is assignment of lease

What is Assignment of Lease and How It Differs from Subletting

The assignment of lease (and rent) is a foggy topic that is often confused with subletting. Let's clear the air once and all right now. Learn the differences between a lease assignment and sublease so you can make the right choice.

What is Assignment of Lease? - The Important Basics

Let's begin by introducing the 3 players in a lease assignment - The landlord, the original tenant (assignor) and the new tenant (assignee). The original tenant has an unexpired lease agreement with the landlord and he wants out. Since the original tenant can't just break the agreement and walk off, what he does is to get a new tenant to swap places... and take over all his rights and obligations for the remainder of the lease period. So if the original tenant signs a 1 year commercial lease and the business goes bust after 8 months, the new tenant will be assigned a 4-month commercial lease (with the same terms and conditions as the original agreement). Now here's the big catch: Even though the original tenant has handed over all his duties and obligations to the new tenant, he is not off the hook... unless the landlord agrees to release him from all liabilities. If the new tenant stirs up trouble, our dear original tenant will find himself in hot soup as well. Of course, whether the original tenant is allowed to pull this assignment trick out of his hat is a whole new matter. Knowing for sure is actually simpler than most people think: First, examine your local landlord tenant laws for any lease assignment rules. Most of the time, landlords are given the right to allow or disallow assignments but once in a while, the local law let tenants have the final say instead. If there's no mention of lease assignments in your law text, then your rental lease agreement shall dictate the terms.

Difference Between Lease Assignment and Subletting

When it comes to subletting vs assignment of lease, there's often a massive mix-up. Sometimes even real estate professional get it wrong by assuming them to be one and same thing. However if you dig deeper, you will find that the differences are not just numerous, but important as well. Let's begin by dragging the landlord into the picture. An assignment of lease launches the new tenant into a direct relationship with the landlord - The landlord collects rent straight from the new tenant and deals with the new tenant directly on all lease issues. So in this case, the original tenant gets to take back seat and doesn't have to manage the new tenant actively. On the other hand, there's no direct relationship between the landlord and new tenant (subtenant) in a sublease. Instead the original tenant plays mother goose and is responsible for collecting rent from the subtenant and making sure that he's following the lease rules. When you compare the two, a sublease is a lot more hands-on for the original tenant. No matter which path you take, you will still want a good new tenant who pays the rent on time and follows the lease rules to the agreement. For the golden rules on screening tenants and running credit checks, Click here for our guide to running tenant credit checks. When you have a lease assignment, the terms and conditions of the lease remains largely unchanged - It's almost like taking the original lease agreement and swapping the tenant's name with another. With a sublease, there's more breathing space - The original tenant can decide how much rent to charge, how long the subtenant is going to stay or even collect security deposit... as long as it stays within the boundaries drawn by the original lease agreement between the landlord and original tenant.

Should You Choose Assignment of Lease or Sublease?

You are the Landlord - A lease assignment is recommended in most cases. You will have more control over your new tenant (instead of leaving matters in the original tenant's hands and hoping that he would do a good job)... plus you still have the original tenant to cover your back in case anything goes wrong. You are the Original Tenant - Now this is a tricky one. If you want to someone to take over the entire lease and property for its remaining duration (e.g. your business goes belly-up and you no longer need the office), then help yourself to a lease assignment. If the landlord's consent is required for assignment (and he doesn't give the nod), you can always try offering him a lease assignment fee as a deal sweetener. However, if you are looking for someone to share the place (and rent)... or perhaps you need someone to cover the rent while you are overseas for a few short months, then a sublease would be ideal. You are the New Tenant - An assignment of lease works better for you most of the time. You won't be at the mercy of the original tenant (for example if he screws up and the landlord terminates the original lease agreement, your sublease might also go up in flames). But if you only want to rent part of the property... or don't want to tie yourself down for the remaining lease duration, then you are better off sticking to a sublease. Now that we have covered the topic of assignment vs sublease, go ahead and take your pick - Click here for an assignment of lease form or Click here for a sublet agreement instead.

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Assignment of Lease: How It Works and Parties Involved

Jump to section, what is an assignment of lease.

The assignment of lease is a title document that transfers all rights possessed by a lessee or tenant to a property to another party. The assignee takes the assignor’s place in the landlord-tenant relationship.

You can view an example of a lease assignment here .

How Lease Assignment Works

In cases where a tenant wants to or needs to get out of their lease before it expires, lease assignment provides a legal option to assign or transfer rights of the lease to someone else. For instance, if in a commercial lease a business leases a place for 12 months but the business moves or shuts down after 10 months, the person can transfer the lease to someone else through an assignment of the lease. In this case, they will not have to pay rent for the last two months as the new assigned tenant will be responsible for that.

However, before the original tenant can be released of any responsibilities associated with the lease, other requirements need to be satisfied. The landlord needs to consent to the lease transfer through a “License to Assign” document. It is crucial to complete this document before moving on to the assignment of lease as the landlord may refuse to approve the assignment.

Difference Between Assignment of Lease and Subletting

A transfer of the remaining interest in a lease, also known as assignment, is possible when implied rights to assign exist. Some leases do not allow assignment or sharing of possessions or property under a lease. An assignment ensures the complete transfer of the rights to the property from one tenant to another.

