unauthorised assignment of lease

How should I deal with an assignment that has been made in breach of the lease, if the landlord now wants to regularise the position?

Landlord’s rights and remedies.

An unauthorised assignment is a once and for all breach of covenant which would entitle the landlord to forfeit the lease (see Practice Notes: Landlord’s remedies for assigning or underletting without consent and Forfeiture of a lease See also: Assignment and underletting—overview). However, it appears from your query that the landlord does not wish to take this route and so is willing to waive his right to forfeit (if indeed the right to forfeit has not already been waived).

A landlord waives its right to forfeit a lease if it unequivocally affirms the existence of the lease, in full knowledge that the tenant has committed a breach of covenant (section 146 of the Law of Property Act 1925 (LPA 1925), Thomas v Ken Thomas ). The grant of a licence to assign with knowledge of the breach will operate as an affirmation of the lease and will waive any right to forfeit. See Practice

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Related legal acts:

• Landlord and Tenant (Covenants) Act 1995 (1995 c 30)
• Law of Property Act 1925 (1925 c 20)

Key definition:

Breach of covenant definition, what does breach of covenant mean.

A breach of a term of a lease where a tenant has covenanted (agreed) to do, or to not do something, such as to pay rent or not to part with possession . If an express right is reserved in the lease, the breach may entitle the landlord to forfeit.

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Subleases and Assignments by Tenants & Related Legal Concerns

Some landlords allow a tenant to sublet their unit to a third party, while others do not. If you are considering this option, you should check your lease or rental agreement to make sure that it is permitted. Even if it is not explicitly prohibited, you should get your landlord’s permission in advance to minimize future disputes.

How a Sublease Works

A subtenant is not a co-tenant and does not have a direct relationship with your landlord. As their “landlord,” you can (and should) require them to pay rent directly to you and evict them if they fail to follow through. This differs from a co-tenant, who can be evicted only by your landlord. If you decide to evict your subtenant, you will need to follow the same procedures that would be required of a landlord. A month-to-month rental agreement may be better for a subtenant arrangement than a lease. Any agreement should clearly state the amount of the rent, the length of the tenancy, and any security deposit that may be required.

A tenant will usually need their landlord’s permission before subletting their unit, but some state or local laws may prevent landlords from unreasonably denying subleases.

You should be aware that any benefits that you give your subtenant must fit within the overall rules that the landlord imposes for the property and the people who live there. Even though the subtenant did not sign your lease with the landlord, its terms apply to them as well.

You should make sure that you are confident about the subtenant’s financial situation and ability to comply with the terms of the sublease and the landlord’s rules. If they fail to pay rent or damage the property, you will be on the hook to the landlord for all of your own rent and the cost of any repairs. In extreme situations, such as criminal activity by your subtenant, the landlord may evict you in order to remove the subtenant. You also may face an eviction if you get into a dispute with your subtenant. If they refuse to leave when you return, for example, it may be easier for the landlord to simply evict both of you.

Can a Subtenant Turn Into a Tenant?

A subtenant can turn into a tenant if the landlord and you start acting as though the subtenant is a co-tenant. The most common issue here is who receives rent from the subtenant. If they start paying the landlord rather than you, they will have a strong argument that they are the landlord’s tenant. To prevent your subtenant from gaining the rights of a co-tenant, you should make sure that they pay rent to you, and then you can send it to the landlord.

Assigning a Lease

While assignments are often discussed together with subleases, they should not be confused. An assignment transfers the rest of your lease to a new tenant, and it usually happens when you want to move out before the lease is over. While a sublease makes you the landlord of the subtenant, an assignment makes the assignee a tenant of your landlord. All of the terms of your existing agreement with the landlord most likely will apply to the assignee. (There is an exception if the agreement contains a personal term, such as handling errands for the landlord in exchange for reduced rent.) The original tenant, the assignee, and the landlord all will need to sign the assignment document for it to become valid.

The original tenant will remain liable for rent that the assignee does not pay unless the landlord agrees otherwise.

Assignments can be risky because the original tenant remains on the hook to the landlord for all of the remaining rent if the assignee fails to pay it. This essentially makes the original tenant a guarantor for the rent, so it may be more appealing to try to terminate the lease early and let the next tenant start a new lease. Sometimes, however, you can work around this default rule and get the landlord’s consent to take you off the hook for any rent that the assignee does not pay.

Vacation Rentals (Airbnb)

Many tenants try to earn extra money by listing a home as a short-term vacation rental on websites like Airbnb. You should make sure that your lease permits this type of rental, since you may face eviction if you use Airbnb without your landlord’s authorization. You should get any ensuing agreement with your landlord in writing. It should cover issues such as how much of your unit will be leased to the short-term renter, how often you can list on Airbnb, and financial considerations such as any amount of the Airbnb rent that the landlord receives.

In addition to getting your landlord’s permission, you will want to make sure that listing your home for a short-term vacation rental complies with any zoning or land use laws in your area. You must comply with any restrictions in these laws, even if your landlord does not require it.

Finally, you may want to purchase renters’ insurance, while being aware that it may not cover people in a vacation rental. Some insurance companies are extremely reluctant to provide policies to people who plan to list on Airbnb or similar services.

Last reviewed October 2023

Landlord - Tenant Law Center Contents   

• Landlord - Tenant Law Center
• Choosing a Place to Rent & Legal and Financial Concerns
• Understanding Leases and Rental Agreements & Their Legal Implications
• Changing a Lease or Rental Agreement
• Rent Rules and the Legal Rights & Obligations of Tenants
• Security Deposit Rules & Tenants' Legal Rights
• Inspecting a Rental Property Before Signing a Lease
• Co-Tenants' Legal Rights & Obligations on a Lease
• Subleases and Assignments by Tenants & Related Legal Concerns
• Major Repairs to Rental Property & Tenants' Legal Options
• Minor Repairs to Rental Property & Tenants' Legal Options
• Improvements, Alterations, and Fixtures on Rental Property
• Tenants' Legal Rights to Privacy
• Injuries to Tenants on Rental Property & Related Legal Claims
• Environmental Hazards on Rental Property & Enforcing Tenants' Legal Rights
• Inadequate Security at Rental Property & Tenants' Legal Options
• Terminating a Lease of Rental Property & Related Legal Rights and Obligations
• Abandoning Personal Property When Leaving a Rental Unit
• Recovering a Security Deposit When Leaving a Rental Unit
• Resolving Disputes With Your Landlord Without a Lawyer
• Responding to Legal Notices Terminating a Tenancy
• The Eviction Legal Process for Tenants
• Working With a Tenants' Rights Lawyer
• Tenants' Legal Rights & Duties — FAQs
• Landlords' Legal Rights & Duties
• Housing Discrimination Law
• Eviction Laws and Forms: 50-State Survey
• Find a Landlord Tenant Lawyer

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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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Commercial lease assignment: when can consent reasonably be refused?

