A lease is transferred or assigned when a new tenant enters into possession of the premises with the consent of the landlord or starts paying rent, or the lease or assignment is signed by all parties, whichever occurs first. A formal Assignment or Transfer of the lease is required where the Landlord has consented to the existing Tenant leaving the Premises and a new Tenant taking over. The preparation of the Assignment of Lease is usually undertaken by the new Tenant, however the obligation to obtain the Landlord’s consent belongs to the outgoing Tenant.
The requirement for an assignment or transfer of lease often arises during the sale and purchase of a business but not always. Sometimes rather than allowing the Tenant to sub-let the premises, the Landlord will agree to the lease being assigned or transferred to other parties particularly in the case of financially distressed tenants.
Often both landlords and tenants believe that either no formal documentation is required to assign a lease as the new party can simply start paying rent or they believe that they can download a DIY form which will do the trick. Unfortunately this is not the case and assignments of lease when prepared incorrectly, or not prepared at all, can result in costly and devastating consequences for all concerned.
There are various disclosure obligations on the outgoing Tenant under the Retail Leases Act 2003. In addition, the Landlords consent to the assignment must be secured and the appropriate business and company name searches need to be undertaken to ensure the legal existence and correct details of all parties involved.