The assignor is no longer responsible for rent or utilities and other costs that they might have had under the lease. Here, the assignee becomes the tenant and takes over all responsibilities such as rent. However, unless the assignee is released of all liabilities by the landlord, they remain responsible if the new tenant defaults.

A sublease is a new lease agreement between the tenant (or the sublessor) and a third-party (or the sublessee) for a portion of the lease. The original lease agreement between the landlord and the sublessor (or original tenant) still remains in place. The original tenant still remains responsible for all duties set under the lease.

Here are some key differences between subletting and assigning a lease:

• Under a sublease, the original lease agreement still remains in place.
• The original tenant retains all responsibilities under a sublease agreement.
• A sublease can be for less than all of the property, such as for a room, general area, portion of the leased premises, etc.
• Subleasing can be for a portion of the lease term. For instance, a tenant can sublease the property for a month and then retain it after the third-party completes their month-long sublet.
• Since the sublease agreement is between the tenant and the third-party, rent is often negotiable, based on the term of the sublease and other circumstances.
• The third-party in a sublease agreement does not have a direct relationship with the landlord.
• The subtenant will need to seek consent of both the tenant and the landlord to make any repairs or changes to the property during their sublease.

Here is more on an assignment of lease here .

Parties Involved in Lease Assignment

There are three parties involved in a lease assignment – the landlord or owner of the property, the assignor and the assignee. The original lease agreement is between the landlord and the tenant, or the assignor. The lease agreement outlines the duties and responsibilities of both parties when it comes to renting the property. Now, when the tenant decides to assign the lease to a third-party, the third-party is known as the assignee. The assignee takes on the responsibilities laid under the original lease agreement between the assignor and the landlord. The landlord must consent to the assignment of the lease prior to the assignment.

For example, Jake is renting a commercial property for his business from Paul for two years beginning January 2013 up until January 2015. In January 2014, Jake suffers a financial crisis and has to close down his business to move to a different city. Jake doesn’t want to continue paying rent on the property as he will not be using it for a year left of the lease. Jake’s friend, John would soon be turning his digital business into a brick-and-mortar store. John has been looking for a space to kick start his venture. Jake can assign his space for the rest of the lease term to John through an assignment of lease. Jake will need to seek the approval of his landlord and then begin the assignment process. Here, Jake will be the assignor who transfers all his lease related duties and responsibilities to John, who will be the assignee.

You can read more on lease agreements here .

Image via Pexels by RODNAE

Assignment of Lease From Seller to Buyer

In case of a residential property, a landlord can assign his leases to the new buyer of the building. The landlord will assign the right to collect rent to the buyer. This will allow the buyer to collect any and all rent from existing tenants in that property. This assignment can also include the assignment of security deposits, if the parties agree to it. This type of assignment provides protection to the buyer so they can collect rent on the property.

The assignment of a lease from the seller to a buyer also requires that all tenants are made aware of the sale of the property. The buyer-seller should give proper notice to the tenants along with a notice of assignment of lease signed by both the buyer and the seller. Tenants should also be informed about the contact information of the new landlord and the payment methods to be used to pay rent to the new landlord.

You can read more on buyer-seller lease assignments here .

Get Help with an Assignment of Lease

Do you have any questions about a lease assignment and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from real estate lawyers who specialize in lease assignment.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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Ryan Clement, the Principal Attorney at Business and Technology Legal Group (www.businessandtechlawyers.com), has been a Colorado licensed attorney for almost 20 years and has extensive experience in all matters related to corporate law, software and technology law, intellectual property, data privacy and security, business startups/formation, commercial transactional matters, general business counsel, compliance, and litigation. Ryan graduated with high honors from the University of California, Santa Barbara before attending the University of California, Davis School of Law and graduating in 2004. Post-law school, he completed an esteemed two-year judicial clerkship at the Second Judicial District Court of Nevada. In 2007, Ryan Clement became a licensed attorney in private practice, working at several prestigious law firms before forming and operating his own successful law firm in 2012 at the age of only 31. This keen business acumen and entrepreneurial drive was the impetus behind Ryan’s desire to practice business and technology law, ultimately forming the foundation of Business and Technology Legal Group. In addition to his top-tier legal credentials, Ryan also holds a Master of Business Administration (MBA) degree from the University of Colorado, Denver, and has over a decade of experience working in the software industry at Fortune 500 and publicly traded companies. This vast experience in the technology and software sector, combined with his many years as an attorney provides the intersection of legal, technical, and business skill sets that sets Ryan apart from the crowd of business and technology attorneys in the market.

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LegalTemplates Resources Real Estate Assignment vs. Sublease

Assignment vs. Sublease: What Are the Key Differences?

Updated September 26, 2024 | Written by Sara Hostelley Reviewed by Brooke Davis

When leasing property, you might encounter situations where you need to transfer your lease or share your rented space. Assigning a lease and subletting are potential solutions, but you should first understand their implications.

In this article, we explore the differences between a lease assignment and sublease, explain how these arrangements work, and discuss the rights and responsibilities they entail.

What Is a Lease Assignment?

A lease assignment is when the tenant transfers all their rights and obligations under a lease agreement to another party. The new tenant (the “assignee”) accepts all of the responsibilities and benefits of the leased property.

The assignment of a lease helps you when you need to get out of a lease before it expires. For example, suppose you’ve signed a 12-month lease for a commercial space. If your business relocates after six months and needs to get out of the commercial lease early, you can assign the lease to another entity to relieve your company from the lease responsibility.

