Transferring a Business Lease: Landlord Consent to Assignment Explained

Where a commercial tenant wishes to transfer their lease of a property to a third party, this is known as an ‘assignment’.

Assigning a lease can be a useful tool where a tenant is in a lease with time still to run, and wants to leave but there is no break clause within the lease, or the landlord has refused to allow the tenant to surrender the lease.

Assignment allows the tenant to transfer their lease to a new tenant (the ‘assignee’). This means the assignee steps into the shoes of the tenant in respect of the lease, with all tenant obligations in the lease becoming the responsibility of the assignee.

This article navigates the steps of transferring a commercial lease through assignment, the costs involved, and how you can seek support from expert commercial property lawyers.

The lease

If a lease is completely silent on the question of assignment then this means that the tenant is free to transfer its interest without the landlord’s consent. However, it is very rare for a lease to be entirely silent on the question of assignment. Normally a lease will contain a qualified covenant, allowing assignment with the landlord’s consent. This will require a tenant to seek a landlord’s consent to an assignment, or at the very least to notify the landlord of any assignment.

It is usually the case that for particularly long leases (e.g. 99 years or more), the landlord has less control over assignments than shorter leases of, say, 10 years. Such restrictions on the ability to assign are important from a landlord’s perspective as they protect a landlord from circumstances where a tenant assigns a lease to someone who the landlord would not have accepted as a tenant.

Normally, a landlord’s primary concern is that any tenant of the property is able to pay rent and other sums falling due under a lease and to keep the property in a good state of repair as per the lease.

Checking the terms of the lease

The first step in an assignment process is to look at the lease itself and assess what the tenant is required to do in the case of a proposed assignment. It is very important that this is done before any purported assignment of a lease or before an assignee is allowed into occupation of a property.

The lease should set out whether a landlord’s consent to an assignment is required and will sometimes give some guidance about how a tenant should make an application to a landlord to ask for consent or whether there are any preconditions to making an application for consent to assign.

Making the application

The application itself will need to comply with any contractual provisions within the lease (if there are any). It should also:

• Be made in writing
• Contain enough information for the landlord to understand what is being asked, and to be able to assess the suitability of the proposed assignee
• Follow the protocol for application for consent to assign or sublet (known as the Alienation Protocol). Note that this is not compulsory, but certainly advisable.   

The landlord, on receipt of an application for consent to assign is then under a statutory duty (under the Landlord and Tenant Act 1988) not to unreasonably withhold or delay the giving of consent. It is important to note that such obligations are only triggered once a valid application for consent is served on the landlord.

Landlord’s Consent

In some cases, leases will state that a tenant must receive the landlord’s written permission before assigning the lease. However, on receipt of an application, a landlord must deal with this very carefully to avoid any suggestion that, by words or conduct, they have given consent inadvertently. It is therefore important for a landlord to get advice early.

Where a lease states that a tenant may only assign a lease with the consent of the landlord, then regardless of whether or not a lease expressly says so, a landlord must act reasonably in making their decision whether or not to grant consent. They  must not unreasonably withhold or delay giving consent, and a decision must be given in writing. The written legal document granting a landlord’s consent to transfer the lease to a new party is called a ‘licence to assign’.

Conditions Landlords May Impose

If a landlord grants consent to an assignment then, if it is reasonable to do so, may give consent subject to certain conditions. What type of conditions will be reasonable will depend on the circumstances. This may include:

• Authorised Guarantee Agreement: This obligation on the existing tenant will include an obligation on the tenant to indemnify the landlord if the assignee breaches the lease, or alternatively that the assignee pays a rent deposit.
• Payment of landlord’s legal costs
• Remedy of existing lease breaches

The landlord’s consent to the assignment and any conditions of assignment should be properly documented.

When Can a Landlord Refuse Consent?

What is a ‘reasonable’ time for a landlord to make a decision will very much depend on the facts and circumstances, but this is usually days or weeks rather than months. The tenant is required to comply with the landlord’s reasonable requests for further information and the landlord will not be penalised for delaying the giving of consent whilst waiting for further information from the tenant.

Where a landlord refuses consent to assign it should give reasons for refusal. The landlord may give several reasons for refusal and so long as one of those reasons is deemed ‘reasonable’ then a landlord will be able to withhold consent. Common examples of circumstances in which it may be reasonable to refuse consent are:

• Where the lease specifically sets out circumstances where the parties agree it would be reasonable to refuse consent.
• Where a proposed assignee cannot provide evidence of sufficient financial standing to be able to comply with the lease obligations.
• Where the current tenant is in breach of the lease and the landlord’s position in respect of those breaches may be prejudiced by an assignment.

If a landlord’s reasons for refusing consent are not reasonable, then a tenant has a number of remedies available to it including the ability to apply to Court for a declaration that the landlord is unreasonably withholding consent, or perhaps continuing with the assignment without consent (although this can be risky).

Consent required from other parties

Sometimes, landlords are not able to unilaterally grant consent to an assignment. There may be superior landlords, lenders or others with rights over the property who may be required to give consent. The landlord, on receipt of an application for consent, should carefully consider if anyone else is required to consent to the assignment and if so, take steps to provide them with a copy of the application immediately after receiving it.

Costs of Assigning a Commercial Lease

It is entirely normal for a lease to say that a tenant should reimburse a landlord in respect of its costs for dealing with an application for consent to assign, regardless of whether consent is given or not. Even where a lease is silent, case law suggests that a tenant should pay a landlord’s reasonable costs.

This is an important point because costs can become expensive, particularly where a landlord’s consent is subject to a superior landlord’s consent or other third party involvement.

Applying for consent to assign or dealing with an application for consent can be tricky and should be prepared and any response to an application properly recorded. Jennifer Rogers is a specialist commercial property litigation solicitor with a wealth of experience advising Landlords and Tenants and would be delighted to assist.

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