There are a variety of circumstances that might lead your tenant to ask for an assignment of the lease or to sublet the leased premises.
A common example is if your tenant sells their business. In this case, they will need to assign (transfer) the lease to the proposed purchasers.
An example of when a tenant might ask for your consent to sublease is if your tenant finds they have too much space. In order to recoup lease costs paid for the unused area, they may decide to sublet that part of the premises they find they don’t need, to someone else.
What is the difference between a sublease and an assignment?
A sublease is an agreement between your tenant and a third party (called a ‘sub-tenant’). Under the sublease, your tenant agrees to give the sub-tenant the exclusive right of possession of the whole (or just a part) of the premises.
Your tenant is still liable to you under the terms of your lease agreement, but the sub-tenant now has rights and responsibilities to your tenant.
The sub-tenant pays rent to your tenant and the sub-tenant’s rights and responsibilities should all be contained in a Sublease Agreement between the tenant and the sub-tenant.
An assignment of the lease (sometimes referred to as a transfer of lease) is a transfer of all of the tenant’s rights and obligations under the lease to a new third party. In effect, the third party “assignee” becomes the new tenant, allowing the original tenant to step out of its obligations under the lease.
Once the assignment is complete, the original tenant is no longer bound by the terms and conditions of the lease from the date of the assignment.
What are the tenant’s obligations to the landlord and vice versa?
Under a sublease, the tenant is still responsible to the landlord under the original lease.
Under an assignment, the tenant is released from its responsibility to the landlord from the date the assignment takes place, and replaced by a new tenant who takes on the rights and obligations under the lease as the tenant. The new tenant ‘steps into the shoes’ of the original tenant.
What is the process?
- Under the lease, the tenant must ask for the Landlords approval in writing for a proposed assignment (transfer) or sublease.
Under the provisions of the current RP Emery Commercial Lease that you will find in your Kit, you may agree to, or deny, the tenant’s request.
- When deciding whether to approve of the tenant’s request to assign (transfer) the lease, consider the following questions:-
- does the proposed new tenant have the financial standing necessary to carry out the tenant’s obligations under the lease?;
- does the proposed new tenant have the experience necessary to carry out the tenant’s obligations under the lease agreement?;
- is the current tenant is in breach of the agreement?
- You can request information about the proposed assignee or proposed subtenant to assist you in determining whether to consent. You can ask for information like bank account statements, tax returns, references, details of prior business experience, etc. It is also advisable to conduct bankruptcy searches over the proposed new tenant/sub-tenant.
- Issue the tenant with a response in writing to their request, either consenting or rejecting it.
- If allowing the assignment or sublease, you can ask the tenant to pay your reasonable costs associated with the assignment or the sublease.
- Ensure that the appropriate paperwork is completed to assign the lease or sublet the premises.
- Will an existing security deposit be transferred to the new tenant or will the new tenant need to pay a fresh security deposit?
As always, make sure you check the terms of your original lease before committing to anything.
Retail leasing is quite regulated and if your tenant asks to assign the lease or sublease the premises there are particular actions you should take. We’ve put together a handy table that breaks down the Landlords obligation for each Australian state.
Assigning and subletting a lease are two very different procedures. We look at the differences. “Assigning” and “subletting” may sound like interchangeable terms. But as we shall see, they are vastly different.
If you have space in your leased commercial premises (either all or part) that you are thinking of assigning or subletting to another, you should make yourself familiar with the legal effects, the pros and the cons of both assigning and subletting.
This easy-to-use template kit contains everything you need to successfully lease your commercial premises. It contains the commercial Lease Agreement Template, Easy-to-follow Users Guide and Agreement to Lease
- Professionally drafted retail lease Agreement (doc)
- Professionally Drafted Disclosure statement
- Sample disclosure statement and Retail lease
- Easy to follow help guide
- Getting Started document
- Friendly customer support