What Is a Sublease?

A sublease agreement lets a tenant rent out all or part of their rented property to another person (the “subtenant” or “sublessee”). This arrangement is beneficial when you (as the direct tenant) need to temporarily vacate your rental unit or share the space with someone else. Subletting offers flexibility for short-term housing needs and can help you avoid breaking your lease .

When you enter a sublease, you’ll still be responsible for fulfilling the terms of your original lease, including paying rent and maintaining your unit. Additionally, you’ll assume landlord-like duties toward your subtenant, such as addressing maintenance issues and collecting rent.

Assignment vs. Sublease: Key Differences

Here are the key differences between a lease assignment and a sublease:

• Assignment: Three main parties—the landlord, the original tenant (the assignor), and the new tenant (the assignee).
• Sublease: Two main parties—the original tenant (the “sublessor”) and the subtenant (the “sublessee”). The landlord isn’t a direct party in a sublease.
• Assignment: The original tenant transfers all their rights under the rental agreement to the new tenant. The assignee takes over the lease for the rest of the term.
• Sublease: The original tenant keeps their lease rights but grants the subtenant rights to use an entire rental unit (or part of it) for a certain period. The subtenant’s rights are secondary to the original tenant’s.
• Assignment: The new tenant assumes liability for the lease, but the original tenant may remain secondarily answerable to the landlord if the assignee defaults.
• Sublease: The original tenant remains fully liable to the landlord for the lease’s obligations. The subtenant is only responsible to the original tenant.
• Assignment: The assignee pays rent to the landlord.
• Sublease: The subtenant pays rent to the sublessor; they have no financial obligation to the landlord. The sublessor must make full rent payments to the landlord.
• Assignment: The assignee can use the leased premises in the manner outlined in the original lease. Any conditions or restrictions that applied to the original tenant now apply to the assignee.
• Sublease: The subtenant uses the property as described in the sublease, which may or may not be consistent with the original lease’s terms. The original tenant must ensure that the sublease’s terms don’t violate the original lease.
• Assignment: The original lease agreement stays in effect, but all responsibilities transfer to the assignee. Any changes to the lease may require the landlord’s consent.
• Sublease: The original lease governs the sublessor’s obligations, while the sublease dictates the sublessor-subtenant relationship. The sublease cannot override the original lease’s terms.
• Assignment: The landlord must typically issue approval before the original tenant can assign the lease to a new tenant. Most leases have clauses that allow the landlord to approve or reject an assignment based on reasonable grounds.
• Sublease: A sublease also typically requires the landlord’s consent . Some leases may allow subletting without further consent from the landlord, as landlords have fewer concerns because the original tenant keeps their promises in the lease.
• Assignment: The landlord and the new tenant (the assignee) enter a relationship.
• Sublease: The landlord has no direct involvement with the subtenant. The subtenant answers to the tenant, while the tenant answers to the landlord.

How to Choose Between Assigning a Lease and Subletting

Here are some factors that may influence your choice between assigning a lease and subletting:

• Duration of Need: Consider how long you plan to vacate the property. If you want the option to return, choose subletting. If you plan not to return, choose assigning the lease.
• Liability: Think about how much responsibility you want to have. Assigning a lease minimizes your liability, while subletting keeps you liable if the subtenant defaults.
• Lease Terms: Check your lease for an assignment or sublease clause. If your lease favors subletting and restricts assignments, you may opt for a sublease.
• Landlord’s Approval: If your landlord is willing to let you assign the lease to someone else, you may choose this option because it provides a cleaner break. However, it might be easier to get approval for a sublease than for an assignment.
• Control Over the Property: Subletting may be right for you if you wish to retain some control over the property. However, if you no longer have an interest in using or benefiting from the property, you may pursue a lease assignment.
• Market Conditions: In a renter’s market, you may be able to sublease to another individual and charge payments that cover your monthly rent and let you profit. If the rental market is weak in your area, you may opt to assign the lease instead.

Privity of Contract and Privity of Estate in Lease Assignments and Subleases

You can further distinguish between lease assignments and subleases by determining the presence or absence of the privity of contract and privity of estate between the involved parties:

• Privity of contract: A relationship between two parties that lets them enforce the terms of their contract against each other.
• Privity of estate: A relationship between two parties with an interest in the same property.

This table summarizes whether privity of contract and privity of estate exists between the parties in an assignment:

This table summarizes whether privity of contract and privity of estate exists between the parties in a sublease:

Example of Privity of Contract and Estate in an Assignment

Sophia owns Riverside Apartments. She leases Riverside Apartments to Mark for a term of 4 years. In the third year of the lease, Mark decides to assign his interest in Riverside Apartments to Jordan.

Here’s whether privity of contract and privity of estate exist between the parties:

• Sophia and Mark: Sophia and Mark retain privity of contract but not privity of estate because the original lease is still valid, but the interest in the property goes to Jordan.
• Sophia and Jordan: Sophia and Jordan maintain privity of estate because Jordan now holds the present interest in the property. Sophia doesn’t have privity of contract with Jordan, as the original lease agreement remains between Sophia and Mark.
• Mark and Jordan: Mark and Jordan share privity of contract because of their agreement regarding the lease assignment. However, they don’t have privity of estate because Mark no longer has a possessory interest in Riverside Apartments; he has fully transferred his rights to Jordan.

