assignment of commercial lease

Legal Aspects of Commercial Lease Agreements

Commercial lease agreements are governed by a complex web of legal principles and provisions that outline the rights and obligations of landlords and tenants. Effective negotiation, drafting, and execution require a thorough understanding of the legal framework, including lease agreement terms, rent and security deposit provisions, maintenance and repair obligations, use and occupancy restrictions, lease term and renewal options, dispute resolution and litigation, insurance and liability provisions, assignment and subleasing rights, and default and solutions provisions. A thorough grasp of these aspects is vital to mitigate potential risks and safeguard a mutually beneficial agreement; exploring these intricacies further can reveal additional nuances and considerations.

Table of Contents

Understanding Lease Agreement Terms

Legal Aspects of Leases

While traversing the complex landscape of lease agreements, it is pivotal to grasp the fundamental terms that comprise these contracts.

A thorough understanding of lease agreement terms is indispensable for effective lease negotiation and drafting. Lease agreements are complex documents that outline the rights and obligations of both the landlord and tenant.

They typically include terms such as lease duration, renewal options, termination clauses, and dispute resolution mechanisms.

It is necessary to carefully review and negotiate these terms to confirm that they align with the interests of the parties involved.

Lease drafting requires a deep understanding of the legal framework governing commercial leases, as well as the specific needs and goals of the tenant and landlord.

Rent and Security Deposit Provisions

Two pivotal components of a lease agreement are rent and security deposit provisions, which outline the financial obligations and responsibilities of both parties.

These provisions are paramount in establishing a clear understanding of the lease terms and avoiding potential disputes.

Rent provisions typically outline the base rent, rent escalation clauses, and the payment terms.

Rent escalation clauses may be tied to a specific percentage or index, guaranteeing that the rent increases over time.

It is fundamental to carefully review these provisions to verify that they align with the lessee's business needs and budget.

Security deposit provisions, on the other hand, outline the amount of deposit required, the interest rate applicable to the deposit, and the conditions for its return.

Deposit interest rates may vary depending on the jurisdiction, and it is imperative to understand the applicable laws and regulations.

A well-drafted security deposit provision can provide a level of protection for the lessor while also safeguarding the lessee's rights.

Maintenance and Repair Obligations

The lessee's maintenance and repair obligations are a critical aspect of a lease agreement, as they outline the responsibilities of each party in maintaining the leased property.

These obligations can substantially impact the condition and value of the property over the lease term.

In general, the landlord is responsible for maintaining the property's structure and major systems, while the lessee is responsible for daily maintenance and minor repairs.

However, these responsibilities can be negotiated and allocated differently in the lease agreement.

It is vital to clearly define maintenance responsibilities and repair priorities to avoid disputes and guarantee the property remains in good condition throughout the lease term.

Use and Occupancy Restrictions

Certain aspects of a lease agreement can substantially impact the landlord-lessee relationship, and use and occupancy restrictions are among the most critical.

These restrictions dictate how the lessee can employ the leased premises, ensuring that the property is used in a manner consistent with its intended purpose and in compliance with applicable laws and regulations.

Use clauses in a commercial lease agreement typically specify the permitted uses of the premises, such as retail, office, or industrial purposes.

Occupancy limits, on the other hand, govern the maximum number of people who can occupy the premises at any given time.

Other key aspects of use and occupancy restrictions include:

• Permitted hours of operation
• Any necessary licenses or permits required for the lessee's business
• Compliance with zoning ordinances and other local regulations
• Provisions for subleasing or assigning the lease to third parties

Lease Term and Renewal Options

Lease term and renewal options are fundamental components of a lease agreement, as they establish the duration of the lessee's occupancy and the circumstances under which it may be extended or terminated.

The lease duration, which can range from a few months to several years, determines the length of time the lessee has the right to occupy the premises. It is vital for both parties to carefully consider the lease term, as it can profoundly impact their respective business operations and financial commitments.

Renewal strategies are also a vital aspect of lease agreements. Options for renewal or extension can provide lessees with greater flexibility and security, allowing them to maintain their operations at the premises without interruption.

Landlords, on the other hand, may benefit from renewal options by securing long-term tenants and minimizing the risk of vacancy. Effective renewal strategies can include fixed-term renewal options, flexible renewal periods, and negotiated renewal terms.

Termination and Eviction Procedures

Termination and eviction procedures are critical components of lease agreements, as they outline the steps to be taken when a lease is terminated or an eviction becomes necessary.

A key aspect of these procedures is the provision of adequate notice, as specified in the lease termination notice, which varies by jurisdiction and type of tenancy.

The timeline for eviction procedures also depends on the specific circumstances, with expedited proceedings available in certain cases, such as non-payment of rent.

Lease Termination Notice

In the majority of jurisdictions, a formal notice is required to initiate the process of terminating a lease and potentially proceeding with eviction.

This notice serves as a precursor to the eviction process, providing the tenant with a specific timeframe to vacate the premises. The notice period varies depending on the jurisdiction and the terms of the lease agreement.

• A lease termination notice typically includes the effective date of termination, the reason for termination (if applicable), and any necessary instructions or next steps.
• The notice period may be specified in the termination clauses of the lease agreement or governed by local laws, such as 30 or 60 days.
• Failure to provide a proper notice can render the termination invalid, allowing the tenant to remain on the premises.
• In cases where the lease is approaching its expiration date, the landlord may need to provide a notice to terminate, even if the lease does not automatically renew, to avoid any ambiguity.

Eviction Procedures Timeline

A well-structured eviction procedure is crucial to guarantee that landlords can regain possession of their property in a timely and lawful manner.

The eviction process typically commences with the serving of a termination notice, followed by the filing of an eviction lawsuit if the tenant fails to vacate the premises.

The lawsuit process involves several stages, including the filing of a complaint, service of process, and a court hearing.

Depending on the jurisdiction, this process can take anywhere from several weeks to several months.

Landlords should be prepared for the associated eviction costs, including court filing fees, process server fees, and attorney fees.

It is crucial to engage experienced eviction lawyers who can navigate the legal complexities and minimize delays.

Throughout the eviction process, landlords must verify compliance with all applicable laws and regulations to avoid potential legal challenges and additional costs.

Dispute Resolution and Litigation

Dispute resolution and litigation are vital components of lease agreements, as they provide a framework for resolving conflicts that may arise between landlords and tenants.

Mediation and arbitration are alternative dispute resolution methods that can be employed to settle disputes outside of court, while court litigation remains an option for more contentious cases.

Understanding the process and procedures involved in each approach is pivotal for effectively managing disputes and minimizing potential losses.

Mediation and Arbitration

Resolving disputes through alternative methods is often a preferred approach in lease agreements, as it can reduce costs, minimize delays, and preserve business relationships.

Mediation and arbitration are two commonly used alternative dispute resolution (ADR) methods that parties can agree to incorporate into their lease agreements. In mediation, a neutral third-party facilitates a negotiation between the parties to reach a mutually acceptable resolution.

Arbitration, on the other hand, involves a neutral third-party making a binding decision on the dispute. Both methods can help prevent dispute escalation and promote a more efficient resolution process.

• Mediation and arbitration can be used to resolve a wide range of disputes, including those related to rent, repairs, and termination of the lease.
• These alternative dispute resolution methods can be used in conjunction with other dispute resolution mechanisms, such as negotiation and expert determination.
• Mediation and arbitration can be made compulsory or voluntary, depending on the terms of the lease agreement.
• The use of mediation and arbitration can also be influenced by the jurisdiction in which the lease agreement is governed.

Court Litigation Process

In the event that alternative dispute resolution methods fail to yield a mutually acceptable outcome, parties may find themselves embroiled in court litigation.

This process involves formal court proceedings, where a judge or jury hears evidence and arguments from both sides to resolve the dispute.

In court litigation, each party must develop a thorough litigation strategy to present their case effectively.

This involves identifying key issues, gathering evidence, and preparing witnesses.

The litigation strategy should also take into account potential legal arguments, potential risks, and potential costs.

The court litigation process typically begins with the filing of a complaint, followed by the exchange of pleadings, discovery, and motions practice.

The parties may also engage in settlement negotiations throughout the process.

