August 4, 2022

Assigning a lease – what to expect as a tenant

Assigning a lease involves transferring your current lease to another entity (whether an individual, partners, or a limited company) who takes your place. Accordingly, the new tenant steps into your shoes, and takes on your rights and obligations under the contract. In the commercial property context, this proves particularly useful for businesses who wish to change locations, or need to move into a different sized premises. However, there are a number of points to consider to help you best to protect yourself in the process. 

Firstly, most leases will contain a contractual term dictating that assignment can only occur with your landlord’s consent. Therefore, it is important for you as the outgoing tenant obtain a licence to assign. Fortunately, the Landlord and Tenant Act 1927 puts the landlord under an implied duty to not unreasonably withhold consent to a lease assignment. If your lease remains silent on the matter, you can make the assignment without consent, however, in such cases it is still advisable to obtain formal consent and keep the landlord informed.

As an outgoing tenant you should also ensure that once the assignment has taken place, it is legally recognised. Accordingly, if your lease has already been registered or has more than seven years left, the new tenant will need to register the assignment at the Land Registry. Failure to do so could leave you fully liable for the obligations under the contract despite the assignment.

It is important to note that assigning your lease to a new tenant does not fully exempt you from liability; you might still be responsible for any failures of the assignee to adhere to the contract. Perhaps most notably, you could be liable for any payments missed by the incoming tenant. Here, the scope of your liability will differ depending on when you initially entered the lease. For those which began after January 1996, you will be responsible for any payments missed by the next tenant. Conversely for any starting before then, you will be liable for the payments from all future assignments until the end of the lease. Therefore, when you find your new tenant, you should check their credibility in order to avoid such issues.  It is usual for a landlord to require the outgoing tenant to stand as a guarantor for the assignee by way of an Authorised Guarantee Agreement. An experienced property solicitor, licensed conveyancer or legal executive lawyer can advise you in this regard.

There are a number of alternatives to assigning a lease. Firstly, if your lease contains a break clause, you might be able to simply exit the lease early (i.e., walk away) under certain conditions. Where there is no break clause, you may still be able to negotiate a lease exit with your landlord, which would also allow you to leave early.  You could also consider subletting your lease to a new tenant instead.  You would remain responsible for your lease until the end but would have the benefit of a similar arrangement with a sub-tenant, and third-party guarantees can be put in place for added security.  Finally, if the landlord is co-operative, you could discuss a surrender of your lease back to the landlord.  The landlord may be particularly interested in this if they want to redevelop the site, move in themselves, or if they believe they can negotiate new terms with another tenant. This final option may be largely dependent on the market however.

It is worth noting that assigning a lease does not change the wording of the original lease, so when lease will always show the original parties.  If the lease is registered, the register will show the current owner.

Whichever route you take to leave your premises, it is always advisable to seek the aid of an experienced property lawyer to ensure everything is done in line with your contract and legal process, and you are not left exposed to excess liability.

Whether you are a tenant in need of assistance with your lease assignment, or a landlord considering a proposed lease assignment by your tenant, the property lawyers at Scott Bailey LLP in Lymington, Hampshire, can provide the expert legal advice you need. Visit our commercial property or residential property pages for more information on lease assignments and the other property legal services we offer. If you are in dispute regarding a lease, then our residential property litigation or commercial property litigation pages may be of interest. Alternatively, contact us if you are ready to take the next steps.