Advice   |   25 June 2018

In this article, he delves a little deeper and considers when consent to such requests can reasonably be refused.

In a previous article , David Hacker, commercial property expert with Thackray Williams provided an overview of the rules governing requests from tenants for permission to assign a commercial lease. In this article, he delves a little deeper and considers when consent to such requests can reasonably be refused.

‘The law governing lease assignment is clear: consent to assign must be granted unless circumstances exist which make it reasonable for permission to be refused’, says David. ‘but what is not so clear is what sort of circumstances need to exist to meet the reasonableness requirement.’

The burden of proving that the refusal of consent is reasonable in any given case will always rest with the landlord, which makes taking legal advice at an early stage crucial.

Stipulations in the lease

Leases granted after 1 January 1996 will usually set out the circumstances in which consent to an assignment may be refused. These may include where, in the landlord’s reasonable opinion, it appears that the proposed new tenant will not be able to meet their liabilities under the terms of the lease, including where there is evidence to suggest that the new tenant will not be able to pay the rent.

It is also possible that the lease will stipulate the conditions that may be imposed where consent is given, such as the need for the outgoing tenant to enter an authorised guarantee agreement to secure the new tenant’s performance of the lease obligations, or a requirement that the new tenant pays a rent deposit.

A landlord who relies on the provisions of a lease in this way to justify the refusal of consent, or who is only willing to provide consent subject to the specified conditions, will not be in breach of the statutory duty to give consent. This is because the provisions relied on will have been agreed in advance and therefore the existing tenant will have known from the moment they signed up to the lease the hurdles they would have to overcome if they wish to assign.

Considerations outside of the lease

In addition to stipulations as to consent and conditions in the lease itself, a landlord may also be able to refuse consent on other grounds, or to impose other conditions, if in the circumstances it is reasonable to do so.

For leases entered before 1996, relying on considerations outside of the lease is the only way in which a refusal of consent, or the imposition of conditions, can be justified. This is because, prior to 1996, it was not possible for stipulations regarding these matters to be included within the lease itself. This makes it more difficult to be sure whether or not the reasonableness test is satisfied.

The main rule when seeking to rely on considerations not stipulated within the lease is that you cannot refuse consent, or seek to impose conditions, unless the reason for this has something to do with the relationship between you and the tenant and to things you expect may happen because of the proposed assignment. Examples of when this may be the case are detailed below.

In no circumstances can you use a request for consent as leverage to get any sort of advantage, for example by trying to get the existing tenant to agree to vary some aspect of the lease.

Examples of common scenarios

If the financial information provided by the proposed new tenant does not convince you that they will pay the rent due under the lease reliably, it should be reasonable to withhold consent. However, if, as part of the arrangements for assignment, provision has been made for the performance of the lease obligations by the new tenant to be guaranteed, then this is something which must be taken into account when assessing the request.

Before deciding what to do, you may want to inspect the property to check what sort of condition it is in. In a previous case which came before the courts, a landlord was held to be reasonable in refusing consent where the leased property was already in serious disrepair and they were not confident that the new tenant had the resources to deal with it. You should, however, be wary of relying on a breach of covenant as a reason for refusing consent because you will retain the right to pursue the existing tenant for this after the assignment has taken place. Minor breaches of the terms of the lease, in particular, will not be a reasonable ground for refusal.

You may be justified in taking the proposed new tenant’s intended use of the leased property into account. If you believe the intended use will breach the terms of the lease, then this should be a reasonable ground for refusing consent. Likewise, if you own a parade of shops, or the leased property is in a shopping centre, and there is a tenant mix policy in place to ensure a good range of uses, it will usually be reasonable to refuse consent to a tenant whose intended use does not fit with that policy.

Wherever reasonableness is involved, there are no hard and fast rules, which is why landlords faced with a request for consent to assignment need sound legal advice at the earliest possible opportunity. With the help of your solicitor you can ensure that you have access to all the information you need to make an informed decision and, where justifiable reasons for refusal exist, you can frame your objections appropriately and within a reasonable period.

For further advice about the assignment of a commercial lease, or for any other commercial property matter, please contact David Hacker.

Assignment of Lease

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What is an assignment of lease.

The assignment of lease is a title document that transfers all rights possessed by a lessee or tenant to a property to another party. The assignee takes the assignor’s place in the landlord-tenant relationship.

You can view an example of a lease assignment here .

How Lease Assignment Works

In cases where a tenant wants to or needs to get out of their lease before it expires, lease assignment provides a legal option to assign or transfer rights of the lease to someone else. For instance, if in a commercial lease a business leases a place for 12 months but the business moves or shuts down after 10 months, the person can transfer the lease to someone else through an assignment of the lease. In this case, they will not have to pay rent for the last two months as the new assigned tenant will be responsible for that.

However, before the original tenant can be released of any responsibilities associated with the lease, other requirements need to be satisfied. The landlord needs to consent to the lease transfer through a “License to Assign” document. It is crucial to complete this document before moving on to the assignment of lease as the landlord may refuse to approve the assignment.

Difference Between Assignment of Lease and Subletting

A transfer of the remaining interest in a lease, also known as assignment, is possible when implied rights to assign exist. Some leases do not allow assignment or sharing of possessions or property under a lease. An assignment ensures the complete transfer of the rights to the property from one tenant to another.

