HOW TO ASSIGN A LEASE
What is a Lease Assignment?
An assignment is a transfer of an existing lease by the tenant to a third party.
For example, Mr Caleb is a lease tenant and decides to sell his lease to Ms Grace. Mr Caleb, the lease tenant who assigns the lease, is also called ‘Assignor’ or ‘Seller’, and Ms Grace, the lease buyer, is also called ‘Buyer’ or ‘Assignee’.
If you’re a buyer or a seller, it’s important to understand the precise nature of the transaction into which you are entering. This transaction is similar in the same way a freeholder is selling their own; in this case of assignment of a lease, the seller is selling the lease. In a similar case, if you are the buyer, you will be acquiring that unexpired term together with the benefits, but subject to the burdens that go with that lease.
The terms of the lease are not open to negotiation by the buyer because the lease already exists, and the buyer must take it or leave it as it stands. The only way the buyer can obtain an alteration to the lease terms is by executing a deed of variation of the lease with the landlord.
PRE-CONTRACT MATTERS
SELLER: In the pre-contract stage of assignment, it’s very important to verify or check the freehold title to identify any covenants or easements that could affect the freehold and also bind the leasehold interest. Any potential problem must be identified, and all relevant encumbrances will need to be disclosed in the contract. This can involve checking the terms of the lease, being assigned to anticipate any problems that may arise with the lease itself. And the most important question is whether the landlord’s consent to the transaction will be required.
Once the title has been investigated, the seller’s solicitor can draft the contract for submission to the buyer’s solicitor for approval or amendment.
BUYER: As a buyer, you will need to investigate the title and consider the terms of the draft contract supplied to you. The seller will have supplied a copy of the lease, and as a buyer, you should check this carefully and identify any problems revealed. You should be aware of your responsibility under various covenants in the lease.
LANDLORD’S CONSENT
A commercial lease usually provides for the landlord’s consent to be obtained before any assignment can take place.
In the lease where the seller is required to obtain the landlord’s consent, the landlord will want to up reference check on the prospective buyer to ensure that they are a solvent and trustworthy individual. The buyer should be asked to supply the name and address of potential referees to the landlord as quickly as possible, in order to avoid any delay.
References are commonly required from all or some of the following sources:
- A current landlord;
- The buyer’s bankers
- The buyer’s employer;
- An accountant or a solicitor
- A company with which the buyer regularly trades, and
- Three years of audited accounts in the case of a company or self-employment.
Surety: The Landlord may also require the buyer to provide a surety or guarantor to the lease as a condition of the grant of their consent.
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topic covered in this Articles
- WHAT IS A LEASE ASSSIGNEMNT
- PRE-CONTRACT
- LANDLORD'S CONSENT
READING OUTCOMES
- Understand seller and buyer rights and responsabilities
- Understand how to obtain landlord's consent
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