If a settlement is not reached, the case proceeds to trial, where the parties present their evidence and arguments to the judge or jury.

Throughout the court litigation process, it is crucial for parties to work closely with experienced legal counsel to safeguard their rights and interests are protected.

Insurance and Liability Provisions

Insurance and Liability Provisions govern the allocation of risk between the landlord and tenant, addressing potential losses or damages to the property, business, or individuals.

These provisions are vital in commercial lease agreements as they determine which party is responsible for insuring against specific risks and who is liable in case of losses or damages.

• Insurance requirements: The lease agreement should specify the types and limits of insurance coverage required, including property, liability, and business interruption insurance.
• Policy exclusions: The agreement should outline policy exclusions, such as intentional acts or natural disasters, to avoid disputes over coverage.
• Risk management: The parties should agree on risk management strategies, such as regular property inspections and maintenance, to mitigate potential risks.
• Indemnification: The lease should specify which party is responsible for indemnifying the other in case of losses or damages, and under what circumstances.

Assignment and Subleasing Rights

Flexibility in commercial lease agreements is pivotal, as business needs can change rapidly.

This flexibility is particularly significant when it comes to assignment and subleasing rights. Assignment clauses in commercial leases dictate the circumstances under which a tenant can assign their lease to a third party. These clauses can be either restrictive, prohibiting assignment without the landlord's consent, or permissive, allowing assignment with or without consent.

In some cases, the clause may require the landlord's consent, which may not be unreasonably withheld. It is paramount for tenants to carefully review assignment clauses to appreciate their rights and obligations.

Sublease restrictions, on the other hand, govern a tenant's ability to sublease the premises to another party. These restrictions can limit the duration, scope, or terms of the sublease.

Landlords may impose sublease restrictions to maintain control over the property and guarantee that subtenants meet certain standards. Tenants, however, may view these restrictions as limiting their ability to adapt to changing business needs.

A thorough understanding of assignment and subleasing rights is key for both landlords and tenants to negotiate and draft commercial leases that meet their respective interests.

Default and Remedies Provisions

Default and Solutions Provisions are a critical component of lease agreements, as they outline the circumstances under which a lease may be terminated and the available solutions for the non-breaching party.

Lease default triggers, such as non-payment of rent or failure to maintain the premises, are typically specified in the lease agreement. The corresponding solutions options for landlords and tenant cure rights are equally crucial, as they dictate the procedures and timelines for addressing defaults and resolving disputes.

Lease Default Triggers

Lease agreements typically contain default and solutions provisions that outline the circumstances under which a landlord may terminate the lease or take other corrective action.

These provisions define the landlord's treatments in the event of a tenant's default. Default triggers are vital components of a commercial lease agreement, as they specify the circumstances that constitute a breach of lease obligations.

Default triggers may include:

• Failure to pay rent or other charges
• Breach of lease covenants, such as use restrictions or maintenance obligations
• Material misrepresentations or fraud
• Insolvency or bankruptcy of the tenant

These triggers are critical because they enable the landlord to take prompt action to mitigate potential losses and protect their interests.

Landlord Remedies Options

Upon the occurrence of a default event, the landlord may exercise various solutions to protect their interests and mitigate potential losses.

The landlord's solutions options are typically outlined in the default and solutions provisions of the lease agreement. These provisions specify the landlord's strategies for addressing breaches, including non-payment of rent, unauthorized use of the premises, and failure to comply with lease terms.

The landlord's primary objective is to enforce the lease terms and guarantee continuity of the rental income stream.

To achieve this, the landlord may pursue various treatments, such as terminating the lease, filing a lawsuit for damages, or seeking injunctive relief to compel the tenant's compliance.

The landlord may also choose to accelerate the rent, thereby requiring the tenant to pay the remaining balance of the lease term.

Effective lease enforcement is critical to minimizing losses and protecting the landlord's investment.

Tenant Cure Rights

In the event of a default, a critical aspect of lease agreements comes into play: tenant cure rights, which provide the tenant with an opportunity to rectify the breach and avoid severe consequences.

These rights are vital in balancing the landlord's solutions with the tenant's need for fairness and flexibility.

• Tenant cure rights typically include a cure period, during which the tenant can rectify the breach and avoid termination of the lease.
• The cure period is usually specified in the lease agreement and can vary in length, but it is generally a reasonable period of time, such as 30 days.
• Waiver rights may also be included, allowing the landlord to waive the default and reinstate the lease if the tenant cures the breach.
• It is crucial for both parties to understand the tenant cure rights and solutions provisions to avoid disputes and guarantee a smooth resolution in the event of a default.

Frequently Asked Questions

Can a commercial lease be oral instead of written.

While verbal promises may be enforceable, it is generally inadvisable to rely on an oral commercial lease, as it can lead to disputes and hinder lease enforcement, making it challenging to establish terms and resolve potential conflicts.

Can a Landlord Change the Lease Terms After Signing?

Absent a contractual provision, a landlord cannot unilaterally alter lease terms after signing; however, upon lease renewal, a landlord may propose changes, including rent increases, which the tenant may accept or reject, potentially triggering renegotiation or termination.

How Does a Lease Affect My Business Credit Score?

A commercial lease can impact your business credit score through credit checks, which may be performed by the landlord or lender to assess creditworthiness. Lease duration also plays a role, as longer terms may indicate greater financial stability, positively affecting credit scores.

Can I Cancel a Lease if the Landlord Doesn't Disclose?

In the absence of full disclosure, a tenant may be entitled to lease termination. Landlords have disclosure obligations, and failure to comply can be grounds for cancellation, allowing tenants to exit the lease agreement without penalty.

Can I Use a Residential Lease for a Commercial Property?

Employing a residential lease template for a commercial property is not recommended, as commercial leases have distinct differences in terms, clauses, and obligations, requiring tailored provisions that address unique commercial needs and concerns.

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2515 4th Ave S,   Saint Petersburg, FL 33712

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Facts & features

Bedrooms & bathrooms.

• Bedrooms : 4
• Bathrooms : 4
• Full bathrooms : 3
• 1/2 bathrooms : 1
• Room types : Garage Apartment

Primary bedroom

• Features : Walk-In Closet(s)
• Level : First
• Features : Ceiling Fan(s)
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• Flooring : Tile, Hardwood
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• Has fireplace : No

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• Dimensions : 48 x 127
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• Parcel number : 233116174420070150
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Construction

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• Subdivision : Colonial Place Rev
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• Region : Saint Petersburg

Financial & listing details

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• Annual tax amount : $2,727
• Date on market : 8/28/2024
• Listing terms : Cash,Conventional,VA Loan
• Ownership : Fee Simple
• Lease term : Min (1 Month)
• Total actual rent : 0
• Electric utility on property : Yes
• Road surface type : Brick
• Pinellas County
• Saint Petersburg
• Palmetto Park
• 2515 4th Ave S

Nearby cities

• Clearwater Real estate
• Dunedin Real estate
• Largo Real estate
• Oldsmar Real estate
• Palm Harbor Real estate
• Pinellas Park Real estate
• Safety Harbor Real estate
• Saint Petersburg Real estate
• Seminole Real estate
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Assignment and Consent Standards in Commercial Leases

Mar 6, 2020

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. This article presents a brief overview of the assignment provision in commercial leases, both office and retail.

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. When a tenant’s interest in a lease is assigned, the tenant is transferring its entire leasehold interest and 100% of the leased premises to a third party for the entire remaining term of the lease. For the tenant, the assignment provision represents a potential exit strategy, dependent of course on the local market, and increased flexibility for future needs. For the landlord, the assignment offers greater security for its revenue stream and hopefully the avoidance of a tenant bankruptcy or default while keeping its building occupied. The tenant’s desire for flexibility and the landlord’s need for control is where the negotiations are focused. This article presents a brief overview of the assignment provision in commercial leases, both office and retail, with particular attention on the laws of Maryland, Virginia and the District of Columbia. The landlord’s standard for providing consent to a request to an assignment will be reviewed, and we will conclude by offering suggested language.

What If The Lease Does Not Contain An Assignment Provision?

