Lease Assignments: Your Duty as a Landlord

Are you a commercial property landlord who has granted a lease to a tenant over your property? Are you worried that one day your tenant’s business will struggle? Despite being bound by a lease, there are indeed many reasons why your tenant may look for a way out, writes Alaa Jafferali our Property Law expert. Some of the many reasons are as follows:

1. Your  tenant requires bigger/smaller premises due to expansion/reduction
2. The premises are surplus to your tenant’s requirements for some other reason (e.g. their business may be relocating)
3. Retirement

Your tenant may wish to assign their Lease to someone who would be willing to acquire the property.

What is a Lease Assignment?

A lease assignment is a transfer by the original tenant (assignor) of his/her rights over a leased property to an incoming tenant (assignee).The majority of leases contain a clause which necessitates obtaining the landlord’s consent before beginning any assignment procedures.Now you must be thinking that this sounds time consuming and costly? Fear not! As the terms of the existing lease are not usually open to negotiation by the assignee and it is common practice that the incoming tenant pays the landlord’s legal fees.

What happens if you’re asked for consent?

In practice, your tenant will find someone who would be willing to take over the property and will instruct his/her solicitors about their intention to assign the lease. The incoming tenant will also instruct solicitors who will contact you asking for consent providing you with all the details of the proposed transaction. It is advisable to instruct your own solicitors at this stage who will request further information relating to the assignee which will include bank and trade references or accounts.

As a landlord, you have a duty to consider a request for consent to assign and must have reasonable grounds to refuse consent. In the past, courts have ruled against landlords that have taken far too long to provide an answer. If your tenant has made a written application for consent, section 1 of the Landlord & Tenant Act 1988 provides that such consent may not be unreasonably delayed and a landlord can be heavily penalised for failure to comply with this statutory obligation as presented in the case of Design Progression v Thurloe Properties (High Court) [2004] EWHC 324.

Your solicitors will draft a Licence to Assign and advise you if additional security from the assignee is deemed necessary, such as a rent deposit deed or a guarantor. If your tenant’s lease was granted on or after 1 January 1996 then it may well contain a clause which enables you to withhold consent to an assignment and may also contain conditions you can impose on any consent given. One common condition stated is that the outgoing tenant must enter into an Authorised Guarantee Agreement (AGA) with you on an assignment; this is usually annexed to the Licence to Assign. The AGA provisions usually give you a guarantee that the assignee shall pay the rents reserved by the lease and observe the tenant covenants of the lease. However, if the assignee fails to pay any rents or to observe the said covenants, then the tenant shall bear the burden.

Once all draft documentation has been agreed between the parties, your solicitors will send final versions to the assignor’s solicitors who will review them and forward them to the assignee’s solicitors for signing.

This is predominantly the easiest and fastest way for your tenant to pass their leasehold interest over to someone else. A lease assignment might be the best thing for your tenant if they are showing signs of struggle. The correct approach is to always get the right legal advice in time.

To ensure you are not breaching your statutory duties and if you wish to talk more about this topic, contact Graeme Taylor on 020 3227 0643 or email graeme@gelbergs.co.uk.