The assignor is no longer responsible for rent or utilities and other costs that they might have had under the lease. Here, the assignee becomes the tenant and takes over all responsibilities such as rent. However, unless the assignee is released of all liabilities by the landlord, they remain responsible if the new tenant defaults.

A sublease is a new lease agreement between the tenant (or the sublessor) and a third-party (or the sublessee) for a portion of the lease. The original lease agreement between the landlord and the sublessor (or original tenant) still remains in place. The original tenant still remains responsible for all duties set under the lease.

Here are some key differences between subletting and assigning a lease:

• Under a sublease, the original lease agreement still remains in place.
• The original tenant retains all responsibilities under a sublease agreement.
• A sublease can be for less than all of the property, such as for a room, general area, portion of the leased premises, etc.
• Subleasing can be for a portion of the lease term. For instance, a tenant can sublease the property for a month and then retain it after the third-party completes their month-long sublet.
• Since the sublease agreement is between the tenant and the third-party, rent is often negotiable, based on the term of the sublease and other circumstances.
• The third-party in a sublease agreement does not have a direct relationship with the landlord.
• The subtenant will need to seek consent of both the tenant and the landlord to make any repairs or changes to the property during their sublease.

Here is more on an assignment of lease here .

Parties Involved in Lease Assignment

There are three parties involved in a lease assignment – the landlord or owner of the property, the assignor and the assignee. The original lease agreement is between the landlord and the tenant, or the assignor. The lease agreement outlines the duties and responsibilities of both parties when it comes to renting the property. Now, when the tenant decides to assign the lease to a third-party, the third-party is known as the assignee. The assignee takes on the responsibilities laid under the original lease agreement between the assignor and the landlord. The landlord must consent to the assignment of the lease prior to the assignment.

For example, Jake is renting a commercial property for his business from Paul for two years beginning January 2013 up until January 2015. In January 2014, Jake suffers a financial crisis and has to close down his business to move to a different city. Jake doesn’t want to continue paying rent on the property as he will not be using it for a year left of the lease. Jake’s friend, John would soon be turning his digital business into a brick-and-mortar store. John has been looking for a space to kick start his venture. Jake can assign his space for the rest of the lease term to John through an assignment of lease. Jake will need to seek the approval of his landlord and then begin the assignment process. Here, Jake will be the assignor who transfers all his lease related duties and responsibilities to John, who will be the assignee.

You can read more on lease agreements here .

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Assignment of Lease From Seller to Buyer

In case of a residential property, a landlord can assign his leases to the new buyer of the building. The landlord will assign the right to collect rent to the buyer. This will allow the buyer to collect any and all rent from existing tenants in that property. This assignment can also include the assignment of security deposits, if the parties agree to it. This type of assignment provides protection to the buyer so they can collect rent on the property.

The assignment of a lease from the seller to a buyer also requires that all tenants are made aware of the sale of the property. The buyer-seller should give proper notice to the tenants along with a notice of assignment of lease signed by both the buyer and the seller. Tenants should also be informed about the contact information of the new landlord and the payment methods to be used to pay rent to the new landlord.

You can read more on buyer-seller lease assignments here .

Get Help with an Assignment of Lease

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Contract to lease land from a church.

I’m planning on leasing land from a church. Putting a gym on the property. And leasing it back to the school.

Ok; first step is that you will need a leasing contract with the church. Ask them to prepare one for you so you would just need an attorney to review the agreement and that should cost less than if you had to be the party to pay a lawyer to draft it from scratch. You need to ensure that the purpose of the lease is clearly stated - that you plan to put a gym on the land so that there are no issues if the church leadership changes. Step 2 - you will need a lease agreement with the school that your leasing it do (hopefully one that is similar to the original one your received from the church). Again, please ensure that all the terms that you discuss and agree to are in the document; including length of time, price and how to resolve disputes if you have one. I hope this is helpful. If you would like me to assist you further, you can contact me on Contracts Counsel and we can discuss a fee for my services. Regards, Donya Ramsay (Gordon)

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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.

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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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• Commercial Landlord Refuses to Allow Sublease...

Commercial Landlord Refuses to Allow Sublease or Assignment

(This may not be the same place you live)

  What Is a Sublease or Assignment?

A sublease, also known as a sublet, occurs when a tenant having a lease agreement with a landlord permits another person, known as a subtenant, to use the rented space for a certain time.

The original renter is still liable to the landlord and is responsible for the lease agreement; however, the subtenant is answerable to the original tenant.

In contrast, an assignment occurs when a tenant transfers their lease agreement to another individual, known as an assignee. In this instance, the assignee assumes the lease agreement and becomes the new tenant, with all of the former renter’s rights and duties.

Subleases and assignments are often utilized in a commercial lease agreement when a tenant no longer needs or can afford the rented space or when a tenant wishes to leave before the lease term expires. The tenant may reclaim part of their lease expenses and avoid paying for idle space by subleasing or assigning the space.

Subleasing and assignment terms are often included in business lease agreements. These clauses may require the tenant to acquire the landlord’s permission before subletting or assigning the space, or they may outright ban subleasing or assignment.

Some business leasing agreements demand the landlord’s consent to assignments, while others do not. Reading the lease agreement is essential to understand subletting and assignment criteria and limits. If the lease agreement needs the landlord’s approval, the tenant must get it before continuing with a sublease or assignment.

Furthermore, before providing approval, most landlords want to know the subtenant or assignee and the details of the sublease or assignment, such as the rent amount.

Can I Sue If My Commercial Landlord Refuses to Allow a Sublease or Assignment?

What remedies exist if i am successful, are there any defenses, do i need an attorney.

If the landlord refuses to approve a commercial sublease , the tenant has many choices.

