignments transfer the whole lease from one tenant to another.

The most important thing to know about lease assignment agreements is that they usually need the landlord's permission. If you're considering assigning your lease, you should make absolutely sure that your landlord agrees to the arrangement because you are transferring your lease to a new party.

If you need help with commercial lease assignment, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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COMMENTS

Sublet and Assignment Clauses in Commercial Leases
By contrast, an "assignment" occurs when you transfer all of your space to someone else (called an "assignee") for the entire remaining term of the lease. As you are with a sublet, you're free to choose your assignee and determine the rent unless your lease says otherwise. In an assignment, the new tenant pays rent directly to the landlord.
Assignment of Lease Sample Clauses: 664 Samples
Assignment of Lease. At Closing, Seller shall assign and Buyer shall assume Seller's obligations under all Leases and New Leases, pursuant to an assignment of leases in the form attached as Exhibit C (the "Assignment of Leases"). Sample 1 Sample 2 Sample 3 See All ( 10) Assignment of Lease. If the Trustee or Tenant has assumed the Lease ...
Assignment and Subletting Clause (Commercial Lease) (Pro ...
A Standard Clause containing assignment and subletting provisions commonly found in a commercial real estate lease. This Standard Clause favors the landlord but contains integrated drafting notes with helpful guidance and negotiating tips for both landlords and tenants. While real estate leases are generally governed by state law, this jurisdictionally neutral template is useful and relevant ...
Navigating the assignment of a commercial lease
Landlord's assignment of a commercial lease. Sometimes a commercial landlord needs to sell his property. After the new owner, or assignee-buyer, buys the property subject to existing leases, the assignor-landlord assigns the leases to the new owner, who can then collect rent. The assignor-landlord notifies tenants by sending a notice of sale, a ...
Understanding How a Commercial Lease Assignment Works
Lease Assignment 101. In basic terms, a lease assignment occurs when the current tenant to an existing lease agreement (known as the "assignor") assigns the lease rights and obligations to a third party (known as the "assignee"). A lease assignment should not be confused with a sublease, in which the existing tenant transfers by a ...
Assignment and Consent Standards in Commercial Leases
Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. ... to include the express right to recapture the premises in the event the tenant comes to it to request a consent for an assignment. A recapture clause allows the landlord to terminate the lease if market rents have increased or ...
Subletting vs. Assigning a Commercial Lease
Refer to your Commercial Lease Agreement. Like a sublease clause, there should also be a statement in the original commercial lease addressing whether a tenant can assign the remainder of a lease to a third party. ... A Lease Assignment Agreement is used when a tenant who is renting property from a landlord wants to transfer the entire interest ...
Assignments & Subleases in Commercial Real Estate Leases
An assignment of a lease occurs when an existing tenant ("Assignor") assigns its rights and obligations under the lease to a new tenant ("Assignee"). Another form of assignment occurs when a landlord sells the property and a new landlord takes over the lease. A sublease is often used when the existing tenant (often referred to as ...
A Full Guide to Commercial Lease Assignment (Lease Transfer)
A commercial sublease, which is a type of lease transfer, occurs when a tenant who currently leases property agrees to let another tenant use the space concurrently. The agreement involves all three parties: the original tenant, the new tenant, and the property owner. When you sublease your space, you become the sub-lessor (or sub-landlord ...
Comparing and Contrasting Commercial Sublease and Assignment Clauses
The sublease and assignment clauses both relieve the original tenant (to some extent) of the burden of a property that no longer fits their needs. Wasted space is expensive, and these clauses mitigate its effects. They are crucial to lightening the responsibilities of the original lease without breaking it, which carries severe financial and ...
Free Assignment of Commercial Lease Template
This commercial lease assignment is between , an individual a(n) (the "Original Tenant") and , an individual a(n) (the "New Tenant").. On or about , the Original Tenant and (the "Landlord") entered into a lease agreement (the "Lease").. The Lease covers the commercial property located at , , and more particularly described as follows: (the "Premises").
