Whether you’ve outgrown your existing commercial rental office or need to downsize, there can be all sorts of reasons you may be looking at cancelling or transferring your commercial lease if you still have time left in your lease contract.
This blog, aims to provide you with all the necessary information you need when looking at transferring or ‘Assigning’ your commercial lease.
Assigning or transferring a commercial lease is one option tenants have if they need to end their lease early. Essentially sub-letting or under-letting the remainder of the lease to a 3rd party. However, it’s vital that you look through your existing lease as some leases contain an absolute bar or specific restriction on sub-letting or transferring your lease. In such cases (and in all circumstances whether the clause is present or not) it’s still important that you get in touch with your landlord and obtain formal consent. In some cases, your landlord may still be willing to give you consent, but this should always be recorded in writing in an official document to protect yourself from the risk of any complaints or problems in the future.
The following 4 sections will take you through everything you need to know when looking at transferring your commercial lease:
Applying for the Landlords consent
As mentioned above, applying for your Landlords consent should be made in the way of a formal agreement or document, but even this isn’t always as simple as it sounds. When applying for consent to transfer or assign it must be served in accordance with specific clauses in the lease regarding service of notices or in accordance with the Landlord and Tenant Act 1927 or it may be ignored by the Landlord or agent.
It may be wise to seek out the advice to seek advice or guidance from a solicitor to ensure that everything has been done correctly and even to look through your lease to ensure you’re covered in case of future disputes or arguments.
The tenant will be liable for the Landlords costs whether or not the application is approved (although it may be possible to get the assignee to pay if the Landlord’s consent is given).
It’s also common practice for the Landlord to request a reference from an existing Landlord for the 3rd party and in some cases even 3 years previous accounts for the 3rd parties’ business. Your Landlord can also refuse consent if the 3rd party cannot provide references or has no trading history
Can the Landlord refuse consent?
Your lease should reference The Landlord and Tenant Act 1927 and The Landlord and Tenant act 1988 which state that the Landlord cannot ‘unreasonably’ withhold consent and that the Landlord owes a duty to the tenant to give consent except in a case where it is reasonable not to give consent.
In any case, the Landlord must give reasons for why they are withholding consent and must give written notice whether consent is given or not. The Landlord is also under duty to deal with an application within a reasonable time.
What is a ‘reasonable’ ground for the Landlord to refuse consent?
it would again be advisable to seek the advice of a solicitor to review your lease. Under The Landlord and Tenant Act 1988 it is reasonable for a Landlord to refuse consent in cases where the tenants would be in breach of contract, for example, the new tenant using the premises for a type of business which is not permitted under the lease. There is also substantial body of case law which outlines exactly what is meant by ‘unreasonable’ in this context.
If you’re successful in obtaining consent to assign it’s likely that you’ll need to enter into an ‘Authorised Guarantee Agreement’ or AGA with your Landlord. An AGA essentially means that you’ll be guaranteeing that the 3rd party follows the lease agreement and you’ll also be liable for any breaches of lease. The Landlord can in such cases enforce that you pay any missed rent or compensate any breach.
Completing the Licence to Assign and what to do consent is refused?
If successful in obtaining the Landlords consent this will come in the form of a formal document (usually drawn up by the Landlords solicitors or agents) known as the Licence to Assign.
If, however the Landlord refuses consent and or gives reasons which you consider ‘unreasonable’ or imposes unreasonable conditions on the assignment the only real next step is to make an application to the courts. But, this can carry substantial costs, especially if the tenant loses the case so expert legal advice should always be considered in such cases.
Here at JMR solicitors we specialise in commercial legal advice, proactively helping clients with a broad range of business matters. If you’re looking for a legal partner, or firm you can depend on get in touch and see why so many other businesses trust JMR.