• Examine the lease agreement: The first step is to examine the lease agreement to determine whether it has any provisions for subleasing. If the lease agreement expressly bans subleasing, the tenant may be without legal grounds to seek a sublease.
• Talk with the landlord: The tenant may attempt to negotiate with the landlord to see if there is a way for both sides to agree. This might involve suggesting modifications to the lease agreement, such as raising the rent or adding extra security measures.
• Seek legal counsel: If the tenant thinks the landlord’s reluctance to grant a sublease is unfair or in breach of the lease agreement, they should seek legal counsel. A lawyer may assist in reviewing the lease agreement and advising the tenant on their rights and alternatives.
• Find a new tenant: If the landlord is unwilling to contemplate a sublease, the renter may explore finding a new tenant to take over the lease. However, most commercial lease agreements will include a “no assignment or subletting” provision, which indicates that the tenant cannot transfer or sublease the lease without the landlord’s permission.
• Early termination: If the tenant is unable to identify a subtenant or the landlord refuses to allow a sublease, the tenant may consider terminating the lease early. In this scenario, however, the renter may be required to pay a penalty fee or additional costs as specified in the lease agreement.

Finally, if a landlord refuses to authorize a commercial sublease, the tenant should analyze the lease agreement, attempt to negotiate with the landlord, and obtain legal counsel as needed. The renter must balance the advantages and disadvantages of each choice and choose which course of action is best for their circumstance.

If the terms of the commercial lease are violated, the landlord’s remedies will be determined by the facts of the case as well as the provisions of the lease itself. The following are some popular remedies:

• Lease termination: If the tenant violates a material provision of the lease, the landlord may be able to terminate the lease and order the tenant to evacuate the property.
• Monetary damages: The landlord may be entitled to monetary damages for any losses incurred due to the tenant’s lease violation. This might include rent, repair charges, or any expenditures incurred due to the infraction.
• Injunctive relief: The landlord may seek an injunction compelling the tenant to take particular activities to rectify the infringement, such as repairing the property or correcting a zoning violation.
• Self-help remedies: If a tenant violates the lease, certain jurisdictions may enable landlords to adopt certain self-help remedies, such as re-entering the property and completing required repairs. These remedies, however, should be used with care since they may be unlawful in certain areas and may result in additional legal action against the landlord.
• Mediation and arbitration: Some leases may include conditions mandating mediation or arbitration to settle disputes, which may be less formal and less costly than going to court.

If the landlord cannot address the violation via the options mentioned above, they may need to take legal action to enforce the lease, such as filing a lawsuit for breach of contract.

It should be noted that the remedies will differ based on the lease agreement, jurisdiction, and the exact infraction committed by the tenant. It is always advisable to get legal advice to understand your alternatives properly.

The tenant may have numerous viable defenses in commercial lease issues involving a sublease or assignment. Among these defenses are the following:

• Implied consent: The tenant may claim that by receiving rent from the subtenant or keeping quiet after the sublease or assignment happened, the landlord impliedly agreed to the sublease or assignment.
• Estoppel: If the landlord was aware of the sublease or assignment but did not protest, the tenant may claim that the landlord is barred from objecting to the sublease or assignment.
• Waiver: If the tenant can show that the landlord relinquished their right to object to the sublease or assignment, the tenant may have a defense.
• Necessity : If the tenant can demonstrate that the sublease or assignment was required to avoid hardship or financial disaster, the tenant may utilize this as a defense.
• Good faith: If the tenant can demonstrate that they entered into the sublease or assignment in good faith, they may be able to utilize this as a defense.
• Right of first refusal: If the lease contains a right of first refusal provision and the landlord had the option to accept the sublease or assignment but did not, the tenant may use this as a defense.
• Improper notice: If the lease contains a requirement for notice, the tenant may claim that the landlord did not give appropriate notice of the breach or did not get notice.
• Illegality : If the sublease or assignment is prohibited by municipal, state, or federal law, the tenant may use this as a defense.

It is crucial to remember that the defenses will differ based on the lease agreement, jurisdiction, and the precise infraction claimed by the landlord. Getting legal advice to comprehend the various defenses better is usually advisable.

Yes, you should contact a real estate attorney if you are engaged in a business lease dispute. An attorney can assist you in understanding your lease’s rights and duties and the potential remedies and defenses.

They may also advise you on the legal procedure and, if required, represent you in court. An attorney may also assist you in negotiating a favorable settlement or arrangement. They may also analyze the lease agreement and any sublease or assignment arrangements and advise on their legal ramifications.

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Breach of a Commercial Lease (What to Do!)

• Last updated: 3 August 2023

IN THIS ARTICLE

Both Landlords and tenants can be found in breach of a commercial lease under either the Law of Property Act 1925 or Landlord and Tenant Act 1954 if they fail to meet one of more of the lease covenants.

When a tenant has breached the terms of their commercial lease, landlords can respond through serving a Section 146 notice on a tenant/tenants. Should tenants fail to remedy their breach, either through reparations or meeting the breached term, they risk repercussions including the potential forfeiture of the lease.

When a landlord has breached the terms of their lease tenants can take legal action requiring the landlord to make repairs to the property, pay reparations, or potentially terminate the lease leaving them free to find preferable premises.

Although the law protects both tenants and landlords from breach of a commercial lease, there are a number of risks to both parties in the process of resolving the issue. Both landlords and tenants must be aware of their rights and responsibilities to ensure they avoid the negative repercussions of a breach of commercial lease.

Breach of a commercial lease: Common types of breach

The nature of the breach in question will largely determine the course of action and available remedies for the injured party.

Tenant breaches

Tenant breaches generally fall into one of two categories, “continuing breaches” and “one and for all” breaches.

Common examples of continuing breaches include:

a. Failure to keep the property insured

b. Failure to maintain or make repairs to the property

c. Unauthorised use of the property, for example residing in the property if that was not

d. expressly permitted in the lease agreement

e. Unlawful sharing of the property

a. Common examples of once and for all breaches include:

b. Failure to have repaired the property by a set date

c. Making unauthorised alterations to the property

d. Unauthorised assignment of the property

e. Unauthorised sub-letting of the property

Landlord breaches

The landlord’s obligations to the tenant should be clearly set out in the terms of the lease. Should the landlord fail to meet these obligations, or attempt to abuse their position regarding the property, they will have breached the commercial lease. Some of the more common examples of landlord breach of contract include:

a. Failing to repair the property in line with the lease terms

b. Failure to pay for insurance or services stipulated in the lease

c. Use of the property without the tenant’s consent and beyond any uses stipulated in the lease

d. Attempting to enter the premises without consent while it is occupied

e. Attempting to evict the tenant without just cause or without following due procedure

Depending on the specific terms of a lease there are a number of ways in which a landlord may breach the contract. Having a detailed and clearly worded lease is essential to avoiding disputes over landlord obligations. A legal advisor can help draft commercial lease agreements as well as advise whether there has been a breach.

