An assignment clause is a provision in a lease that governs a party’s ability to transfer the lease to another business, person or entity. In a typical commercial lease, the landlord has virtually limitless rights to transfer its interest in the lease, while the tenant, on the other hand, has limited rights to transfer its interests. The standard language in most leases is “Tenant may not assign the Lease” or “Tenant shall not assign the lease without Landlord’s prior written consent, which may be withheld at Landlord’s discretion.” Obviously, this lease language puts significant restraints on what a tenant can do while leasing the space.
Commercial leases usually have a term that spans several years – 5 years is common – and during that time, your business needs may change. You may need more space or less space; you may decide to sell your business or add a partner. This is where the language in the assignment clause becomes critical. This clause governs your right to find a replacement tenant for the remainder of the term of your lease.
We advise Final Eyez clients to negotiate the assignment provision to give flexibility to the tenant as the years pass. Instead of agreeing to text that states that the landlord may approve or reject a transfer “at Landlord’s discretion,” request the right to assign with Landlord’s consent – consent that cannot be unreasonably withheld, conditioned or delayed.
The assignment clause can also include conditions to Landlord’s consent, dealing with excess rent and fees to be paid to Landlord for each request. All terms are negotiable, so do your research to make sure you are in the best position possible, should the need to assign the lease arise.
Subleasing is often included in the assignment clause. It has different legal ramifications. We will cover subleasing in a later blog entry! In the meantime, think about your specific business needs and how the assignment provision in your lease is either working for or against you.