The law traditionally favors the free alienation of property. Therefore, under the laws of almost every state, if the lease is silent on whether the landlord’s consent to an assignment is required, then the commercial tenant has the right to assign its interest. This is true in Maryland, Virginia and the District of Columbia. Given this baseline, almost every lease form will have a detailed provision setting forth the assignment process. Note also, however, that in most states it is also enforceable for a commercial lease to have an outright prohibition against assignments. Such a provision would likely be a non-starting deal point for most sophisticated tenants.

What Does Reasonable Mean?

If a lease simply provides that the tenant requires landlord’s consent to an assignment, but does not include the standard for giving or withholding that consent, then in many states the implied standard is that the landlord’s consent may not be unreasonably withheld. Historically this was the minority view, with the historical rule allowing the landlord to withhold consent for any reason. The implied duty of reasonableness is now more the norm as more states adopt this position when presented with the issue. There is express case law establishing this rule in Maryland, and most courts in Virginia and Washington, DC will imply such a covenant of good faith and fair dealing. Most states, though, do allow a landlord the sole right to grant or withhold its consent if the lease clearly expressly provides, and in Maryland the lease must specifically state that the landlord’s consent may be granted or withheld in the sole and absolute subjective discretion of the landlord. Again though, a sophisticated tenant with any leverage should never agree to such a provision.

Most negotiated leases will instead contain a provision requiring that landlord’s consent to an assignment is required, but such consent will not be unreasonably withheld. The tenant will likely also try to include landlord’s obligation to not unreasonably delay or condition its consent. A short clause without further defining what constitutes “reasonableness” generally favors the tenant, and landlords typically prefer including specific standards as to the criteria it can consider when reasonably deciding whether or not to consent to an assignment. Without such specificity, defining “reasonable” is difficult as the landlord and tenant clearly will have differing viewpoints and it may be left as a factual question to be decided in litigation. The typical definition (set forth in the Restatement (Second) of Property) would be that of a reasonably prudent person in the landlord’s position exercising reasonable commercial responsibility.

Absent a detailed provision listing the criteria a landlord can consider when reasonably reviewing a request to assign, a landlord is typically found to be considered reasonable if it considers certain general broad factors. First, the landlord reviews the assignee’s proposed use. In a retail setting, the landlord will be concerned whether the proposed use fits with the existing center and/or violates any existing exclusives or insurance requirements. In an office setting, the landlord might review the expected traffic and wear and tear on the building. Second, the landlord will consider the creditworthiness of the assignee. The landlord (and the assignor) will want to be confident that the assignee is capable of performing tenant’s obligations under the lease and a large creditworthy tenant increases the value of the asset. The assignor might argue that a strict financial test (such as a minimum net worth, for example) is unfair since the assignor is likely not being released upon the assignment and the landlord can still pursue the assignor in the event of a default. Third, the landlord will review the experience and history of the assignor. As mentioned above, landlords instead prefer a detailed list setting forth the many factors that they can include as part of reasonably reviewing a request for a lease assignment.

Without further establishing the criteria, the landlord puts itself at risk of a challenge by the tenant that a denial of a consent is unreasonable.

In defining “reasonable,” courts typically do not allow a landlord to deny or condition consent to an assignment based purely on economic reasons where the landlord results in substantially increasing what it was entitled to under the lease. In Washington, DC, there is well established case law holding that it is unreasonable for a landlord to withhold consent solely to extract an economic concession or improve its economic position. For example, a court would not consider it reasonable for a landlord to condition its consent on the assignee paying a greatly increased rent. Instead, as discussed below, landlords should look to protect their interests in a market of increasing rents by providing for either the sharing of excess rentals or a right to recapture.

What Are Typical Provisions In an Assignment Clause?

As discussed above, tenants generally prefer a short assignment provision simply requiring the landlord to not unreasonably withhold, condition or delay its consent to an assignment. But most leases are drafted by landlords, and over the years the assignment provisions have evolved to contain many typical provisions in addition to further defining “reasonableness,” including the following below.

• Sharing of Excess Rents. Since many states do not permit a landlord to condition its consent on improving its economic position (e. g. , by increasing the rent), most leases instead contain a provision where the landlord is entitled to all or a portion of the profits. The profits may mean increased rent, or it may even be construed more broadly to consider the value of the location in a sale of the tenant’s business. The landlord’s argument is that it doesn’t want the tenants competing in the real estate market. The tenant should push back here, and certainly try to lower the percentage shared, carve out any consideration received in the sale of tenant’s business, and only share profits after all of the tenant’s reasonable costs incurred in connection with the assignment were first deducted.
• Corporate Transfers. Since a purchase of the entity constituting tenant is likely not deemed an assignment under the law, most leases make clear that any such corporate sale, including the sale of either a controlling interest in the stock or substantially all of the assets of the tenant, is deemed an assignment for purposes of the lease. The tenant should carve out permitted transfers for typical mergers and acquisitions under certain conditions, and also carve out routine transfers of stock (or other ownership interests) between existing partners or for estate planning purposes. The landlord will likely accept a permitted transfer concept provided they receive adequate notice and the successor entity succeeds to all of the assets of the original tenant with an acceptable net worth.
• Assignment Review Fee. Most landlords include in their form lease the requirement that the tenant reimburse them for legal and administrative expenses incurred in reviewing the request for consent and preparing the assignment. The tenant clearly wants to keep these fees reasonable and in keeping with the local market.
• Recapture Rights. Landlords like to include the express right to recapture the premises in the event the tenant comes to it to request a consent for an assignment. A recapture clause allows the landlord to terminate the lease if market rents have increased or if it needs the space for another use. Sophisticated tenants should push back here as much as leverage allows, try to limit the time periods, and if nothing else try for the right to nullify the recapture by rescinding its request for the consent.
• Tenant’s Remedy. To protect themselves from claims for damages from the tenant if the landlord withholds its consent to a requested assignment, landlords often include a provision where the tenant waives its rights to monetary damages in such a situation and can only seek injunctive relief. The tenant should try to delete this provision, or at least, if leverage permits, provide for the right to seek damages if the landlord is subsequently found to have acted in bad faith.

Assignment provisions are heavily negotiated and both the commercial landlord and tenant need to be advised to the applicable local law and know the market for a comparable transaction. ( Note: The author represents office and retail landlords and tenants throughout Virginia, Maryland and the District of Columbia.) Sample reasonableness provisions for both office and retail uses are copied below for reference.

Retail Lease

Landlord and Tenant agree, by way of example and without limitation, that it shall be reasonable for Landlord to withhold its consent if any of the following situations exist or may exist: (i) In Landlord’s reasonable business judgment, the proposed assignee lacks sufficient business experience to operate a business of the type permitted under this Lease and to a quality required under this Lease; (ii) The present net worth of the proposed assignee is lower than that of Tenant’s as of either the date of the proposed assignment or the date of this Lease; (iii) The proposed assignment would require alterations to the Premises affecting the Building’s systems or structure; (iv) The proposed assignment would require modification to the terms of this Lease, or would breach any covenant of Landlord in any other lease, insurance policy, financing agreement or other agreement relating to the Shopping Center, including, without limitation, covenants respecting radius, location, use and/or exclusivity; (v) The proposed assignment would conflict with the primary use of any existing tenant in the Shopping Center or any recorded instrument to which the Shopping Center is bound; and/or (vi) The proposed assignment or subletting would result in a reduction in the Rent collected by Landlord during any portion of the term of this Lease.

Office Lease

Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply: (i) The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building; (ii) The Transferee intends to use the Premises for purposes which are not permitted under this Lease; (iii) The Transferee is a governmental agency; (iv) The Transfer occurs prior to the first anniversary of the Lease Commencement Date; (v) The Transferee has a net worth of less than $10,000,000.00; (vi) The proposed Transfer would cause a violation or trigger a termination right of another lease for space in the Building; or (vii) Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Building at the time of the request for consent, or (ii) is negotiating with Landlord to lease space in the Building at such time, or (iii) has negotiated with Landlord during the six (6)-month period immediately preceding the Transfer Notice.

Reprinted with permission from the March edition of the Commercial Leasing Law & Strategy© 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected] .

