As a general rule of thumb, a commercial Lease will provide that a Tenant cannot assign part of their Lease, but that they can assign the whole of their Lease with the consent of their Landlord. Generally, a Landlord’s consent is not to be unreasonably withheld. But what does this actually mean?
Whether a Landlord has reasonably or unreasonably refused consent to an assignment will be decided by the facts and circumstances of the proposed assignment. A Landlord can only refuse consent on grounds relating to their relationship with their Tenant and the Lease in question. Should the grounds for a Landlord refusing consent to an assignment relate to their relationship with their Tenant and the Lease in question, the Landlord shall be obliged to show that their refusal was reasonable (i.e. genuine and not unfounded). The main question to be asked in this scenario is;
“Were the conclusions which led to the Landlord refusing consent conclusions that would have been reached by a reasonable person in the circumstances?”
A commercial Lease will also usually specify that a Landlord’s consent may be granted subject to certain conditions. There are two conditions that are regularly specified by Landlords:
1. That the Tenant enters into an authorised guarantee agreement - an authorised guarantee agreement is a form of guarantee given by an outgoing Tenant of it’s assignee’s obligations under the Lease which shall endure until such time as the assignee is no longer the Tenant
2. That a person of standing acceptable to the Landlord enters into a guarantee and indemnity as a Guarantor - a guarantee and indemnity is a guarantee given by a third party guaranteeing that a Tenant shall pay the rents reserved by a Lease and observe and perform the Tenant covenants of the Lease. Should the Tenant fail to pay the rents or observe and perform the Tenant covenants, the Guarantor shall instead pay the rents or observe and perform the Tenant covenants
Furthermore, most commercial Leases will specify circumstances in which the Landlord may refuse consent to an assignment. Two circumstances commonly specified by Landlords are:
1. If at the date of the Tenant’s application for consent to assign the Lease the rent or any other money due under the Lease is outstanding or there is a breach of covenant by the Tenant that has not been remedied
2. In the Landlord’s opinion the assignee is not of sufficient financial standing to enable it to comply with the Tenant’s covenants and conditions contained in the Lease
The first circumstance is factual and as such will always be valid, whereas the second circumstance is discretionary and as such may sometimes be invalid.
Despite the above conditions and circumstances often being detailed in a commercial Lease, more often than not there will be a disclaimer clause in the Lease which provides that Landlord may give consent subject to any other reasonable condition and that they may refuse consent in any other circumstance where it is reasonable to do so.
In a similar vein to assignments, a commercial Lease will usually provide that a Tenant cannot underlet part of their Property, but that they can underlet the whole of their Property with the consent of their Landlord, with such consent not to be unreasonably withheld.
Often, a Landlord is more amenable to a Tenant underletting their Property than to the Tenant assigning their Lease. This is because the rent will continue to be paid by the Tenant and the Landlord will still be able to enforce the Tenant covenants against the Tenant. A Landlord will still wish to exercise a degree of control over underlettings for the following reasons:
1. The agreed rent of an Underlease could be taken into consideration when reviewing the rent of the Head Lease and as such the Landlord will usually require that the rent payable under the Underlease is not less than the full open market rental value of the Property at the date of the underletting
2. A failure to exclude the provisions of sections 24 to 28 of the Landlord and Tenant Act 1954 from applying to the tenancy created by the Underlease may result in the Undertenant being able to apply to the court for a new Lease should the Tenant not be in occupation at the end of the Head Lease
To see whether we can assign an existing Lease, please get in touch with Luke Hewitt on 01625 523988 or firstname.lastname@example.org