Example of Privity of Contract and Estate in a Sublease

David owns Greenfield Plaza. He leases Greenfield Plaza to Brittany for a five-year term. In the fourth year of the lease, Brittany decides to sublease her rights to Emily for the remaining year.

• David and Brittany: David keeps privity of contract with Brittany because their original lease is still in effect. David also has privity of estate with Brittany, as she keeps a legal interest in the property.
• David and Emily: David and Emily don’t have privity of contract because the sublease is a separate agreement between Brittany and Emily. As a result, David has no direct legal obligations or rights concerning Emily. Furthermore, David and Emily have no privity of estate.
• Brittany and Emily: Brittany and Emily have privity of contract and privity of estate because of the sublease they entered into together.

Understanding the Differences Between Assignments and Subleases

Understanding the nuances between assignments and subleases can significantly impact tenants navigating their rental agreements. This knowledge helps them make informed decisions when circumstances require them to transfer or share their leased space.

Review your original lease, talk to your landlord, and talk to a lawyer to protect your interests and create flexibility in your living or business arrangements.

Sara Hostelley

Legal Content Editor

Sara Hostelley is a legal and SEO content editor with a bachelor's degree in English from the University of South Florida. She has ample experience writing informative content pieces within various...

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Legal services, assignment of a lease: everything you need to know 📃.

• Gurkiran Notay
• July 22, 2024

The assignment of a lease is a legal process that allows a tenant to transfer or “sell” their lease to another party. This can be a complex process, but understanding the steps involved can help make it easier. Whether you are a landlord, tenant or prospective lease buyer or “assignee”, this guide will provide you with the information you will need to navigate the assignment of a lease.

As an existing leaseholder or commercial tenant, there are plenty of reasons why you might want to exit your business lease early. Perhaps your current premises are no longer suitable for the needs of your growing business, or maybe your business is in financial difficulty, and you need to find a lease with more favourable terms.

There are also a range of options when it comes to deciding how to exit a lease or change the occupational status of a property before the specified lease term end date.

Some of the most common include:

• Assignment of a lease, which involves selling or passing the existing lease (and remainder of the lease term) onto another party or business, who assume the role of occupational tenant;
• Terminating the lease by exercising a break option (either a rolling break option or termination of the lease on a fixed break date) by serving a formal notice on your landlord in accordance with the break clause of your lease; or
• Subletting your premises or a permitted part (with the prior consent of your direct landlord) and adopting the role of intermediate landlord yourself.

Unfortunately, exiting a lease early is not always a simple process and can be costly. A lease is a legal contract, with binding provisions and if you breach its terms, your landlord could take you to Court, sue you for damages, take remedial action and/or forfeit the lease and take back possession of the premises, depending on the nature and extent of the breach in question. Opting to pursue a process such as assigning the lease to a new tenant can make exiting a lease early possible in theory, but there are many factors that should be considered before beginning this process.

If you are thinking of trying to leave your lease early, it is advisable to obtain independent legal advice from an appropriately experienced commercial property solicitor before taking any action.

If you require legal advice or assistance on getting out of a commercial lease please call us on 0800 086 2929 , email [email protected] or complete our Free Online Enquiry Form .

In addition to office meetings, we also offer remote meetings via telephone and video conferencing software so can assist you wherever you are based.

What is assignment of a lease?

The process of assignment of a lease is essentially selling the lease to a third party (the “assignee”).

If you are a commercial property tenant, your lease likely contains a clause that would in principle allow you to assign your lease to a new tenant, subject to receiving your landlord’s prior approval and further subject to complying with certain conditions; these would usually be set out in your lease and commonly involve any number of the following:

• You as outgoing tenant providing an Authorised Guarantee Agreement (or AGA) for New Leases (post-1995), if it is reasonable in the circumstances to provide one, by way of a guarantee of the new tenant’s (assignee’s) payment of the lease rents and performance of the lease covenants going forward; and/or
• Provision of a Guarantor of requisite standing from the incoming tenant (assignee), being an individual, Director or Company, dependent on the landlord’s specific requirements; and/or
• Provision of a Rent Deposit (commonly equivalent to 3-6 months’ worth of the annual rent prescribed by the existing lease) for the landlord to hold as security; and/or
• Modern leases usually reserve a right in addition for the landlord to impose any further conditions that would be reasonable in the circumstances. Your landlord will expect this new tenant to meet the same expectations they originally set for you, and you will probably need the landlord (or indeed superior landlord’s) consent in writing before the assignment can be completed. The process for obtaining the landlord’s consent to the arrangement usually involves providing references for the proposed assignee, evidence of their financial viability and ability to comply with the lease covenants, payment of the landlord’s legal or other professional costs (e.g those of their surveyor) and the landlord being joined to a formal Licence to Assign, which would document their consent to your proposed assignment.

Whilst  your landlord is usually obliged not to  unreasonably withhold or delay their response to your application or their consent to  the proposed assignment, they are not guaranteed to provide consent and are under no obligation to give their consent if the new tenant does not  meet their standards or in the event that you cannot sufficiently evidence the proposed assignee’s ability to pay the rent(s) and comply with and perform the tenant covenants set out in your lease – so it would be  wise to be fully informed and selective  regarding the nature and identity of the proposed assignee and confident in their status and ability, in advance of you approaching your landlord with your application .