• John G. Kelly

Related Practices Areas

• Commercial Leasing
• Real Estate

Related Industries

• Bank & Lender Services
• Real Estate Development & Investment
• Small, Emerging & Growing Businesses

What Is a Commercial Lease Assignment?

A commercial lease assignment happens when a tenant transfers all of the rights to a lease to someone else but remains liable for rent payments to the landlord. 4 min read updated on September 19, 2022

A commercial lease assignment happens when a tenant transfers all of his or her rights to a lease to someone else but remains liable for rent payments to the landlord.

A Tenant's Right to Assign or Sublet a Commercial Lease

Due to difficult financial times, businesses have been forced to downsize.

Often these businesses find themselves in commercial leases for more space than they need. In order to save money, these businesses will consider a commercial lease assignment or subletting the extra space. Both options have pros and cons, but the first step is examining the current lease in order to figure out whether there are any restrictions on assignment or subletting.

Commercial leases are contracts and, as such, are subject to their terms. Thus, the language of the lease will dictate whether or not the tenant is able to assign the lease to someone else or sublet the space.

If a lease doesn't contain any rules against assignment or transfer, then a tenant is allowed to assign or sublet. Unless your lease says otherwise, you do not have to get your landlord's consent to sublet or assign your lease.

Businesses might sublet or assign office or retail space to help with costs or to avoid a penalty if they need to end their commercial lease earlier than their contract stipulates. Sometimes, this may be their only option, regardless of their financial position.

Legal Considerations

When considering your options, you should be aware of the legal differences between assignment and subletting.

There are also several legal and practical aspects to consider when negotiating an assignment or sublease. This includes any legal consequences the tenant may face if the landlord ends the lease.

It is in your best interest to consult an experienced real estate attorney so that you can protect yourself and understand all of your options. Whether you sublet or assign your lease, you will need to find a new tenant. However, there are still differences between the two.

Before subletting or assigning your lease, you should review your lease agreement and talk about your options with your landlord.

It is also important to check your state's laws regarding subleases and assignment because some states require the landlord's consent in order to complete this transfer.

What Happens If I Breach the Lease by Subleasing or Assignment?

Breaching your lease can carry severe consequences, including the following:

• Paying damages to your landlord
• Termination of the lease agreement

What Is an Assignment of Lease?

A lease assignment happens when the tenant transfers all of his or her rights and interest in a lease to another party. Although the new tenant takes on these rights and interests, the assigning tenant is still liable to the landlord.

If the new tenant breaches the lease, the landlord can enforce the terms of the lease on both the new tenant and old tenant. The former, or assigning, tenant is still liable to the landlord according to the original commercial lease agreement.

A lease assignment can also be called:

• A lease transfer
• Assignment agreement
• Assignment of lease
• Lease assignment

Sometimes, a tenant has to leave before their lease is up. In this case, they might be allowed to assign, or transfer, their lease to a new tenant. The old tenant, or assignor, transfers his rights to a new tenant, the assignee.

You can assign both residential and commercial leases. In an assignment, the assignor transfers their lease to a new tenant using a lease assignment agreement. The new tenant then takes the place of the assignor, but the former tenant is still responsible for missed rent checks and damages.

What Does a Lease Assignment Agreement Contain?

A lease assignment agreement is a document that transfers a commercial or residential lease from one party to another. When a tenant needs to break a lease and has a new tenant lined up, they can use a lease assignment agreement.

A lease assignment agreement contains basic information:

• Identifying information
• Assignment start date
• Landlord name

Lease assignment agreements are pretty simple because they reference the original lease. This means that all of the terms in the old lease are automatically included in the new agreement.

A lease assignment agreement transfers the entire lease, whereas sublease agreement does not. Assignments transfer the whole lease from one tenant to another.

The most important thing to know about lease assignment agreements is that they usually need the landlord's permission. If you're considering assigning your lease, you should make absolutely sure that your landlord agrees to the arrangement because you are transferring your lease to a new party.

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A Full Guide to Commercial Lease Assignment (Lease Transfer)

Dealing with a fixed-term lease agreement and looking to move offices or downsize? The topic of commercial lease transfer can be confusing to navigate, particularly when you are unsure of your rights and obligations under the lease.

If you’re renting a commercial property, you signed a contract at the beginning of your tenancy called a lease agreement , which contains all the details of your rights and obligations while occupying and conducting business operations at the commercial property. Your agent is required by law to give you a copy of the lease agreement if you don’t already have one.

The following article will serve as a full guide to commercial lease assignment, providing business owners with an overview of the legal considerations and elements required for an assignment of lease.

• 1 What is a Commercial Lease Assignment?
• 2 Current Market Conditions Boosting Lease Transfers and Flexible Arrangements
• 3 What is the Difference Between Commercial Lease Assignment and Subleasing?
• 4 Why Would You Want to Transfer a Lease?
• 5 How to Go About Transferring Your Commercial Lease
• 6.1 Goals and obligations of the original lessee and new tenant
• 6.2 Starting date of lease assignment
• 6.3 Pitfalls and consequences
• 7.0.1 Further Insights

What is a Commercial Lease Assignment?

Also known as a lease transfer, a commercial lease assignment involves a tenant transferring all of their interests and rights in a lease to a new party. This new tenant will take on the responsibilities of the existing lease, including rent and any other obligations, leaving the original tenant free to exit the agreement.

Commercial lease assignment often occurs when tenants want to leave their commercial property prior to the end of a fixed-term agreement. This often happens when a business quickly needs to upsize or downsize their space, move to a new city, or go out of business.

State law dictates whether tenants require their landlord’s consent prior to transferring a lease or subletting a part of their space. However, most lease agreements will clearly outline full transfer provisions prior to being signed and, whilst it is possible for lease assignment to be forbidden, the vast majority of agreements allow for transfers.

Current Market Conditions Boosting Lease Transfers and Flexible Arrangements

There has been a marked increase in the number of lease transfers and sublets of commercial properties in recent years, largely as a result of increased instances of remote work and downsizing seen across multiple industries. This reduced need for workspace has persisted, as many workers have continued to show a preference for remote and hybrid work arrangements if and when suitable.

Changing employee priorities have forced many businesses to reconsider their existing lease agreements, resulting in an increase in both commercial lease assignments and sublease agreements .

Landlords have adapted their offerings in the face of this changed market demand. Many are now offering flexible, month-to-month leases, allowing tenants to rest easy knowing that they won’t be stuck in a long-term lease agreement if their situation changes.

However, in the case of premium office spaces in highly sought-after locations or warehousing facilities close to major transport links, traditional leases are still very much the norm. In these cases, landlords may have realized that fully reconfiguring their offerings for flexible-usage is financially unrealistic. This may be due to a number of factors, including high-levels of existing demand for traditional leases, the saturation of the flexible workspace market, and the requirements of their typical target tenants.

So, if you’re leasing long-term commercial property and need out of the agreement, or at least to downsize, a lease transfer is a great solution that can leave all contracted parties satisfied. 

What is the Difference Between Commercial Lease Assignment and Subleasing?

A commercial sublease, which is a type of lease transfer, occurs when a tenant who currently leases property agrees to let another tenant use the space concurrently. The agreement involves all three parties: the original tenant, the new tenant, and the property owner.

When you sublease your space, you become the sub-lessor (or sub-landlord), and your new tenant is now the sublessee (or subtenant). Your agreement with them will normally allow them to reside in your space – or a specified portion of it – for either the remaining term of your lease or some other pre-determined length of time. 

It’s important to keep in mind that, as the original lessee, you’re still liable and responsible for making monthly lease payments on a sublet agreement. Therefore, you must collect rent from your subtenant each month while continuing to make rental payments directly to your landlord.

Why Would You Want to Transfer a Lease?

Lease transfers can be done to adjust the leased property size and monthly rent. A business owner may decide that they need to upsize or downsize their leased premises prior to the end of their original lease term.

Also, a lease transfer may be sought because the current tenant wants to vacate the rental property entirely, with no plans to lease elsewhere. This may be due to outside factors (e.g. a global pandemic) or the forced closure of a business.

