A guide to understanding landlord consent for lease assignment: Advice for tenants

Assigning a commercial lease can be an appealing solution for tenants aiming to relieve themselves of lease obligations.

Often, commercial tenants find themselves bound by a lease with no break clause and a landlord unwilling to accept surrender.

Several factors may prompt a tenant to seek lease assignment, such as a change in business size, the property’s unsuitability for current business needs, or a business sale agreement that involves transferring the lease to the buyer.

What is a lease assignment?

Lease assignment allows the current tenant (the ‘assignor’) to transfer the lease to a new tenant (the ‘assignee’), who will assume the assignor’s responsibilities and obligations.

Steps for lease assignment

If the lease does not specify any rules for assignment, tenants can transfer the lease without the landlord’s approval. However, most modern commercial leases require the landlord’s consent before assigning the lease. Typically, partial assignments are not allowed.

Why seek landlord approval?

Landlords generally require tenants to obtain their permission before assigning a lease to ensure their rental income is secure and their investment protected. They prefer tenants who consistently pay rent and maintain the property’s condition. Landlords control lease assignments by stipulating that their approval is required.

Can a landlord refuse assignment consent?

Section 19(1A) of the Landlord and Tenant Act 1927 allows leases to outline specific situations where landlords can reasonably withhold assignment consent and any conditions required for approval. Tenants should carefully review the alienation clause in their lease to understand these requirements. Typical reasons for refusal include:

• Outstanding rent payments
• Breach of tenant obligations
• The assignee’s inability to fulfil lease obligations
• Lack of guarantor or security by the assignee
• Assignee’s intended use being unsuitable for the property
• Insufficient financial stability of the assignee
• Assignee being a group company

Common conditions for assignment include providing an Authorised Guarantee Agreement (AGA), covering the landlord’s legal and professional costs, and ensuring all dues are settled before lease transfer.

Reasonable vs. unreasonable refusal

Landlords must not unreasonably withhold consent under Section 19(1) of the Landlord and Tenant Act 1927. Upon receiving a written application for assignment, landlords should:

1. Provide or deny consent within a reasonable timeframe
2. Give the tenant written notice of their decision
3. Forward the application to the appropriate party

Refusal is deemed unreasonable if:

• The reason is unrelated to the landlord-tenant relationship
• The refusal benefits the landlord unfairly
• The landlord introduces new grounds that were not initially stated

Conclusion

Obtaining a landlord’s consent to assign a lease is an essential part of the leasing process, ensuring both parties’ interests are safeguarded. Tenants should meticulously follow their lease procedures and work collaboratively with their landlords to secure consent, facilitating a smooth transition and avoiding legal complications.