What to do in the event of a breach of a commercial lease

Reference to the commercial lease documentation will be critical for both landlords and tenants in order to confirm whether a breach by either party has occurred.

Where a breach can be established, the first steps should be to start a dialogue with the other party to try to find an agreement to resolve the dispute. It benefits both parties if a lease breach can be resolved informally before the need for further, formal action is taken, particularly where the lease is ongoing.

Should these initial discussions fail, you may look to take more formal action.

Landlord remedies

A landlord for example may look to serve the tenant with a section 146 notice. This formal notice is a critical step as the landlord is unable to proceed with legal action unless a section 146 has been served.

The tenant would be given a reasonable time in which to remedy the breach. If they fail to do so within the time frame, or if the breach is something which cannot be remedied, the landlord has the right to forfeiture by applying to the court.

In most leases a clause will give the landlord the right to recover their costs from serving a notice on the tenant once forfeiture has been determined. Landlords should ensure that their lease contains such a clause prior to signing the tenant.

Forfeiting the lease also prevents the tenant from repeating the breach and relieved the landlord from the burden of an unreliable tenant. Once a lease has been forfeited, the tenant is able to apply to the courts for relief from forfeiture. If they fail to apply to the courts within 6 months the lease is terminated and the tenant has no further rights to use the property. The exception is in cases of forfeiture being effected through the landlord’s peaceable re-entry where there is no time restraint on the tenant to apply for relief.

The tenant must apply to the courts under section 146 of the Law of Property Act 1925 and may be required to provide evidence. The court will either grant relief or withhold relief. Tenants have the best chance for success if they have acted quickly to repair any breaches to the lease, paid any rent arrears, covered any costs incurred by the landlord due to the breach and apply for relief.

If the court grants relief the commercial lease will be reinstated with its’ original terms. Should the landlord and tenant manage to agree terms for the relief without going to court their agreement should give rise to a new tenancy which will automatically be protected by the Landlord and Tenant Act 1945. In the latter case, legal advice should be taken to ensure the new lease is suitable for both parties.

Tenant remedies

Tenants should again try to resolve the issue outside of the legal system through contacting the landlord, ideally by letter, regarding the breach and their expectations of the landlord to remedy it. A record of such communications should be kept in case they need to be used in evidence.

Should negotiations fail to resolve the breach, the tenant has a number of options primarily involving taking their landlord to court.

If the landlord’s breach is a failure to carry out repairs of maintenance, the tenant could apply to the court for an order for specific performance, forcing the landlord to carry out works on the property. Obtaining an order for specific performance will be reliant on the tenants’ ability to prove to the court that the works are urgent and any alternatives offered by the landlord are inadequate. Having sufficient evidence of the issue, it’s negative impact on the tenant and their business, and requests to the landlord to remedy the problem is critical to a successful case. Tenants should bear in mind the initial legal costs of a potential court case before committing to this course of action.

Tenants also have the ability to claim compensation from the landlord for financial losses caused by the landlord’s breach. There is no cap to damage claims a tenant can make against their landlord for disrepair where the landlord was obligated to maintain the property. Alternatively, the tenant and landlord could agree to offset the compensation against rent payments until the tenant has been remunerated. Tenants could also carry out repairs themselves and then try to recover the costs, within reason, from the landlord as part of a damages claim.

Again, evidence of how the issue has impacted on the tenant and their business, as well as the landlord’s awareness of the issue and continued negligence, will be critical to a successful case. Legal cases can be unreliable and having the guidance of a solicitor is strongly recommended.

If the landlords breach is sufficiently serious and beyond repair, tenant may be able to terminate the lease and leave the premises. This option is only possible where the breach has been particularly severe.

Usually the threat of legal action is enough to result in a landlord responding positively and meeting their obligations. Should the landlord continue to breach their commercial lease obligations acquiring legal assistance is recommended before a tenant begins court proceedings.

When the breach is failure to pay rent

When a tenant breaches a commercial lease through failing to pay rent the legal process differs from other types of breach.

In the case of rent arrears, the landlord can proceed with forfeiture not only through court proceedings but with the alternative option of peaceable re-entry. Peaceable re-entry is only permitted when the breach is failure to pay rent but provides a faster means of terminating a lease and incurs minimal costs. Peaceable re-entry usually involves changing the locks and taking over the property. The onus is then on the former tenant to apply to the courts for relief from forfeiture if they hope to get the property back. Peaceable re-entry can only take place when the property is empty of people and is not applicable in cases where the tenant also resides in the property.

Forfeiting the lease will not automatically remedy the late rent payment as it does not produce any money for the landlord in and of itself. However, forfeiting the tenant’s lease does prevent the tenant from continuing to breach their obligation to pay rent. Forfeiting also removes a burdensome, defaulting tenant from the property and allows the landlord to find a more reliable tenant.

If a forfeiture is final and the property contains possessions or trade goods a process known as Commercial Rent Arrears Recovery (CRAR) can permit the landlord to take the items against the money owed. A legal advisor should be consulted prior to attempting to hold goods against rent areas.

Risks in the tenant breach process

Adequacy of commercial lease

A key risk for both parties is where the lease omits critical clauses or fails to adequately cover certain types of dispute.

For example, for the landlord it is important that the lease gives the landlord the right to reclaim costs should they need to serve a notice, sets out clearly whether and on what terms the property can be assigned, sub-let, occupied etc, and what maintenance or repair responsibilities the tenant has.

For tenants it is important that they do not sign a lease which obligates them to undertake unreasonable responsibilities. It is recommended that both parties take legal advice when drafting a commercial lease in order to ensure they understand their obligations and are protected from a potential breach.