A lease transfer, or a sublease arrangement, may also be desired so that two businesses with complementary strengths can share a workspace and mutually benefit from their operational proximity. No matter how complementary the proposed new tenant is to the existing tenant, this new business relationship will require the landlord’s permission (unless they have been given prior written consent providing them with sole discretion over subletting)

How to Go About Transferring Your Commercial Lease

The only necessary requirement for lease transfer is to identify a new lessee. In the vast majority of cases, your landlord cannot deny your request for a lease transfer unreasonably , yet it’s still in your best interest to find a new tenant with an established rental history and who can financially afford the rent on time. The only situation in which a commercial landlord can instantly deny a lease transfer request is if this provision was established in the initial lease agreement, however, this type of provision will often scare off prospective tenants.

If you’re looking to transfer your lease, most agents will request that the new tenant apply as if they were renting any other property as a primary lessee. Be sure that, in addition to their application , the prospective tenant provides documentation like company financials and past rental receipts to support your transfer request. This way, there’s no doubt of their ability to be a reliable tenant. 

If you wish to transfer your lease, you must have written consent from your landlord – mere verbal agreement will not suffice. Without your landlords’ express permission in writing, any attempted transfer of lease will be considered null and void. You will then need to fill out a lease assignment agreement, outlining the proposed assignee, current tenant, landlord, and existing lease term.

Important Things to Keep in Mind

To avoid any unnecessary stress or surprises, it helps to understand your rights and responsibilities before beginning the commercial lease transfer process.

Goals and obligations of the original lessee and new tenant

When considering a lease transfer, it is crucial to first identify the goal you hope to achieve through this deal. Most commercial leases have restrictions on transferring the lease, so before beginning any negotiations, all rights and obligations of the involved parties must be closely analyzed. If everyone’s interests are clear from the start, then agreement upon terms should run much more smoothly.

Starting date of lease assignment

In most cases , tenants need to pay their rent a month before move-in date. Confirm that the party being assigned the lease understands when they are responsible for making their first rent payment, so there are no delayed payments. This is also important for sublease agreements, because existing tenants are often liable for any missed rental payments made by the sublessee.

Pitfalls and consequences

Depending on the terms of the lease transfer and the legal documentation, the original lessee may find themselves responsible for any actions or defaults of the new leaseholder. 

As commercial leases often last several years, this could result in a heavy financial burden and significant legal consequences. Careful negotiation at the outset will always lead to a more positive outcome, so it’s important to tick all appropriate procedural and legal boxes when pursuing a commercial lease assignment.

Wrapping up

Before you begin subletting or transferring/assigning a lease, be sure that you understand the objectives of both parties and identify the correct method of altering the lease. Both lessors and lessees should also review all clauses in the lease and negotiate based on everyone’s incentives and interests. If there is any confusion about preparing or reviewing documents related to this process, it’s important to consult with legal advisors for the sake of all parties concerned.

Further Insights

Looking for more articles about the US office market and general office matters? You can find a number of recent posts below! Alternatively, if you’re a business or freelancer looking for flexible workspace in the US, we can help to connect you to a wide range of serviced offices and coworking spaces in highly sought-after locations such as New York City , Los Angeles , Houston , Atlanta , Miami , Chicago , and Dallas . You can also call us to have a discussion about your requirements on 972-913-2742 .

Miami Office Market Report | Q2-Q3 2022 Mid-2022 Las Vegas Office Market Report The Impact of Proptech on Commercial Real Estate 15 In-Person Employee Recognition Ideas for the New World of Work Mid-2022 Houston Commercial Real Estate Market Report Coworking Space for Students on U.S. College Campuses How the Decentralization of Cities Has Changed the U.S. Office Space Market US Office Market Trends 2022 – Statistics, Challenges and Outlook January 2022 – U.S. National Office Market Report The Great Resignation or the Great Retention? How Employers Yield the Power Heading into 2022 5 Ways to Create a Great Office Culture

Tags: 2022 , commercial lease assignment , commercial property , guides , landlords , lease transfer , Office Space , subleasing , tenants This entry was posted on Tuesday, November 8th, 2022 at 8:46 am and is filed under 2022 , Business Advice , Leases , Office Talk .

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Assigning a Commercial Lease

(This may not be the same place you live)

  What Is an Assignment of a Commercial Lease?

A commercial lease is a written contract that is used when a commercial tenant rents space from a landlord. Commercial real estate law is the area of law that governs commercial leases and commercial tenant and landlord rights.

Similar to other types of leases, a commercial lease gives a commercial tenant the right to occupy the space and conduct business activities for a specified period of time. These commercial tenant rights are in exchange for the commercial tenant making monthly rent payments to the landlord.

A commercial lease also guides both parties regarding their legal rights and responsibilities associated with the commercial real estate transaction.

The most common example of a commercial lease would be when a tenant leases business property, such as:

• An office space;
• A standalone retail space;
• A restaurant;
• A retail store located in a mall or other similar shopping center.

Depending on the specific type of commercial lease that the parties enter into, the lease agreement will provide instructions, such as which party is responsible for making repairs and which party is liable for paying real property taxes on the space.

An assignment of a commercial lease refers to when one commercial party of the lease transfers all the interest and obligations of their lease to another third party. Generally, in a commercial setting, a commercial tenant will assign their interest in their commercial lease to another commercial tenant. Similarly, a landlord to a commercial lease may also assign their interest in the lease to another landlord.

It is important to note that many commercial leases will include restrictions on the ability of a commercial tenant to assign their lease. As such, it is important that commercial tenants review their lease in order to determine if assigning their lease is possible. A commercial lease will note all of the rights that the commercial tenant maintains over the commercial property, including assignability of the lease.

Additionally, it is also important to note that most consumer protection laws that apply to residential leases do not apply to commercial leases. However, depending on the state laws in which the commercial lease was entered into, restrictions on assignment of commercial leases may be valid if such restrictions are deemed “reasonable.”

What Is a Sublease of a Commercial Lease?

Can a commercial lease be assigned or subleased, what happens if i breach the lease through subletting or assignment, do i need a lawyer for my commercial sublease or assignment issue.

A sublease of a commercial lease occurs when a commercial tenant transfers a portion of their lease rights to a third party for a temporary period. A commercial tenant may either sublet a portion of their commercial space while they continue to work in the same space or sublet the entire commercial location until the end of the lease or a period of time.

For example, suppose that a company is a seasonal commercial business, such as a Halloween or firework store. If such a company has signed a year-long fixed lease term, they may seek to sublet their commercial property for the 8 months in which their store is not operational in order to generate income to pay rent on the commercial space.

It is important to note that when subletting, the original commercial tenant, known as the “sublessor,” is still obligated to the landlord for the original terms of the commercial lease. This means the sublessor maintains “privity of estate” and “privity of contract” with the landlord. The sublessee, or the person that intends to utilize the lease for a temporary period of time, is only liable to the original commercial tenant for the lease, not the landlord.

In other words, the original lease between the original commercial tenant and the landlord remains in full effect throughout the sublease period. Additionally, the original commercial tenant is now responsible for the new tenant. This means that the sublessee would go to the original tenant with any concerns they had regarding the rental property, as well as pay rent directly to them.

Subleases have become increasingly popular for big box retail stores that seek to lease corners of their commercial space to smaller retail stores. They are also popular for startups that do not have enough capital to lease an entire commercial space and prefer to cut costs by sharing a commercial space with other companies.

For instance, in grocery stores or shopping centers , you may see nail salons, ophthalmology services, cell phone repair shops, banks, or even food vendors that are subleasing from the main big box store.

Other common reasons a company may seek out a sublease include:

• Lower Rental Rates: Rates for commercial subleases, especially short-term subleases, are typically less than standard commercial lease rates;
• Flat Rental Payment Structure: Commercial subleases often have a flat rental payment structure with no unusual surprises;
• Fewer Obligations: In a commercial sublease, the sublessee usually has limited obligations to repair and maintain common areas;
• Less Complex Lease: Commercial subleases are usually not as complex as original commercial leases; or
• Additional Income: As noted above, the most common reason for subleasing is for the original commercial tenant to gain an additional source of rental income in order to make or lessen their lease payments.

