Assignment of Commercial Lease

Most leases of commercial buildings give the tenant the right to sell (assign) the lease but this right is usually conditional upon having the consent of the landlord. In most cases the landlord has to give consent unless it would be unreasonable not to do so. 
 

This means that there are two distinct documents required to effect an an assignment of a lease. The first document is the assignment - this is the document which passes ownership of the lease from the seller to the buyer. The second document is the ‘Licence to Assign’ - this is the document which the landlord enters into in order to give consent to the assignment.

Generally speaking the Licence to Assign needs to be entered into before or simultaneously with the Assignment. In most cases, if the assignment is entered into before the consent from the landlord is obtained then this would be a breach of the lease terms and give the landlord the right to forfeit.

Remember that selling (often termed as 'assigning') the lease is different to subletting. Assigning a lease means you transfer the existing lease. Subletting means that a new lease is granted out of the head lease. For information about granting a sub lease, see Useful links.

All leases are different and the terms of each need to be looked at in order to assess exactly what requirements there may be in connection with an assignment. The section to look at in a lease is often referred to as 'alienation'. The clause may well set out the circumstances in which a landlord may withhold consent and the conditions that the landlord can impose as a term of granting the consent.

When deciding whether or not to give consent to an assignment of the lease, the landlord will have particular regard to the expected ability of the party taking the lease to pay the rent. If the landlord is uncertain about that then he may require that a guarantor also enter into the Licence to Assign to back up the obligations of the assignee. Legaldocsdirect provides versions of the Licence to Assign either with or without a guarantor clause.

The Landlord and Tenant (Covenants) Act 1995, which came into force on 1st January 1996, changed the liability that tenants had under a lease. A tenant who signed a lease before this date was generally caught by ‘privity of contract’ which meant that the original tenant remained liable under the terms of the lease for the whole duration of it. This meant that a Landlord could go back to the original tenant to obtain payment of rent arrears which had accrued long after that tenant had sold the lease. This does not apply to leases entered into after that date.

Leases entered into after 1st January 1996 usually contain provisions which enable the landlord to call upon the outgoing tenant to sign an authorised guarantee agreement. This is an agreement whereby the outgoing tenant guarantees the performance of the incoming tenant. This applies for one assignment only i.e. if the lease is assigned again then the liability under the authorised guarantee agreement ends automatically.

If the lease has a registered title then the form of assignment is not appropriate - instead use Land Registry form TR1. It is likely to have a registered title only if the lease was originally granted before 13th October 2003 and was for a term of more than 21 years, or after 13th October 2003 and was for a term of more than 7 years. If the lease is unregistered but there is more than 7 years remaining on the lease then remember that it will need to be registered at HM Land Registry - in this case you can use either our form of assignment or a Land Registry TR1.

If you transfer an existing registered lease then this transaction needs to be registered at the Land Registry using form AP1. If an existing unregistered lease with a term of more than 7 years remaining is transferred/assigned then this needs to be registered at the Land Registry using form FR1.  If either party to the transaction is not represented by a solicitor or licensed conveyancer then the Land Registry will require evidence of identity for that unrepresented person -  this is dealt by completing form ID1 for each unrepresented party. Form AP1, FR1 and ID1 are all available to be downloaded for free from the Land Registry web site, see Useful links.

If the purchase price paid for the assignment/transfer exceeds £40,000 then the assignee (purchaser) will need to submit a Land Transaction return (form SDLT1) to HM Revenue & Customs following completion of the assignment. There will only be Stamp Duty Land Tax to pay if the price paid for the assignment is more than £150,000 (assuming the property is not residential) - but even when there is no tax to pay a return may have to be sent in, see Useful links for more information. The position on the grant of a new lease is different – see Useful links for more information on stamp duty land tax.

If further security is required against performance of the tenants obligations then the landlord may wish to consider taking a security deposit, see Useful links. We hope that you will find our templates helpful. Beware though - leases are substantial and often complex documents. If you have any doubts you should consult a specialist conveyancer.

Note that on an assignment (transfer) of a lease the assignor (seller) is required to provide free of charge to the buyer an Energy Performance Certificate. This applies to most properties - very few exceptions.

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The documents available on this site have been prepared for use in England & Wales. They may not be valid if used in other areas.