Lease Assignments – Landlords looking ahead
It is generally accepted that in most commercial leases the tenant will have the ability to assign the whole (and sometimes part) of the premises to a third party, subject to the Landlord’s prior consent; such consent not to be unreasonably withheld or delayed. It is wise from a landlord’s perspective however, to fully consider at the outset of the grant of the lease, the tenants that it would be content to see step into the lease should the tenant wish or need to move on, and those which it would not. It can then make provision for such instances by placing restrictions on the circumstances in which the tenant will be permitted to exercise its option to assign.
Such considerations might include: –
- Assignments to tenants of a lower financial standing – the first and most obvious consideration of the landlord will be: can the assignee meet the rent as and when it falls due? In order to assess this, wording can be inserted which provides that the assignee must be of at least the same financial standing as the outgoing party. The landlord may then request relevant evidence such as the assignee’s accounts over a set period or use this as a basis for seeking a guarantor or that a rent deposit be paid.
- Assignment to a group company – whilst a tenant may consider this uncontroversial, it could have the undesired effect of diluting the covenant strength of the tenant within the scheme generally. If the landlord wants to prohibit this, a compromise may be reached in instances where the assignment is purely for the genuine purpose of the group restructuring its assets for tax purposes.
- Assignments to tenants of inferior covenant strength – the landlord may wish to safeguard against an anchor tenant or a tenant with a strong covenant seeking to assign the lease to a lesser established entity based on a potential adverse impact to the scheme overall, particularly the ability to garner interest from other prospective tenants.
- Changes to the permitted user – the landlord may wish to maintain a specific use or uses for a particular scheme and so will want to ensure it has the option to refuse consent to any assignee whose proposed use falls outside this.
Even if the above caveats are not written into the lease, it may still be reasonable for the landlord to deny consent if it considers that any one or more of the above points apply and it can demonstrate a genuine adverse impact.
If you have any queries about how best to protect your position in a new lease or require advice on whether withholding consent to a subsisting lease is reasonable, please contact our Real Estate team for assistance.
While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.