As mentioned above, whether a commercial tenant may sublease or assign a commercial lease will be governed by the original commercial lease that was entered into by the commercial tenant and the landlord. Once again, the terms of the commercial lease may expressly prohibit the commercial tenant from subletting or assigning their lease entirely.

The lease terms may also allow the tenant to sublease or assign their commercial lease only with the landlord’s consent or if certain conditions have been met. Many states and local jurisdictions prohibit a landlord from withholding consent to assign or sublease a property if the reason is unreasonable.

In the absence of a provision in the executed commercial lease stating otherwise, a commercial lease can generally be assigned or subleased. As such, the ability of a commercial tenant to sublease or assign a commercial lease should always be discussed and negotiated prior to signing or renewing a commercial lease.

Similar to a commercial tenant’s ability to assign or sublet their lease, the penalties for breaching the lease will typically be governed by the terms of the commercial lease that was entered into by the tenant and landlord.

In addition to any legal remedies for breaching the lease, the landlord or tenant may also recover any contractual damages caused by the other party’s breach of the original lease terms. The non-breaching party may also seek to terminate the lease agreement altogether.

As can be seen, assigning or subletting a commercial lease may be a great option for companies seeking to move away from their commercial location permanently or to generate income.

However, commercial lease agreements and contracts can be very complex. As such, it may be in your best interests to consult with an experienced real estate lawyer to help you understand your legal options for assigning or subletting a lease. An experienced real estate lawyer will be able to guide you through the process of assigning or subletting your commercial lease and ensure that your legal position is protected.

Finally, an attorney will also be able to represent you in court, as necessary, should a dispute arise regarding assigning a commercial lease.

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Travis earned his J.D. in 2017 from the University of Houston Law Center and his B.A. with honors from the University of Texas in 2014. Travis has written about numerous legal topics ranging from articles tracking every Supreme Court decision in Texas to the law of virtual reality. In his spare time off from the legal world and quest for knowledge, this 3rd degree black belt and certified instructor aspires to work with various charities geared towards bringing access to entertainment and gaming to all persons. Read More

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Commercial Lease Assignment and Sublet Provisions

A balancing act for landlords and tenants, july 2020 by adam f. aldrich.

This article identifies common problems involved in commercial lease transfers through assignments and subleases. It offers both landlords and tenants tips for solving these problems when negotiating assignment and sublease provisions in leases.

The modern commercial lease is a complex, integrated document that attempts to balance the competing interests of the landlord and tenant. As a result, commercial leases are the subject of much negotiation and are never “one size fits all.” In fact, commercial leases are one of the least standardized documents in real estate practice.

When any commercial lease is to be transferred in part through a sublet or in its entirety through an assignment, the issues multiply. The transfer provisions, which once seemed moot, become operative to determine whether the lease can be transferred and, if so, under what conditions. If, during lease negotiations, the parties overlooked the lease transfer provisions or gave them cursory consideration, they may be unpleasantly surprised by the result. While landlords and tenants have divergent economic interests with respect to transferring the lease, their legitimate concerns can be appropriately addressed through thoughtfully crafted transfer provisions.

This article explores common problems, issues, and solutions encountered in commercial lease transfers through assignments and subleases. It is intended to be useful both to the lawyer who infrequently encounters lease transfer problems and the seasoned practitioner who deals with lease transfer issues every day.

Distinguishing Between an Assignment and Sublease

Assignments and subleases have fundamental differences that are frequently misunderstood. A lease is both a conveyance of an interest in property and a contract. 1 After executing the lease, the landlord and tenant are bound to one another by privity of contract and by privity of estate. As a result, they may each enforce the provisions of the written lease through privity of contract and the promises that arise from privity of estate. 2 Privity of contract allows enforcement of the lease provisions, while privity of estate allows enforcement of only those promises that run with the land. 3

Whether the landlord, tenant/assignor, and subtenant/assignee call their arrangement an assignment or a sublease, courts typically look at the substance of the transaction. In an assignment, a tenant transfers its entire interest in the lease. 4 After assigning its interest in the lease, the assignee has privity of estate with the landlord, but the assignee and the landlord are not in privity of contract unless the assignee assumes the tenant’s obligations under the lease. 5 Assignment of the lease ends the original tenant’s rights to possession, but absent an express release under the lease terms, its liability under the lease continues. 6 This means the original tenant remains secondarily liable for the assignee’s obligations under the lease. Thus, the tenant/assignor may find itself liable at a future date if the assignee fails to perform its obligations under the lease.

In a sublease, however, the tenant transfers less than the remaining term or less than the tenant’s entire interest in the lease, leaving the original tenant with a reversionary interest in the lease. 7 The relationship between the original landlord and the original tenant, including both privity of contract and privity of estate, remains intact, thereby creating the relationship of landlord and tenant between the original tenant (sublandlord) and the new tenant (subtenant). The original landlord and the subtenant have no privity of estate or privity of contract with one another, so the original tenant remains liable for the actions and omissions of the subtenant. 8 However, the subtenant’s rights will terminate with the original lease or when the landlord declares a forfeiture of the tenant’s lease term. 9

A third, less common type of transfer is a partial assignment of a lease. Such assignments are called assignments “pro tanto,” not subleases, because they grant possession of a portion of the leased premises to the new tenant for the balance of the lease term. 10 The landlord now has two tenants and, in effect, two leases. There is little guiding case law on this hybrid lease transfer, so it is not entirely clear whether the assignee has a contractual relationship with the landlord. 11 Due to the vagaries and uncertainties that can result when a transfer of possession encompasses less than all of the space, partial assignments should be avoided. To avoid assignments pro tanto, landlords should consider prohibiting assignments of less than the original tenant’s entire interest in the lease. If a landlord proceeds with a partial assignment, it should clearly document the arrangement, including the rights and remedies of the landlord, original tenant, and new tenant, and acknowledge the transaction as a partial assignment and not a sublease. 12

The accompanying table illustrates the many differences between an assignment, sublease, and partial assignment. 13

Restrictions on Assignments and Subleases

Colorado law favors the free transferability of rights. 14 As a result, landlords frequently attempt to limit the tenant’s right to transfer the lease by including lease provisions specifically restricting the tenant’s right to assign or sublet. Under Colorado law, outright prohibitions against assignments are permissible and are not considered invalid restraints on alienation. 15 Even if outright prohibitions on assignments or subletting are enforced, such provisions “are construed against the restriction.” 16 This means a court generally will construe such stipulations “against the party invoking them.” 17 A breach of the restriction against transfer does not terminate the lease, 18 but may give rise to a claim for default. 19 Generally, tenants in commercial leases negotiate exceptions to strict prohibitions against assignments or subletting because transfer provisions may be their only viable exit strategy if they find they can no longer afford the space or no longer need it.

Consent to Assignments and Subleases

Recognizing that absolute prohibitions are neither favored by the courts nor acceptable to most tenants, some landlords include modified prohibitions in their leases that limit the tenant’s rights to transfer the lease and, if a transfer is permitted, allow the landlord to enforce the lease against both the original tenant and the new tenant to the maximum extent possible. Such provisions may reserve to the landlord, either in its sole discretion or without unreasonably withholding its consent, the right to approve a proposed lease transfer. Although the reservation of the landlord’s right to approve a proposed assignment or sublease is for the landlord’s benefit, 20 the landlord is bound to the standards set out in the lease for consents to an assignment or sublease. 21 Accordingly, once the landlord has established the standards for its consent in the lease, it cannot object to a proposed assignment or sublease if the tenant has met the appropriate requirements.