Lease Assignment Agreement
Lease Assignment Agreement. Last revision 02/19/2024. Formats Word and PDF. Size 3 to 4 pages. 4.9 - 137 votes. Fill out the template. A Lease Assignment Agreement is a short document that allows for the transfer of interest in a residential or commercial lease from one tenant to another. In other words, a Lease Assignment Agreement is used ...
Commercial Lease Assignment and Sublet Provisions
A Balancing Act for Landlords and Tenants. This article identifies common problems involved in commercial lease transfers through assignments and subleases. It offers both landlords and tenants tips for solving these problems when negotiating assignment and sublease provisions in leases. The modern commercial lease is a complex, integrated ...
What Is a Commercial Lease Assignment?
What Is an Assignment of a Commercial Lease? A commercial lease is a written contract that is used when a commercial tenant rents space from a landlord. Commercial real estate law is the area of law that governs commercial leases and commercial tenant and landlord rights. Similar to other types of leases, a commercial lease gives a commercial ...
Assignment and Subletting Clause (Commercial Lease) (Pro-Tenant
A Standard Clause containing assignment and subletting provisions commonly found in a commercial real estate lease. This Standard Clause favors the tenant but contains integrated drafting notes with helpful guidance and negotiating tips for both landlords and tenants. While real estate leases are generally governed by state law, this jurisdictionally neutral template is useful and relevant in ...
Subleasing and Assignment Provisions in Commercial Leases
Subleasing and Assignment Provisions in Commercial Leases. June 17, 2020. Before the COVID-19 pandemic, many business owners paid little attention to subleasing and assignment provisions when negotiating commercial leases. It was common to focus on rent, maintenance, taxes, and insurance, which affect a tenant's bottom line, and options to ...
Assignment Clause: Meaning & Samples (2022)
Assignment Clause Examples. Examples of assignment clauses include: Example 1. A business closing or a change of control occurs. Example 2. New services providers taking over existing customer contracts. Example 3. Unique real estate obligations transferring to a new property owner as a condition of sale. Example 4.
PDF Assignments and Subletting in Commercial Lease Transactions
3. Assignment of Sublease Rent. If the tenant is collecting sublease rent from the subtenant, the landlord should obtain an assignment of that rent (similar to the rights of a lender under a loan) to protect itself should the primary tenant default under the master lease.
Nonassignability Clauses in Commercial Leases: When is an assignment
The plaintiff alleged that the collateral assignment of the lease to Continental breached the anti-assignment clause in the lease stating that "Tenant shall not assign this Lease without prior notice or written consent of Lessor.". While acknowledging that this was a case of first impression in Illinois, the appellate court affirmed the ...
Free Lease Assignment Template & FAQs
A Lease Assignment is a legally binding agreement that allows a tenant to transfer their lease obligations to another tenant. Lease Assignments can be useful when the original tenant needs to move and wants someone else to take over the lease. A Lease Assignments can be used to transfer either a residential or commercial lease agreement, and ...
Sublet and Assignment Clauses In California Commercial Leases
The extent of the obligations released depends on the terms of the assignment clause. Assignment and Subletting Clauses. Consent Conditions: Most assignment and subletting clauses in commercial leases require landlord consent. Generally, landlord's will insist on a consent requirement in order to retain the ability to properly "vet" a ...
PDF Exhibit F Assignment and Assumption of Lease Agreement and Landlord's
warranty by the Landlord in entering into this Agreement. 7. Lease in Full Force. Except as expressly provided in this Agreement, all of the terms, conditions and covenants of the Lease remain in full force and effect shall nothing in and this Agreement shall be deemed to: modify, waive or affect any of the terms, conditions or (a)
What Is a Commercial Lease Assignment?
A lease assignment agreement is a document that transfers a commercial or residential lease from one party to another. When a tenant needs to break a lease and has a new tenant lined up, they can use a lease assignment agreement. A lease assignment agreement contains basic information: Names. Identifying information.