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Assignment of lease

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Solicitors for assignment of a commercial lease

At Gregory Abrams Davidson Solicitors, we specialise in commercial real estate and advise both landlords, current tenants, assignees and guarantors on commercial real estate lease assignments – get in touch for a quote or advice.

Commercial property leases in London, range from offices to shops to industrial units, pubs, hotels and other specialist properties. Most commercial leases are fairly long term contracts, with most being 5-10 years in length, possibly with break clauses. It is common for businesses to outgrow premises or to want to move and in such situations, assignment or sale of the lease is often the solution.

The process for a commercial lease assignment can be complex, costly and frustrating, so whether you are the Landlord, current tenant or are interested in taking over an existing lease it is important to get good advice.

Transfer of a commercial real estate lease

 If you are taking over an existing commercial lease, remember you are taking over all the liabilities as well as the rights. What can complicate lease transfer agreements is the necessity to have the Landlord’s consent and that it is usual for the Landlord to insist on the outgoing tenant to agree to guarantee the new tenant’s obligations.

Another area which can be problematic is payment of legal costs. For a fairly simple process, it is common for the Landlord to insist that his, her or their legal costs are paid, which can be quite expensive.

Licence to assign required from the Landlord

Virtually every commercial lease will have a clause about assignment. Most clauses will state that assignment is permitted but with Landlords consent, technically in the form of a formal licence to assign, and that consent cannot be unreasonably withheld.

What happens if the Landlord refuses licence to assign?

Much depends on the wording of the lease. In most cases, a landlord will need to be able to argue that the proposed new tenant is, for financial reasons or reputation, more risky than the existing tenant. The Landlords argument is made harder by the fact that in many cases then outgoing tenant will still be liable under an Authorised Guarantee Agreement (AGA).

The difficulty with the landlord refusing to grant licence to assign is that any action by the tenant at court to force the issue takes time and comes with risk. In reality, the proposed new tenant may have changed their mind and become frustrated by this point. Landlords often know this and seek to stall rather than refusing consent to selling the lease outright, so it is important to balance out seeking to keep the Landlord on side as against not allowing the matter to drift.

With lease assignments, the landlord will often want to carefully consider the bona fides and solvency of the prospective new tenant, including taking up references and other financial checks.

Landlords fees for lease assignment

If the Landlord agrees in principle to grant licence to assign, he, she or it will almost certainly also require their lawyers fees to be paid. The fees can be expensive, often between £700.00 to £1,0000.00 plus vat, for a fairly simple document, so the current tenant and assignee will need to agree who will pay.

The licence to assign deed is generally fairly straightforward. However, given that there are various parties involved and the Landlord has a degree of power to at least delay or hold up the lease transfer, there is often little negotiating position to haggle on the costs. The licence to assign will typically be drafted by the landlords lawyers.

Commercial lease assignment – what to look out for

If you are considering taking over as tenant of an existing commercial lease, you will need a competent and experienced lawyer to check the terms of the lease, ensure that there are no hidden pitfalls and that you don’t inherit problems.

In particular, look out for :-

  • dilapidations clauses – can be very costly and if there was no schedule of condition at the beginning of the lease, you can get financially penalised when it expires.
  • breach of lease – be sure there are no breaches of the lease, that rent reviews are up-to-date and that the lease is likely to be renewable.
  • service charges and outgoings – such as buildings insurance, service charges, permitted use.
  • rent review – don’t assume that if a rent review was due but didn’t happen that you will be safe in becoming tenant under the existing lease. the rent could still go up.

Choosing Gregory Abrams Davidson Solicitors means that you will get fast, efficient and cost effective advice including on the licence to assign, deed of assignment and what needs to be included and amended from any standard document.

For further advice or a quote from our lawyers on an assignment of a commercial lease whether you are the existing or new tenant, get in contact with us.

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