It is well established in Colorado law that “without a freely negotiated provision in the lease giving the landlord an absolute right to withhold consent, a landlord’s decision to withhold consent must be reasonable.” 22 Thus, if a lease contains a provision against subletting or assignment, but is silent on a landlord’s right to withhold consent, Colorado law forbids the landlord from withholding its consent unreasonably if the tenant tenders a suitable subtenant or assignee to the landlord. 23

Disputes often arise as to what is a ‘‘reasonable” withholding of the landlord’s consent. This debate has led to the enunciation of specific standards of reasonableness. If a lease provision “requires that consent to an assignment will not be unreasonably or arbitrarily withheld, a landlord is held to the standard of conduct of a reasonably prudent person.” 24 Therefore, a landlord must only consider “those factors that relate to a landlord’s interest in preserving the value of the property,” 25 which do not include “[a]rbitrary considerations of personal taste, convenience, or sensibility . . . .” 26 Whether a landlord has acted reasonably is a fact-specific inquiry. 27 Most courts have held that the tenant bears the burden of proving that the landlord acted unreasonably in withholding consent, 28 but some courts have required the landlord to prove it acted reasonably. 29 Courts have been divided on a tenant’s right to terminate a lease where the landlord has been found to have unreasonably withheld consent. 30

There are several reliable rules that courts follow in determining whether a landlord acted reasonably. First, a landlord cannot refuse consent for racial or other discriminatory reasons. 31

Second, a landlord may not deny consent to improve its general economic position or to receive increased rent. 32 However, a landlord may deny consent to protect its interest in the value, condition, and operation of the property or the performance of lease covenants. 33 For example, in Cafeteria Operators L.P. v. AMCAP/Denver Limited Partnership , the tenant leased the premises to run a cafeteria-style restaurant. 34 After several failed attempts to operate the restaurant, the tenant marketed the space to prospective subtenants, including non-cafeteria restaurant owners. 35 When a non-cafeteria restaurant owner expressed interest in subleasing the premises, the tenant sought the landlord’s approval to the proposed sublease, but the landlord refused. The Court found that the landlord reasonably withheld consent because the proposed sublessee would have changed the “character” of the shopping center by operating “the largest restaurant of its kind, raising concerns about lighting, maintenance, traffic, and parking.” 36 Moreover, the subtenant would sell alcohol and stay open late, and its proposed occupancy raised “concerns about security, safety of patrons, and parking requirements.” 37 Similarly, the Court in List v. Dahnke found that the landlord reasonably withheld consent where the landlord determined that a Thai-American restaurant operated by the assignee would not be successful at that location, but the Court did not identify the facts that led the landlord to such conclusion. 38

Third, a court may make a finding of unreasonableness if a landlord refuses consent to a proposed transfer without obtaining relevant information to make its decision. 39 Before making the decision, the landlord should obtain sufficient information on the transferee’s financial condition; the transferee’s experience in operating its business; how the premises are to be used; projected sales, gross income, and income per square foot; and, in the case of a sublease, the size of the subleased space. 40

Fourth, courts may consider how long it takes the landlord to make the decision on the requested assignment. If the landlord instantly refuses consent or waits too long to make a decision, the court could make a finding of unreasonableness. 41 Conversely, if the tenant fails to allow the landlord a reasonable amount of time to issue a decision, the withholding of consent can be found reasonable. 42 In Parr v. Triple L&J Corp. , the Court found that the landlord unreasonably withheld consent when it deferred making a decision on the proposed assignment, thereby delaying the sale of the tenant’s business until the prospective buyer withdrew his offer. 43 The tenant sought approval from the landlord for an assignment of the lease as part of the sale of its business. The landlord requested all personal and financial information on the proposed assignee and the assignee’s business plan, and the tenant provided prompt responses that demonstrated the assignee’s experience in restaurant management and “perfect credit score.” 44 Because the landlord unreasonably withheld consent, the landlord was held liable to the tenant under a breach of contract theory, as well as for lost profits on the sale of its business. 45

Similarly, the Court in Bert Bidwell Investors Corp. v. LaSalle and Schiffer, P.C. addressed whether the landlord unreasonably withheld consent to the tenant’s request to transfer the lease where the assignee was “ready, willing, and able to assume the lease as written, and to use the premises for the same business as that of the tenants.” 46 The landlord ultimately refused consent because it “didn’t like” the proposed assignee. 47 Based on the lease, which required the landlord’s consent to assign, the landlord argued that it “had the right to relet the premises as it saw fit and to be arbitrary in doing so.” 48 Relying on List , the Court found that the landlord acted unreasonably in refusing to accept the proposed new tenant. 49 Nevertheless, parties may create their own standards and definition of reasonableness, and if they do, courts will enforce and apply such standards. 50

As these cases illustrate, if a landlord wishes to withhold consent absent a sole and unconditional contractual right to do so, it must have fact-based reasons for doing so and cannot arbitrarily withhold or delay its consent. The landlord should communicate its decision in writing to the tenant and enumerate all fact-based reasons to preserve all arguments for reasonableness. 51 Before making the request to assign or sublet the premises, the tenant should gather information about the proposed assignee’s or subtenant’s financial status, business acumen, and proposed operations, and then submit this information to the landlord, along with an assignment or sublease document signed by the tenant and assignee or subtenant. While the landlord must still consent to the transaction, 52 such documentation places the tenant in a stronger position to rebut any superficial or arbitrary reasons the landlord may proffer for denying consent. And if litigation ensues, it will be critical for the tenant’s case to show that it supplied the landlord with as much information as possible concerning the assignee’s or subtenant’s financial status and operations, to avoid having the trier of fact determine that the landlord acted reasonably in denying consent due to a lack of information from the tenant.

Recapture, Termination, and Renewal Rights

Leases may grant the landlord the right to terminate the lease and to retake the tenant’s space if the tenant wishes to assign its lease or sublet its space, or if the tenant transfers the lease without the landlord’s consent. Replacing the tenant by recapturing the premises can benefit both the landlord and the tenant, but each party will want to weigh the pros and cons of such an agreement.

Terminating the lease allows the landlord to eliminate existing lease weaknesses and to enter into a new lease with a potentially better tenant on a clean slate. Moreover, recapturing the premises and directly leasing it to the proposed assignee can save the landlord substantial dollars in tenant improvements that can be passed on to the new tenant through reduced or free rent for a portion of the lease term. But the landlord must pay close attention to market conditions before terminating the lease. Terminating the lease in a strong market when space is at a premium and rents are high allows the landlord to enter into a new lease with a new tenant at a higher rate, but the landlord may take a loss on its investment in the premises in a down market when rates are depressed and there is an oversupply of space.

The tenant, on the other hand, risks losing its investment in its business and the leased premises. Before requesting a transfer, the tenant should closely scrutinize the lease to determine the potential outcome. Under some leases, the act of notifying the landlord of an intent to assign or sublet can trigger the recapture provision. 53 Similarly, if the lease is assigned without the landlord’s consent, it may trigger the recapture right if that right is expressly provided in the lease. 54 Landlords should closely review the recapture language before terminating the lease because restraints on alienation and lease forfeitures are disfavored. 55

When a tenant violates the transfer provisions by transferring the lease without the landlord’s consent, the landlord should send a notice of default to the tenant and demand that the default be cured by nullifying the transfer, 56 unless the lease provides that transferring the lease is an automatic termination. If the tenant is unable to nullify the transfer when it receives the notice, it could be liable for default damages incurred by the landlord. 57 If the tenant does not cure the default and the landlord will not approve (and has the right not to approve) the assignee or subtenant, the landlord may terminate the lease (or the tenant’s right to possession) if the lease so permits. 58 If the landlord fails to terminate the lease 59 or accepts rent after breach of the anti-assignment clause, 60 it may be deemed to have waived the right to terminate. Once the lease is terminated as a result of the default, the landlord must consider its duty to mitigate damages. 61

If the space is recaptured and the lease terminated, the tenant’s lease obligations will be terminated with respect to all recaptured space, including the payment of rent. 62 Moreover, the tenant will no longer have privity of contract or estate with the landlord, assignee, or subtenant because the lease will be terminated as to the tenant. 63 If the landlord recaptures the premises, the tenant is spared the rent expense while it finds a transferee. But if the landlord does not recapture, the tenant can make a transfer without fear that the landlord will then exercise its recapture rights.