There are likely to be restrictions regarding if and when you can assign your lease, specified within the provisions of the lease document. Some common restrictions include not allowing lease assignments of part only of the premises (as opposed to the whole), if the term  is for a short period only, and not allowing the lease to be assigned if the lease would be due to end imminently, or indeed if there is a material ongoing breach of the lease terms, such as allowing the property to fall into disrepair or significant rent arrears.

Once a lease has been assigned, the assignee will become the new tenant and will be responsible for payment of the lease rent(s) and ensuring compliance with all of the tenant’s obligations in the lease, including covenants in relation to repair and maintenance of the property.

What checks will a landlord make before permitting assignment of a lease?

Before consenting to the assignment of a lease to a new tenant, your landlord will want to carry out checks to ensure the tenant you have found is a suitable replacement tenant. These checks can include:

Financial status

Your landlord will want to see evidence – usually in the form of business bank account statements – that the new tenant is an active registered company in a strong financial position.

Statements from previous landlords that the tenant has leased property from, trade references from suppliers or other professional references (for example their accountants or banking manager) will be required to show that the tenant is reliable and doesn’t have a history of missing payments or otherwise neglecting their responsibilities as a tenant or business client.

Proposed use of the premises

Your landlord will probably be looking for a new tenant to intend to use the premises in broadly the same way as you have done in the past as the lease will specify what use is permitted and if there are any restrictions on usage.

If the use of the premises is to be altered or updated it is imperative that a change of use application is made to the landlord and to the extent necessary, the local authority or planning authority. Proper consents or planning permission(s) are to be sought in advance from the local or planning authority and if approved and required, a lease variation reflecting the change of use documented in writing; for example, these provisions could form part of the Licence to Assign, to which the landlord would be joined as a party.

Likelihood of requesting alterations to the building

Your landlord will require advance notice of any alterations or fitting out works the new tenant may wish to make at the premises, and in some cases written permission in the form of a Licence to Alter, setting out plans, specifications and method statements will be required; so it would be good to have these documents prepared in readiness, for the landlord to approve. It is likely that a landlord could withhold their consent for assigning the lease to any tenant intending to make large-scale or structural changes to a property, or those that would adversely impact the energy efficiency of the property (or building of which it forms part)  and especially if the proposed plans vary significantly from the remit of alterations that are generally permitted in principle under the existing lease.

What liabilities will you have when assigning a lease?

It is important to recognise that the assignment of a lease to a new tenant does not automatically exempt you from all liabilities related to that tenancy and the property going forwards. In fact, once the lease assignment is complete you can still be liable should the new tenant miss any payments or otherwise breach the terms of the lease.

The nature and extent of what you could be held liable for depends on when your lease first began. If you entered your lease before 1 st January 1996 (Old Leases) you, as original tenant, will remain liable for all payments due under the lease and performance of the lease covenants for the duration of the lease term including from any subsequent tenants– even if you no longer occupy the property and if the lease is assigned several more times after you. This doctrine is known as “privity of contract” and is usually dealt with by subsequent tenants entering into an express indemnity covenant with the original/former tenant, establishing a chain of indemnity covenants, where there are a series of subsequent lease assignments

For “New Leases” that were entered into after 1 st January 1996, the Landlord and Tenant (Covenants) Act 1995 applies and for such modern leases, as outgoing tenant you would (if reasonably required in the circumstances) be required to sign an Authorised Guarantee Agreement (AGA). This means you would guarantee rental payments and compliance with the tenant covenants of the lease for the next tenant (your assignee and direct successor), but not any further tenants. An AGA may also provide the landlord with the option to require you to take on a new lease (on the existing terms) or pay the landlord a lump sum, often equivalent to 6 months’ worth of the annual rent.

What does lease assignment cost?

On the other hand, if the rent under the new lease is below the market rate, the new tenant may instead want to pay you a premium. These are commercial terms that a local valuation agent or surveyor would be best placed to provide you with input on.

It is highly recommended to involve your solicitor (and consider the cost of their advice) when opting to pursue a lease assignment, so as not to inadvertently break the terms of your lease and potentially leave yourself open to court action or forfeiture of your lease, from your landlord. You may also be required to cover your landlord’s legal costs and other professional fees (e.g. the fees of their agents and/or surveyors) in consideration of your application for lease assignment.

How to get out of a commercial lease – what are the alternatives?

Assignment of a lease is not the only way to exit a commercial lease and depending on your circumstances, the provisions of your lease and in the context of your professional relationship with your current landlord, it may not always be the best commercial option for you.

Some alternative ways to get out of a commercial lease early include:

Exercising a break option

Some leases incorporate a “break clause” or early “break option” which offers one party or both parties the opportunity to end the lease early in certain circumstances. Read your lease carefully to check if it contains a clause such as this, and if it does, what terms and conditions are involved, for example do you have the benefit of a rolling break option or is a fixed break date specified? Any time limits specified in the lease, provisions for giving of notice and compliance with any conditions must be strictly followed, in order for the break option to be valid. It is worth mentioning that business leases benefiting from the protection of the security of tenure provisions of the Landlord and Tenant Act 1954 cannot contain a break option for the landlord.