Landlords waiving rights

A concern for landlords is that they may waive their right to take action against a tenant in breach of their contract. Accepting rent after discovering a tenant’s breach of the terms of the commercial lease can amount to a waiver if the breach is not capable of remedy such as failing to repair the property by a set date. However, landlords are able to accept rent without risking a waiver in instances where the tenant is able to remedy their breach, for example failing to maintain the property.

In some circumstances a landlord may choose to waive a breach if they feel the breach is minor or can be resolved. However, landlords must be cautious when waiving a breach of commercial lease. Once a landlord has waived a once and for all breach they will lose the right to forfeit the lease of the tenant because of that specific breach. If a continuing breach is waived, the landlord’s right to take action against the tenant (removal of the waiver) is reinstated usually on a daily basis.

Following process requirements

In order for the tenant to be held in breach of a contract and be required to pay reparations or even forfeit the lease, the landlord must follow the legal process by submitting a 146 notice to the tenant.

For the 146 notice to be valid it must meet the formal requirements set out in the integrated drafting notes and have been adapted to fit the facts and circumstances of the case. Proof of the tenant’s receipt of the section 146 notice is critical and the documents should be delivered in duplicate with the tenant signing and returning the duplicate.

Use of forfeiture

The process of forfeiture can also result in disputes. The landlord must show suitable restraint if entering a property as part of peaceable re-entry, must not enter the property at a time when it is occupied or if it is used as a residence in addition to a business. Should the landlord use violence or enter the property while occupied they are liable for criminal activity.

When and Why to seek legal advice

The law surrounding breach of commercial leases is complicated and the repercussions of a commercial breach when poorly handled can be negative for both parties.

Legal advice can help to achieve early resolution and support where a dispute requires legal action.

Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law , Tax , Human Resources , Immigration & Employment Law .

Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing Agency for the Professional Services Sector.

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Resolving a Lease Violation: Tips for Landlords and Tenants

Learn and explore common lease violations, their consequences, and how to address them effectively.

Have you ever faced problems due to the violation of a lease? If you have, you're not alone. They can create headaches and conflict for landlords and tenants alike. They're common occurrences that require professional resolution.

In this article, you'll discover the most frequently encountered ways a lease is violated, as well as the legal consequences. You'll learn tips to avoid violations as a tenant. And, if you're a landlord, you'll find out how to address violations while maintaining positive tenant relationships .

Discover the ins and outs of lease violations, their impacts, and how to resolve them effectively today!  

What is a lease violation?

A lease violation is a non-compliance with the lease agreement's rules. Depending on how serious and often it happens, there are consequences for different violations.

Each lease agreement has rules about what counts as a violation and what will happen if there is one.

Types of lease violations

Both tenants and landlords need to be aware of common lease violations. Here are the types of violations that can occur:

Tenant violations

As a tenant, understanding your lease agreement's rules and avoiding common violations helps to maintain a positive and hassle-free rental experience.

• Failure to pay rent on time: Late payments are among the most common violations. They affect the landlord's cash flow and put both parties in a tough spot.
• Unauthorized pets or occupants: Lease agreements often state how many people can live in a rental unit, as well as whether pets are allowed. Breaking these rules can cause problems like property damage, disruptive noise, and legal issues if the extra person or pet hurts someone or the property.
• Neglecting property maintenance and repairs: Tenants must keep the property in good shape. Neglecting repairs or failing to maintain the property can cause more damage and lower the property value.
• Violation of noise regulations: Excessive noise can disturb the peace of a community. For the comfort of all the tenants, lease agreements will commonly contain rules about noise during certain hours. Ignoring these regulations can result in complaints from neighbors.
• Illegal activities on the premises: Engaging in illegal activities on the leased property is a major violation of the lease agreement . It compromises the safety of other tenants and exposes the landlord to legal issues. Illegal activities include drug offenses and operating an illegal business from the premises.

Landlord violations

Much like tenants, landlords can be guilty of violating a lease. For this reason, it's equally important for landlords to be aware of their responsibilities. These are some common ways landlords violate leases:

• Failure to provide habitable conditions: Property owners are legally required to keep rental properties safe and livable. Clean facilities, working heating and cooling, functional plumbing, and a secure environment all help keep a property in a viable state.
• Unauthorized entry or invasion of privacy: Landlords must respect tenants' privacy. Entering the rental property without proper notice or a valid reason violates tenant rights .
• Failure to make necessary repairs: Landlords are responsible for promptly addressing rental property maintenance issues and making necessary repairs. Neglecting or delaying repairs can violate the rental agreement and risk tenants' health and safety.
• Improper handling of security deposits: Property managers and owners must follow state laws when handling security deposits. This includes depositing the funds in a separate account, keeping a detailed list of deductions, and returning the tenant's security deposit within a specific timeframe after the lease ends.
• Discriminatory practices: Landlords must follow fair housing laws . Any discrimination during the rental process or while the tenant is living in the rental unit breaks the lease agreement and can have legal consequences.

How to handle a lease violation

Finding a solution to a lease violation requires landlords and tenants to work together. It's important to address the issue promptly and professionally.

Steps to resolve a lease violation

Follow these steps to address the violation effectively and reach a resolution that benefits all parties involved:

• Review the lease agreement: Review the lease agreement to understand broken terms. Gather any evidence, like photos or messages, that support your case.
• Document the violation: Document the lease violation and record important information such as dates, times, and supporting evidence like photos, emails, or witness statements.
• Communicate with the other party: Contact the other party to discuss the violation. Clearly and respectfully explain the situation, present evidence, and ask for a solution. Avoid using confrontational words and focus on finding an agreement that works for both sides.
• Seek mediation or legal advice: If your communication doesn't achieve the desired outcomes, you may seek help from a mediation services provider or a lawyer. A neutral third party can assist in finding a solution, while an attorney can guide your legal options.
• Understand your rights: To know your rights as a tenant, research and understand federal laws and regulations. Knowing your rights can help protect you when problems arise and provide you with guidance on how to navigate the situation.

Keep a record of all communication and actions. Cooperation and fairness are important for successfully handling lease violations.

Lease violation notice

A lease violation notice, also known as a notice to cure or comply, is a written document that notifies a tenant of a breach in the lease agreement. It serves as a formal communication, outlining the specific rule violation and providing an opportunity for the tenant to rectify the situation.

