Posted on 11 October 2023
Leasehold assignment – what is it, why do you need to think about it, and what are the pitfalls? Assignment is the topic of the latest instalment of my “A to B” Series on Heads of Terms. Anyone doing any sort of property deal (or other deal) will find this Series useful. If you want to know more, a good place to start is my first article What are HOTs? which will give you an overview of Heads of Terms and what they should contain. Later blogs dive into more detail on things to think about when agreeing terms. Today I’m discussing assignment, and why you should think about this even when setting out on your leasehold journey.
Leasehold Assignment – What is it?
Assignment is one of the mechanisms by which you can dispose of a leasehold interest in a property. The other main ones are:
- Surrender – giving the property back to the Landlord, sometimes at a price; and
- Break Clause – the ability to serve notice on the Landlord in order to terminate a lease.
Assignment is when you transfer a lease to a third party (an assignee). You usually require the consent of the landlord in order to do this.
Assignment – Why would you need it?
There are lots of reasons why you might wish or need to assign a Lease:
- Business Downturn – you might take on new premises, and expect to turnover £X or take £Y from sales there. There are lots of reasons why this might not turn out to be the case (wrong location, staff turnover, rent increases etc). If you’ve signed up to a 5 year lease, and it is the end of Year 1, or Year 2, then often your main route out of the premises is to try and find another tenant who will take them over from you.
- Business Sale – you might be doing really well from this, and/or other premises. You might find a buyer for your business who is prepared to pay for the name, the assets, the goodwill and the premises. NB, if you do, give me a call on 01384 872069 and I can put you in touch with some great business lawyers who can help you with the sale of your business. A business sale can be a share or asset sale. If it is an asset sale, you will need to assign the lease to the buyer.
- Business Opportunity – you might be doing ok from the premises, but you might see the opportunity to upgrade to better premises down the road. You may not wish to have both premises on your books. In that case, you may look to assign the lease to a third party, so that you can enter into the new one.
There will be lots more reasons why you might need to assign a lease. However, they all have one thing in common – they are an exit from the premises.
Lease Assignment – Why is it important?
Just as you should always have in mind how you might exit your business, you should also have an exit strategy in mind for your premises. I’ve lost count of the the number of clients who have taken on 5 or 10 year leases with great enthusiasm at the outset of their journey, and then come back to me in a year or two asking how they can get out of them. It is at that point that decisions you make at the beginning on the leasehold assignment clause suddenly become important. It is a good idea to at least anticipate this possibility, and give the assignment provisions the thought they deserve. The same applies to break clauses, and I’ll cover those in another blog.
“John McLean came highly recommended and I’m so pleased we instructed him for a license to assign. He was really thorough and explains things clearly in an easy to understand way. He is very quick to respond, in fact the fastest solicitor I’ve ever used! I’ll definitely be using him again. I’m very happy with the work he did.”
Kay Hallinan – Landlord
If you would like to have a further chat about any of the above, or ask me to give you a quotation, please do contact me. For a free, no-obligation discussion you can:
- Call by ringing 01384 872069 – speak to my New Enquiry Team now
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Leasehold Assignment – Top Tips
There are a number of things to think about at Heads of Terms stage:
- What do the HOT’s say? Typical provisions would prohibit assignment of part of a lease. This is generally acceptable – nobody really wants a part of a lease floating about – it makes it difficult to know who is responsible for what. The key bit is whether assignment of whole is permitted. You would expect this in most leases, so if it is not in your HOT’s ask why not.
- Conditions – Landlord’s Consent. I would not expect HOT’s to go into masses of details, but you should expect assignment of whole to be subject to landlord’s consent, not to be unreasonably withheld or delayed.
- Conditions – AGA. An AGA is an Authorised Guarantee Agreement. The Landlord and Tenant (Covenants) Act 1995 takes tenants of so called “new” leases (i.e. leases entered into after 1st January 1996, which is most leases now) off the hook for the tenant covenants when they assign a lease to a third party. An AGA is a mechanism to keep the tenant on the hook for those covenants, for the duration of their assignee’s possession of the premises. It is a guarantee from the outgoing tenant that the incoming tenant will comply with the lease covenants. So, even though you’ve assigned the lease, you are still have potential financial liability under it. As a tenant, you’d want the lease (and ideally the HOT’s, so that there isn’t argument later) to say that an AGA will only be provided where “reasonably required” by the landlord. By introducing the element of reasonableness, you turn it into a discussion of covenant strength, rather than being a potentially automatic element.
- Conditions – Other. I’ve seen all sorts of conditions, including provision for payment of a premium. It’s important to take legal advice on these, as there are mechanisms the landlord can use to make these automatic conditions of the assignment. I.e. if you don’t comply with them, you can’t assign the lease.
If you want to find out more, take a look at my page on Assignment for more information. The main thing is to think about things at HOT’s stage, and consider taking legal advice on those to help you navigate the pitfalls and speed up negotiation of the lease.
As always, if you have any queries, then do get in touch for a no-obligation, free, quotation via email@example.com or on 01384 872069 or via my Free Enquiry Form or Live Chat. I carry out all work through Nexa Law Limited, which is authorised and regulated by the SRA.
Thanks for reading my above article, and I look forward to seeing you on the next blog post!
Finally, the above article is for general information purposes only. I am not providing legal advice in the above and it may or may not be appropriate for your specific circumstances. If you require legal advice, please do get in touch and I will be delighted to assist.