Negotiating a lease exit and surrender

If your contract does not include a break clause, your landlord may still be open to you exiting the lease early by way of lease surrender, subject to payment of a lump sum, as consideration. You would need to negotiate the specific terms of your exit and your landlord may require a pay-out to offset the inconvenience of having to market the property again, their loss of guaranteed rental income and to cover any dilapidations. You would enter a formal Deed of Surrender with the landlord.

Compared to lease assignment, negotiating an exit from your lease should provide a clean break with no further liabilities, but we would recommend seeking legal advice to confirm that you were exiting the contract cleanly.

Subletting the premises

A final option to consider when looking at how to exit your commercial lease early is subletting. If your contract allows it, you can take on the role of intermediate landlord by finding and leasing your property to a new subtenant.

You can use the rental income received from your new direct tenant to cover your own superior lease rent payments and obligations, but in return you would be expected to take an active role managing the property and deal with the sub-tenant directly, ensuring they comply with any superior covenants and requirements of the landlord and you would be required to promptly arrange remediation of any breaches.

You will need to comply with the provisions of your existing lease with regard to subletting which would usually include obtaining your direct landlord’s prior written consent to the arrangement, payment of their legal and/or other professional fees (e.g. surveyors costs), seeking their approval of the form of sublease and entering into a Licence to Sublet.

Need assistance with assignment of lease?

Exiting a lease early can be a complex process, whether you choose to do so by arranging the assignment of your lease or by one of the other means mentioned above.

Lease assignment is an effective way for tenants to exit a commercial lease early. However, this can be a slow process and you will incur costs.

Contacting a solicitor at an early juncture is advisable so that you are appropriately advised at the outset of any key considerations and potential pitfalls. For example, even though you are selling the lease, you could potentially remain liable afterwards; dependent on the age of the lease and whether or not you have entered into an AGA.

Gurkiran Notay is a Senior Associate in our Commercial Property Department and has a wealth of experience in dealing with commercial lease assignments.  She assists and advises clients across the UK.  In addition to office meetings in Elstead, Surrey, Gurkiran offers remote meetings via telephone or video conferencing software so would be pleased to assist you wherever you are based.

Make a Free Enquiry

If you are considering how to get out of a commercial lease or have any queries relating to any of the issues discussed in this article, please get in touch with our of our experienced property lawyers by calling 0800 086 2929 , emailing [email protected] or completing our Free Online Enquiry Form .

The content of this article is for general information only. The information in this article is not legal or professional advice. If you require legal or professional advice you should obtain independent expert advice from qualified commercial property solicitors such as those within our firm .

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What is Assignment of Lease?

An assignment of lease, or lease assignment, is a critical concept in property management that, when properly understood and managed, can significantly impact the fluidity and adaptability of lease agreements.

This article aims to clarify the process, emphasizing the significance, consequences, and best practices for landlords and property managers to navigate these transactions smoothly.

What is an Assignment of Lease?

Lease assignment occurs when an existing tenant (assignor) transfers their rights and obligations under a lease agreement to a new tenant (assignee).

Unlike subletting, where the original tenant retains some degree of responsibility for the lease, a lease assignment completely transfers the lease obligations to the assignee, making them directly responsible to the landlord for rent and other lease obligations.

Key Features:

• Complete transfer : The original tenant relinquishes their rights to the property.
• Landlord approval : Most lease agreements require landlord approval for an assignment to be valid.
• Obligation shift : All tenant obligations under the lease are transferred to the assignee.

The Importance of Lease Assignment in Property Management

Consider how these arrangements increase flexibility and benefit all parties.

• Flexibility : Allows tenants to move or expand without breaking their lease.
• Financial stability : Ensures continuous occupation and rent payment for the landlord, reducing vacancy periods.
• Tenant suitability : Allows landlords to vet and approve new tenants, maintaining control over who occupies the property.

Navigating the Process

Successfully managing lease assignments involves several critical steps and considerations:

• Reviewing the original lease : Before proceeding, confirm the lease terms allow for assignment and the conditions under which they are applicable.
• Vetting the assignee : Conduct thorough background and credit checks on the potential assignee to ensure they meet your tenant criteria.
• Landlord approval : The assignor should obtain written approval from the landlord before finalizing the assignment.
• Assignment agreement : Draft an assignment agreement detailing the transfer of responsibilities from the assignor to the assignee. Make sure all parties sign it.
• Amending the lease : Consider amending the original lease to reflect the tenant change and ensure all lease terms remain enforceable.

Best Practices

To streamline the process and protect your property interests, consider these best practices:

• Clear assignment clauses : Include specific clauses in your original lease agreements to set clear expectations and processes from the start.
• Maintain communication : To ensure a smooth transition, keep open lines of communication with both the assignor and assignee throughout the process.
• Document everything : Ensure all agreements and approvals are documented in writing to protect each party’s rights and obligations.
• Seek legal advice : Consult with legal professionals to navigate complex situations.

An assignment of lease offers a flexible solution for tenants seeking to exit a lease early and for landlords aiming to maintain continuous occupancy and income.

By understanding the intricacies of lease assignments and employing strategic management practices, landlords and property managers can effectively navigate these transactions, ensuring a seamless transition for new and departing tenants while safeguarding their property interests.

