Assignment provisions in a commercial lease should be carefully drafted and reviewed by both tenants and landlords. Each party has unique concerns and needs when deciding on the scope and limitations of an assignment. In general, a tenant wants to ensure that he has flexibility if his circumstances change and he needs another party to share the rental obligation. A landlord is primarily concerned with ensuring that he has a qualified tenant that can perform his obligations under the contract, especially paying rent. An assignment usually presents a greater risk for landlords, and therefore they be more reluctant to agree to an assignment or sublease. Below we review some of the key provisions in an assignment and how each party may approach drafting these provisions.
Scope of Transferability
Anti-assignment provisions in a commercial lease typically restrict leases and subleases on the premises. Many also include limitations on subleasing a portion of the property or sub-subleases of the premises. Other assignment clauses state that assignments and subleases are prohibited without the landlord’s consent and that the landlord cannot unreasonably withhold consent to an assignment or sublease. If this language is not included, a tenant should request it. A landlord should require that any new tenant meet his standards for net-worth qualification. This means that the new tenant is at least as financially secure as the original named tenant.
If the tenant assigns the property in accordance with the lease, the landlord should confirm that the original tenant remains liable under the lease. If the landlord considers releasing the named tenant from liability, he should ensure that he is comfortable with the assignee’s financial status.
An assignment clause can be severely limited if the landlord includes an overly narrow permitted use provision. If the permitted use of the premises is confined to the sale of a specific product or service, then the tenant’s ability to assign the lease to another tenant will be similarly restricted. Tenants should be sure that the permitted use clause has some flexibility to allow for a future assignment in the event the tenant chooses to transfer the premises for financial reasons.
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