It is a common (and dangerous) misconception that a commercial tenant’s liability under the terms of a lease cease upon assignment.
Tenants’ Continuing Liability:
A tenant will remain liable to his landlord for any breaches of the lease:-
(i) for as long as he remains in occupation;
(ii) under the terms of the authorised guarantee which he has to give to the landlord on any assignment to a new tenant. If the guarantee is invoked and the tenant has to pay the rent, he will be entitled to take back a lease of the property so that he could re-assign but that would involve him having to pay the rent until he resold. It is much better for the tenant to carefully assess any buyer of the lease from him in the first place in order to minimise problems. This is a potentially onerous liability.
(iii) A tenant who assigns lease will continue to be liable until the Assignee sells on to someone else when liability will end or until the end of the lease term, which ever is sooner. The tenant of course cannot control when the buyer sells on. The tenant can only control how long the lease is in the first place.
(iv) In order to mitigate their potential liability the tenant may ask for a short tenancy in the first place. However, if the tenant intends to run a business which is likely to build up goodwill, it may be better to take a longer lease but negotiate what is called a “break clause” at various intervals during the lease so that if he wants to leave and cannot sell, he can bring the lease to an end on notice. If a tenant does this he will have to put the property into good repair.
1. If you are nervous about assigning because of the lack of control, you can instead ask the landlord whether you can sublet. It does mean that you are still primarily liable to the landlord for the rent and other obligations under the lease despite the fact that you are not in occupation. However, you would be receiving the rent from the sub-tenant and entitled to inspect the premises yourself so that you would know much more quickly if things were going wrong than if you had actually assigned the lease.
2. The procedure in terms of granting a sub-lease involves:-
(i) obtaining a licence from the landlord (and superior landlords if there is more than one);
(ii) drafting the lease. This will have to be substantially in the same terms as the lease to you. You cannot grant a lease for any longer than you hold the premises under your lease and you cannot grant rights to the tenant unless you have those already. The amount of the rent to be paid by the sub-tenant will be negotiated directly with him by you. However, your lease may say that you cannot grant a lease at a premium and at a low rent. This is because the Head Landlord will not want you to have a cash premium up front and then try to wash your hands of the property leaving a sub-tenant in there who is paying a very low rent.
(iii) The Landlord will usually require the sub-lease to be excluded from the provisions of the Landlord & Tenant Act 1954. This means that the sub-tenant will not have the right to renew his sub-lease at the end of the term. The correct notices have to be served on the sub-tenant and he has to swear a statutory declaration that he understands the situation before he takes up occupation.
3. An assignment will involve:-
(i) taking up references for the assignee. These should be thoroughly checked. It may be that the landlord will require a rent deposit to be taken from the assignee instead of or as well as the guarantee that you are required to give. This will be particularly the case where your buyer has not been in business for very long.
(ii) The landlord has to give his licence to assign. He will want to see the references for the assignee.
(iii) Both the landlord and the assignee will want to know that you have carried out your repairing obligations properly and you may have to do repairing or redecoration before you assign.
(iv) The buyer may want to use the premises for the same business as you have been carrying on. On the other hand he may want to do something different which would require the consent of the landlord to change the use under the lease and possibly also require an application for planning permission. In that case you do need to take into account the potential delays of having to obtain these consents. The new tenant may also want to do alterations to the property which he will have to negotiate directly with the landlord and this can also cause delay.
Lawson Lewis Blakers are able to offer specialist advice in relation to all issues concerning the grant, assignment or termination of commercial leases.