Properly managed, these arrangements can enhance the adaptability of lease agreements , benefiting landlords, tenants, and property managers alike.

assignment of lease - Meaning in Law and Legal Documents, Examples and FAQs

An assignment of lease, or lease transfer, is when a tenant gives their rental agreement to someone else, allowing that person to take over their responsibilities and rights for the property.

In normal language you would also say " lease transfer " instead of " assignment of lease "

Need help understanding your legal documents?

66,230+ legal document summaries created for 20,497 happy customers

What does "assignment of lease" mean in legal documents?

An assignment of lease is a process where a tenant, who is currently renting a property, transfers their rights and responsibilities to another person or entity. Imagine you are renting an apartment, but due to a job change or personal reasons, you can no longer stay there. Instead of breaking your lease and facing penalties, you might find someone else to take over your lease. This is what an assignment of lease is all about. It allows the original tenant to pass on their lease agreement to someone else, known as the assignee.

When a lease is assigned, the new tenant steps into the shoes of the original tenant. This means they take over the rental payments and the obligations outlined in the lease. However, the original tenant is still responsible to the landlord until the lease officially ends. If the new tenant fails to pay rent or damages the property, the landlord can still hold the original tenant accountable. Therefore, it’s important for both parties to understand their rights and responsibilities before proceeding with an assignment.

The assignment of lease can be beneficial for everyone involved. For the original tenant, it provides a way to exit a lease without penalties. For the new tenant, it offers an opportunity to rent a property that might not be available otherwise. And for the landlord, it ensures that the property remains rented without any gaps in tenancy. However, it’s essential to check the lease agreement, as some leases may have specific rules about assignments. Some landlords may require their approval before allowing an assignment to take place.

In many cases, the assignment of lease is formalized through a written document. This document outlines the terms of the assignment, including the responsibilities of both the original tenant and the new tenant. It’s a good idea for both parties to keep a copy of this document for their records. This way, if any issues arise later, they have a clear reference to what was agreed upon.

Overall, understanding the assignment of lease can help tenants make informed decisions about their rental agreements. Whether you’re looking to transfer your lease or take over someone else's, knowing the ins and outs of this process can save you time, money, and stress.

What are some examples of "assignment of lease" in legal contracts?

Commercial Lease Agreement: "The business owner decided to proceed with the assignment of lease to allow a new company to take over the retail space."

Residential Lease Agreement: "Due to a job relocation, the tenant initiated an assignment of lease to transfer their rental rights to a friend."

Sublease Agreement: "The original tenant arranged an assignment of lease to ensure the new tenant could occupy the apartment for the remainder of the lease term."

Lease Assignment Agreement: "The landlord approved the assignment of lease, allowing the original tenant to transfer their obligations to a qualified assignee."

Office Space Lease: "After receiving approval from the landlord, the tenant completed the assignment of lease to a startup looking for office space."

Retail Lease Agreement: "The assignment of lease was executed to facilitate the transfer of the store location to a new owner."

Industrial Lease Agreement: "The company successfully negotiated an assignment of lease to allow another business to operate in their leased warehouse."

Agricultural Lease Agreement: "The farmer sought an assignment of lease to pass on the rights to cultivate the land to a neighboring farmer."

FAQs about "assignment of lease"

What is an assignment of lease.

An assignment of lease is when a tenant transfers their rights and responsibilities under a lease agreement to another person. This means the new tenant takes over the lease and can live in or use the property, while the original tenant is usually released from their obligations.

What does it mean to assign a lease?

To assign a lease means to give your lease agreement to someone else. The new tenant, known as the assignee, will take over your responsibilities, like paying rent and following the lease rules, for the remainder of the lease term.

Who is involved in an assignment of lease?

There are typically three parties involved in an assignment of lease: the original tenant (the assignor), the new tenant (the assignee), and the landlord. The landlord usually needs to approve the assignment before it can happen.

How is an assignment of lease done?

An assignment of lease is done by creating a written agreement that outlines the transfer of the lease from the original tenant to the new tenant. This document should be signed by all parties involved, including the landlord, to make it official.

Can a landlord refuse an assignment of lease?

Yes, a landlord can refuse an assignment of lease, but they must have a valid reason. Common reasons include the new tenant not meeting the landlord's requirements or if the lease agreement specifically states that assignments are not allowed.

What happens to the original tenant after an assignment of lease?

After an assignment of lease, the original tenant is usually released from their responsibilities under the lease, but this can depend on the terms of the assignment agreement and the landlord's approval. It's important for the original tenant to confirm their release in writing.

Is an assignment of lease the same as subletting?

No, an assignment of lease is not the same as subletting. In an assignment, the original tenant gives up all their rights and responsibilities to the new tenant. In subletting, the original tenant remains responsible for the lease while allowing someone else to live in the property temporarily.

What should I consider before assigning my lease?

Before assigning your lease, consider the terms of your lease agreement, whether your landlord allows assignments, and if the new tenant is reliable. It's also wise to get everything in writing to protect yourself and ensure a smooth transition.

Do I need a lawyer for an assignment of lease?

While it's not always necessary to hire a lawyer for an assignment of lease, it can be helpful, especially if you're unsure about the legal terms or want to ensure that your rights are protected. A lawyer can help you understand the process and draft the necessary documents.

These legal terms could also be helpful

The legal term 'for' is used to indicate the reason or purpose behind an action, similar to saying 'because of' in everyday language.

