Lease Assignment in Commercial Real Estate

What is a Lease Assignment?

A lease assignment occurs when a tenant fully transfers their lease to another party. This is particularly important for tenants who wish to get out of their leases early due to financial issues, especially if a landlord does not allow subleases. In general, the landlord must agree to the lease transfer, and usually records their consent to it via a document called a “license to assign.”

However, a landlord is generally required to give what’s called “reasonable consent” when deciding whether to allow a tenant to assign a lease or find a new tenant to sublease the property. For example, as long as potential (new) tenants have good credit and strong financials, a landlord should not arbitrarily deny the original tenant the ability to assign the lease or provide a sublease. In addition, some leases have a clause which stipulates the specific time period in which a landlord must decide whether to approve a new tenant for lease assignment.

The Differences Between Subleases and Lease Assignment

In a sublease, the tenant is still responsible for fulfilling all aspects of their lease agreement, including paying rent. In many subleases, the original tenant actually collects rent directly from the subleasing tenant and pays it to the landlord, though this is not always the case. In a lease assignment, a legal relationship is created directly between the landlord and the new tenant, which means that the new tenant will be directly paying rent to the landlord. However, unless the original tenant is fully released from their liability by the landlord, they will be legally liable if the new tenant defaults. This means that, while a lease assignment is great for many tenants, it still carries some risks— as a landlord could sue the original tenant for back rent if the new tenant failed to pay.

In addition, while a sublease can be for only part a leased premises, in most cases, a lease assignment must be for the entire premises. For instance, if a tenant leasing a 10,000 sq. ft. property wanted to lease out only 4,000 sq. ft. to another party, they would typically have to do so through a sublease rather than via a lease assignment.

Finally, some leases also stipulate that if a lease is assigned to a new tenant, and the original tenant profits (usually due to the sale of the business), the landlord has a right to a certain share of those profits.

See also: Commercial Lease Renewal

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