The landlord sends the notice in writing and retains a copy for documentation purposes. It clearly states the rule violated and provides a timeframe for corrective action. This way, the landlord can make sure the renter has a chance to fix their mistake.

Legal considerations for landlords

Before issuing a lease violation notice, landlords should consider legal factors:

• Review the lease agreement to identify broken rules.
• Validate compliance with laws regarding notice issuance.
• Treat all tenants fairly and avoid discrimination.
• Document violations for potential legal actions.
• Seek legal advice for complex situations or local law guidance.

Contents of a notice of lease violation

A notice of lease violation should state the name of the tenant and the specific unit or rental property address. It should outline the provision or provisions of the lease agreement that the tenant violated, providing a detailed description of the violation.

Specify the timeframe in which the tenant must remedy the violation, and inform the tenant of any potential consequences or penalties for failing to address the violation.

Response to a lease violation notice

If you've received a lease violation notice, following these steps will allow you to address it effectively:

• Review the notice for lease violation to understand the exact claims and terms of the lease agreement mentioned.
• Understand tenant rights and review the lease agreement to help you evaluate potential violations and decide the most suitable action.
• Gather documents, photos, and messages that support your response. It may include your conversations with the landlord, maintenance records, or any other evidence that can help explain or dispute the reported violation.
• Respond to the notice in writing to keep a record of your communication. Address each point in the notice separately and provide explanations or evidence to support your position. Remember to be polite, concise, and professional in your response.
• If the violation is valid, suggest a plan to fix the situation within a reasonable timeframe. This displays your willingness to work together and resolve the problem in a friendly manner.
• If you need help with how to reply or have complicated legal problems, seek advice from a lawyer specializing in landlord-tenant law . They can guide you and make sure your rights are protected.

Impact of lease violations

Lease violations can have consequences for both tenants and landlords, including:

For tenants:

• Written warnings and notices: Landlords usually give written reminders or notices to document the agreement breach when a lease violation happens. These formal messages act as proof and give tenants the opportunity to fix the issue.
• Fines and penalties: Most landlords impose fines or penalties on tenants based on the seriousness of the violation. These financial consequences discourage breaking the rules and encourage following the lease terms.
• Eviction proceedings: Landlords may start eviction when the tenant repeatedly violates the lease agreement and fails to fix the problem. Eviction is a last resort and involves legal action.

For landlords:

• Legal consequences: Landlords who break the lease rules can get in trouble with the law. There can be legal liability, such as a landlord being taken to court by the tenant in order to have an issue addressed.
• Financial liabilities: Landlords who violate leases may face financial repercussions. These can include compensating tenants for damages, refunding excessive fees or deposits, or covering tenants' legal expenses.
• Reputation damage: Landlords who break the lease rules may harm their reputation. Bad reviews or complaints online can affect their chances of attracting new tenants.

Violation of lease agreement

When both parties abide by the rules set forth in a lease agreement, it promotes a positive relationship between property owners and tenants.

If any problems arise, it's best to talk openly, solve them quickly, and get legal advice if needed. Remember, respecting the lease helps everyone have a positive living experience.

Lease violation FAQs

What is a severe breach of the lease.

A severe breach of a lease would involve actions that significantly harm the landlord's rights or damage the rental property. Here are some serious breaches:

• Tenant fails to pay rent for an extended period.
• Serious damage to the property beyond normal wear and tear.
• Engaging in illegal activities on the premises.
• Unauthorized subletting or assignment of the lease without permission.
• Violation of health, safety, or building codes that pose a significant risk.

How can I prevent lease violations?

To avoid lease violations, read and understand the lease agreement carefully. It's important to follow the terms and conditions.

Promptly communicate and address any concerns or issues on time. Being responsible and abiding by the lease terms is key to maintaining a harmonious tenancy.

What can I do if the lease violation notice is unjustified?

If you think the notice for breaking the lease is unfair, collect proof to support your arguments and write a letter to your landlord explaining your side.

If the problem persists, you may want legal advice or mediation help.

Important Note: This post is for informational and educational purposes only. It should not be taken as legal, accounting, or tax advice, nor should it be used as a substitute for such services. Always consult your own legal, accounting, or tax counsel before taking any action based on this information.

Nichole co-founded Gateway Private Equity Group, with a history of investments in single-family and multi-family properties, and now a specialization in hotel real estate investments. She is also the creator of NicsGuide.com, a blog dedicated to real estate investing.

Whether you’re a property owner, renter, property manager, or real estate agent, gain valuable insights, advice, and updates by joining our blog.

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The Third Party Tenant – A Warning to Commercial Landlords

Keeping you up to date with legal news & updates.

• Posted February 26, 2015

What should a landlord do on discovering that its tenant has made an unauthorised assignment of its lease to a third party without the landlord’s prior knowledge or consent?

Unfortunately, all too often landlords do not take action and allow the third party to remain in occupation for as long as they pay the rent.

Generally a lease will prevent sub-letting or assignment unless the tenant complies with certain requirements (such as obtaining the landlord’s prior consent). However an unauthorised assignment can still be effective in transferring the lease from the original tenant to the third party.

If the landlord does not take action straight away then they are likely to lose their right to end the lease because of the unauthorised assignment and almost certainly if they accept rent from the third party.

An unauthorised sub-let or assignment can lead to all sorts of problems for the landlord, particularly on expiry of the lease. Time and costs are incurred in investigating who is responsible for any dilapidations and who notice should be served on for example. In some circumstances, the third party may even have acquired the rights to renew the lease under the 1954 Landlord and Tenant Act.

Alarm bells should ring as soon as a landlord becomes aware that the rent is being paid by a third party and legal advice should be sought immediately to prevent the landlord from losing its right to forfeit the lease later on.

If the landlord does not want to keep the third party as its tenant then any rent received from the third party should be returned whilst the landlord starts the process required to forfeit the lease. If the landlord is prepared to accept the third party as its tenant then it can consent retrospectively to the assignment and a licence to assign should be drawn up straight away.