Equal Rights Amendment

The Equal Rights Amendment is a proposed change to the U.S. Constitution that aims to guarantee equal rights for all people, regardless of their sex.

appellate jurisdiction

Appellate jurisdiction, or appeal power, is the authority of a higher court to review and change the decision made by a lower court.

repair and deduct

Repair and deduct, or 'fix and take off,' is a way for renters to pay for necessary repairs in their home and subtract that cost from their rent if the landlord doesn't fix things in a timely manner.

buffer zone

A buffer zone, or safety area, is a space that separates different activities or places to reduce conflict or protect people and the environment.

sale or return

A 'sale or return' agreement lets you buy something but return it for a refund if you decide you don't want it after trying it out.

certificate of formation

A certificate of formation, also known as business registration, is an official document that shows a company is legally recognized and allowed to operate in its state.

Issuable means something that can be officially given out or provided, like a ticket or a certificate.

Assignment of Rents – What, Why, and How?

Article by:

Madelaine prescott, esq., share this post:.

• November 29, 2023

These days, almost all commercial loans include an Assignment of Rents as part of the Deed of Trust or Mortgage. But what is an Assignment of Rents, why is this such an important tool, and how are they enforced?

An Assignment of Rents (“AOR”) is used to grant the lender on a transaction a security interest in existing and future leases, rents, issues, or profits generated by the secured property, including cash proceeds, in the event a borrower defaults on their loan. The lender can use the AOR to step in and directly collect rental payments made by the tenant. For an AOR to be effective, the lender’s interest must be perfected, which has a few fairly simple requirements. The AOR must be in writing, executed by the borrower, and recorded with the county where the property is located. Including an AOR in the recorded Deed of Trust or Mortgage is the easiest and most common way to ensure the AOR meets these requirements should it ever need to be utilized.

When a borrower defaults, lenders can take advantage of AORs as an alternative to foreclosure to recoup their investment. With a shorter timeline and significantly lower costs, it is certainly an attractive option for lenders looking to get defaulted borrowers back on track with payments, without the potential of having to take back a property and attempting to either manage it or sell it in hopes of getting your money back out of the property. AORs can be a quick and easy way for the lender to get profits generated by the property with the goal of bringing the borrower out of default. But lenders should carefully monitor how much is owed versus how much has been collected. If the AOR generates enough funds so that the borrower is no longer in default, the lender must stop collecting rents generated by the property.

Enforcement of an AOR can also incentivize borrowers to work with the lender to formulate a plan, as many borrowers rely on rental income to cover expenses related to the property or their businesses. Borrowers are generally more willing to come to the table and negotiate a mutual, amicable resolution with the lender in order to protect their own investment. A word of warning to lenders though: since rental income is frequently used to pay expenses on the property, such as the property manager, maintenance, taxes, and other expenses, the lender needs to ensure they do not unintentionally hurt the value of the property by letting these important expenses fall behind. This may hurt the lender’s investment as well, as the property value could suffer, liens could be placed on the property, or the property may fall into disrepair if not properly maintained. It is also important for lenders to be aware of the statutes surrounding the payment of these expenses when an AOR is being used, as some state’s statutes require the lender to pay certain property expenses out of the collected rents if requested by the borrower.

In addition to being shorter and cheaper than foreclosure, AORs can be much easier to enforce. In California, the enforcement of an AOR is governed by California Civil Code §2938. This statute specifies enforcement methods lenders can use and restrictions on use of these funds by the lender, among other things. Under CA Civil Code §2938(c), there are 4 ways to enforce an AOR:

• The appointment of a receiver;
• Obtaining possession of the rents, issues, profits;
• Delivery to tenant of a written demand for turnover of rents, issues, and profits in the correct form; or
• Delivery to assignor of a written demand for the rents, issues, or profits.

One or more of these methods can be used to enforce an AOR. First, a receiver can be appointed by the court, and granted specific powers related to the AOR such as managing the property and collecting rents. They can have additional powers though; it just depends on what the court orders. This is not the simplest or easiest option as it requires court involvement, but this is used to enforce an AOR, especially when borrowers or tenants are uncooperative. Next is obtaining possession of the rents, issues, profits, which is exactly as it seems; lenders can simply obtain actual possession of these and apply the funds to the loan under their AOR.

The third and fourth options each require delivery of a written demand to certain parties, directing them to pay rent to the lender instead of to the landlord. Once the demand is made, the tenant pays their rent directly to the lender, who then applies the funds to the defaulted loan. These are both great pre-litigation options, with advantages over the first two enforcement methods since actual possession can be difficult to obtain and courts move slowly with high costs to litigate. The written demands require a specific form to follow called the “Demand To Pay Rent to Party Other Than Landlord”, as found at CA Civil Code §2938(k). There are other notice requirements to be followed here, so it is essential to consult with an experienced attorney if you are considering either of these options. California Civil Code §2938 specifically provides that none of the four enforcement methods violate California’s One Action Rule nor the Anti-Deficiency Rule, so lenders can confidently enforce their AORs using the above methods with peace of mind that they are not violating other California laws.

Whether you are looking to originate a new loan, or you are facing a default by your borrower, understanding what an Assignment of Rents is and how it operates can be extremely beneficial. Enforcing an AOR can be an easier option than foreclosure and can help promote a good relationship with your borrower when handled correctly. If you have any questions about AORs, or need further details on how to enforce them, Geraci is here to help.

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