When a business owner is considering entering into a lease for space, one very important consideration is the lease’s assignment clause.
An assignment clause specifies limitations on a
tenant’s right to transfer its leasehold interest in its premises to another tenant. When a lease is assigned to a new tenant, that new tenant becomes responsible to pay rent to the landlord.
Flexibility is a paramount concern when negotiating a lease assignment clause, which can be
especially important in a long-term lease. There are many factors that can cause a tenant to
want to assign its lease such as the sale of that tenant’s business, economic hardship, or the
need to downsize or expand. However, without a carefully drafted assignment clause, a tenant may be unable to assign its lease, leaving it financially obligated for the remainder of the lease term.
The right to assign a lease may seem straightforward but, generally, it is not, and landlords
typically try to limit tenants’ assignment rights. For example, landlords generally want ensure
that assignees are creditworthy and have a net worth that is commensurate with their
assignors’. In addition, landlords typically limit a tenant’s right to assign its lease to assignees
who will not change the nature or use of the leased premises.
A properly negotiated assignment clause should address a host of important issues such as:
how much advance notice is required to assign a lease; limitations on a landlord’s right to reject an assignment; and whether an assignment relieves the assigning tenant of all of its obligations under the lease.
Of course, it’s too late to understand the importance of an assignment clause after a lease has
been signed. This is one reason that it’s vital to consult with a trusted professional before
entering into a commercial lease. Experienced professionals can find ways to reduce costs,
minimize exposure and align leases with future plans of lessees.
If you are a commercial tenant who would like more information about understanding or
negotiating an assignment clause in your lease , please contact LeaseWatch at 561-998-2800 or visit us at www.leasewatch.org.
The foregoing is not legal advice and is for informational and discussion purposes only.