For individual advice, please contact Annabel Mayer on 01284 727118 or email [email protected]

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Important Considerations in Seeking a landlord’s Consent to Assignment

This article explores the key points which tenants must consider when seeking their landlord’s consent to an assignment of their lease. The topic may conveniently be divided into five sections, as follows:

• has an application for consent was submitted by the tenant? 
• what information can the landlord request in respect of the assignee?
• did the landlord withhold its consent to the assignment?
• was it unreasonable for the landlord to withhold its consent, contrary to s133B of the Conveyancing Act 1919 (NSW) (the Act ) (which provides that, where a lease requires the landlord’s consent to an assignment of the lease, the landlord’s consent must not be unreasonably withheld)?
• will the tenant be released from all future liability under the lease after the assignment?

Has an application for consent been submitted?

The starting point for a tenant is to submit to the landlord (usually) a written request to assign its leasehold interest in accordance with the terms of the lease ( Tenant’s Notice ). The landlord’s obligation to consider the tenant’s request for assignment only arises upon receipt of the Tenant’s Notice. In decision of Tamsco Ltd v Franklins Ltd 1 , the Court emphasised the significance of the tenant actually having to actually request the landlord’s consent. 

This is the case even where ‘the assignee is a person to whom there could be no reasonable objection 2 .  Before the tenant provides information relating to, for example, the assignee’s financial capabilities required for obtaining the landlord’s consent, it must properly communicate its request for consent to the landlord (in compliance with not only the assignment provisions, but also the notice provisions under the lease). 

What information can the landlord request in respect of the assignee?

The starting point here is to consider the terms of the assignment provision of the lease, which should specify the information the tenant must provide to the landlord in respect of the assignee. 

For example, many leases will require the tenant to prove to the landlord that the assignee:

• is a respectable, responsible and solvent person, capable of complying with the terms of the lease; and
• has adequate financial standing not inferior to that of the tenant. 

In this respect, it is common for tenants to provide to the landlord copies of the assignee’s tax returns and balance sheets (to evidence the adequate financial standing and solvency) and references from peers to evidence their responsibility and respectability in operating their business within the relevant industry. 

It should be noted that a landlord may not ‘oppressively demand extensive particulars or insist upon the equivalent of answers to interrogatories’ 3 .  All that is required is fair dealing between the parties to enable the landlord to make a ‘reasonable decision’ 4 .  So, it is important that landlords do not request any information inconsistent with what is permitted by the terms of the lease or which is irrelevant for the landlord making an informed decision in relation to whether its consent should be provided. 

Did the landlord withhold its consent to the assignment? 

The question here is whether after:

• formally requesting the landlord’s consent; and
• submitting to the landlord all information relating to the assignee required by the landlord (as dictated by the assignment provisions in the lease) to assess whether its consent should be provided to the assignment,  the landlord has refused to consent to the proposed assignment. 

In practice, where a landlord refuses to consent to an assignment of the lease, it will serve a notice to that effect on the tenant. However, where landlords are silent on whether they have consented to the assignment, their conduct becomes relevant for consideration. Courts have decided that some landlords, by virtue of their conduct alone, have consented to assignments. This occurred in Chamberlain Group Pty Ltd v Kids for Life Academy Pty Ltd 5 ,  where the landlord, for example:

• had knowledge that the assignee was already occupying the premises and did not object to such occupation; and
• collected rent from the assignee 6 .   

If the landlord did withhold its consent, was it unreasonable for it to do so? 

A landlord will have typically acted unreasonably where it has refused to provide its consent to an assignment for purposes unconnected with the subject matter of the lease 7 . For instance, it is generally unreasonable for a landlord to refuse to provide its consent to obtain a ‘collateral advantage’ which has no relationship with the terms of the lease. 

An example of this may include a landlord making the granting of its consent conditional upon a lump sum cash payment by the tenant to the landlord, an advantage which the landlord would not have otherwise been entitled to under the lease.

Will the tenant be released from all future liability under the lease after the assignment?

For commercial leases, if a lease is silent in relation to whether a tenant is released on assignment, then the tenant will not be released on assignment.  

For example, this will mean that where the assignee fails to pay rent under the lease after the assignment occurs, the landlord may still sue the tenant to recover the unpaid rent. 

If a tenant wants to be released on assignment, it is important for it to include an express release on assignment in the lease agreement or negotiate an express release within the deed of consent to assignment.

What does this mean for tenants?

Tenants must ensure that they have properly communicated to the landlord their request for the landlord’s consent to an assignment of the lease. It is always prudent to prepare the request in writing and serve it on the landlord in accordance with the notice provisions in the lease. 

Where the landlord has considered the request and unreasonably refuses to provide its consent, there are remedies available to tenants. Notably, tenants may seek a declaration by the NSW Supreme Court to the effect that the landlord has unreasonably withheld its consent to the assignment, contrary to section 133B of the Act. 

What does this mean for landlords?

When a tenant makes a formal request for consent to an assignment, landlords must ensure they are not taken to have impliedly (by their conduct) consented to the assignment of the lease. Landlords should:

• promptly acknowledge receipt of the tenant’s request for consent to the assignment; and
• request financial (and other) information relating to the proposed assignee in accordance with the terms of the lease (which, practically speaking, should be done at the same time they acknowledge receipt of the tenant’s request).  

This will equip landlords with all information they require to make a proper and informed decision as to whether they ought to be consenting to the assignment of the lease. However, landlords should note that they should only request information which would have a direct impact on their willingness to provide or withhold their consent. 

Furthermore, landlords must note the importance of ensuring that the tenant is not released on an assignment of the lease. This may also make leased assets more ‘bankable’ and may increase the capital value of landlords’ assets.

Contact us 

If you require any assistance relating to retail and commercial leasing transactions, commercial acquisitions and disposals and other real estate transactions, contact Partner John Frangi on 0417 252 203 or by email . 

1  [2001] NSWSC 1205.  2  Ibid [37].  3  Daventry Holdings Pty Ltd v Bacalakis Hotels Pty Ltd [1986] 1 Qd R 406, 543. 4  Ibid.  5  [2015] NSWCA 241. 6  Ibid [27]–[28].  7  Ashworth Frazer Ltd v Gloucester City Council [2001] UKHL 59 [3].

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