Another important issue is whether an option to renew contained in a lease assigned or subleased to a third party remains exercisable following the transfer. If the assigned lease gives the original tenant a renewal option, the assignee can extend the term unless the renewal option is reserved from the assignment. 64 If a tenant/sublandlord grants its subtenant an option to renew based on the tenant’s option in the prime lease, the subtenant is dependent on the tenant/sublandlord for a lease extension because it does not have contractual privity with the landlord. 65 If the tenant/sublandlord refuses to exercise its renewal option so as to enable the subtenant to take advantage of the rights that were granted to it, the tenant may be liable to the subtenant. 66 To protect its option to renew, the subtenant should request or require a recognition agreement from the landlord when negotiating a sublease, whereby the landlord agrees to recognize the sublease if the prime lease terminates due to the tenant/sublandlord’s default. 67

The Impact of Bankruptcy Proceedings on Assignments and Subleases

Bankruptcy laws can have a significant impact on commercial leases when the tenant files for bankruptcy protection. Generally, a trustee is appointed to administer the bankruptcy estate, except in Chapter 11 cases where the debtor-in-possession is the tenant. 68 For debtors with executory contracts and/or unexpired leases, 11 USC § 365 contains a series of rules that govern those documents. Section 365 of the bankruptcy code provides the tenant/debtor with the statutory right to assume or reject executory contracts and unexpired leases to which it is a party, subject to objections by creditors and other parties-in-interest, and ultimately the court’s approval. 69 The debtor may, in turn, assign the lease if the assignee provides “adequate assurance of future performance.” 70 During the period between filing the bankruptcy petition and the date on which the lease is assumed or rejected, the tenant must continue to pay rent and perform the material terms of the lease. 71 It should be noted that written waivers of § 362’s automatic stay have been found to be unenforceable unless they are part of a previous bankruptcy proceeding. 72 Thus, landlords should not assume that a waiver in the lease is enforceable if the tenant files for bankruptcy.

From the debtor’s perspective, the right to reject the lease is “vital to the basic purpose of Chapter 11” because it can free the tenant from the obligation to pay all future rent under the lease. 73 If a lease is rejected with bankruptcy court approval, the debtor has no legal interest in the lease or the leased premises, and it must vacate the leased premises. If, however, the debtor fails to vacate the premises, the landlord can file a motion to lift the automatic stay so it can file or continue an eviction action in state court. If the debtor rejects the lease, the landlord may have a claim for “rejection damages” pursuant to 11 USC § 502(b)(6), subject to the mitigation-of-damages duty. 74

As a condition to assuming the lease, the debtor must cure all monetary defaults and provide adequate assurances of future performance under the lease. 75 A debtor who assumes the lease may be able to assign the lease free of restrictions on transfer set forth in the lease and over the landlord’s objection, 76 which may turn out to be a significant right for the debtor if it holds a below-market lease with sufficient time remaining on the lease term. However, a bankruptcy court has discretion to reject an assignment if it finds, for example, that the assignment would disrupt the tenant mix by changing the image of a shopping center or violating the use restriction in the lease. 77 A landlord may favorably view the debtor’s assumption because it assures continuation of the lease and the cure of existing defaults. But if the tenant is holding a below-market lease, the landlord may favor rejection to enable it to negotiate a new lease. A landlord may object to the debtor’s attempted lease assumption if the landlord disagrees with the debtor’s plan to cure the default or believes the debtor has not provided adequate assurance that the default will be cured or the debtor will perform in the future.

Section 365(b)(3)(C) of the bankruptcy code provides specific protections for “a lease of real property in a shopping center” by providing that no assignment can occur without assurances that use clauses and other provisions vital to the operation of the shopping center will continue to be performed, “including (but not limited to) provisions such as a radius, location, use, or exclusivity provision, and will not breach any such provision contained in any other lease, financing agreement, or master agreement relating to such shopping center.” The purpose of § 365(b)(3)(C) “is to preserve the landlord’s bargained-for protections with respect to premises use and other matters that are spelled out in the lease with the debtor-tenant.” 78 Moreover, § 365(b)(3)(D) requires adequate assurance “that assumption or assignment of such lease will not disrupt any tenant mix or balance in such shopping center.” Despite the bankruptcy code’s language protecting shopping centers, some bankruptcy courts have found lease provisions that limit the use of the shopping center premises to be per se restraints on alienation. 79 To avoid an adverse ruling if a shopping center tenant files for bankruptcy, a landlord should arm itself with as much evidence and expert testimony as possible to show a disruption in tenant mix or a real potential for violating other tenants’ rights if an assignment is allowed. 80

While a tenant’s bankruptcy filing places the lease in limbo, a landlord can be proactive by approaching the tenant to determine whether it intends to reject or assume the lease. Landlords and tenants should not treat the existing lease as a static document that presents the tenant with a “take it or leave it” proposition for assumption. If the tenant voices concerns about the current lease, the landlord can renegotiate the lease to entice the tenant to assume a modified lease (subject to court approval) that keeps the tenant in the premises and paying rent.

Negotiating Lease Transfer Provisions

Negotiating lease transfer provisions is an important process for both the landlord and the tenant because, at some time in the future, the landlord or the tenant may be forced to accept a previously unknown or undesirable counterparty to the lease. It is critical that attorneys impress upon their respective clients the short-term and long-term ramifications that could result from their negotiations of the lease transfer provisions. Landlords and tenants should consider the following issues when negotiating assignment and subletting provisions.

The Landlord’s Perspective

• The landlord’s primary objective in negotiating assignment and subleasing provisions is control , including control over the mix of tenants and control over the use of the leased premises. Thus, the landlord will use the transfer provisions to protect its interests in the premises.
• A landlord’s foremost concern is almost always the tenant’s ability to pay rent, in full, on a timely basis. A landlord should negotiate requirements that a prospective assignee or subtenant must meet, such as minimum net worth and minimum gross sales.
• The landlord can protect itself by including a right to recapture the premises if a tenant seeks to assign its lease or to sublet its premises. However, landlords should carefully consider whether to include language that terminates the lease automatically upon receipt of an assignment request because it could constitute a restraint on alienation, which is disfavored, and the landlord may prefer the leasehold to continue. 81
• The landlord should keep the original tenant on the hook. Landlords should oppose any transfer provision that relieves the original tenant of its obligations under the lease upon an assignment. Having a tenant with a vested interest in the assignee’s ability to perform the lease is helpful to ensure that a lease is transferred to a worthy transferee. Additionally, in the event the assignee does default, if the original tenant’s liability has been preserved, the landlord’s chances of recovery are improved.
• The landlord should limit the use rights of a subsequent assignee or subtenant. A landlord should seek to protect its right to control the mix of tenants, particularly in retail settings, so as not to violate exclusive use provisions. 82 Moreover, exclusives and use restrictions held by other tenants at a shopping center must be considered in conjunction with a potential change in use that may occur upon assignment or subletting.
• The landlord should seek to share in excess rent. 83 For example, where a tenant assigns its lease or subleases its premises, it may be paid more than the amount the tenant is obligated to pay the landlord under the lease. If the assignment or sublease had not been entered into, those same financial accommodations would theoretically have been available to the landlord if it had leased directly to the assignee or subtenant. Accordingly, a landlord should seek the right to share in this excess financial consideration along with the tenant, or if it has the leverage, to obtain 100% of such excess.

The Tenant’s Perspective

• The tenant’s goal is maintaining flexibility. The tenant’s ability to maintain flexibility through the lease largely depends on its leverage to negotiate favorable lease terms. A new business seeking space in a desirable retail shopping center may have little or no leverage to negotiate the transfer provisions, but a large corporation leasing significant space may have considerable negotiating strength. Thus, it is imperative that the tenant’s leasing broker and attorney understand the market forces at play in any lease negotiation.
• The tenant should seek flexibility to share the leased premises or certain portions of it (i.e., floor space, utilities, and parking) with its related entities and affiliates with which it has a business relationship, without having to seek the landlord’s consent in each instance. This issue is particularly important for large companies with divisions that operate under different business names.
• The tenant should also seek flexibility to restructure its organization without the landlord and the lease acting as an impediment to such alteration, by negotiating into the lease specific language permitting such changes. The tenant’s ability to reorganize its business, either through a merger, consolidation, or sale, could be delayed or impeded by the landlord under the transfer provisions if these provisions are not properly negotiated at the letter of intent stage or before the lease is executed.
• The tenant should maintain an exit strategy if the premises no longer satisfy its business needs because it has outgrown the space or needs less space. This is particularly important in the era of COVID-19. For example, start-up companies can quickly outgrow their leased premises, but if the landlord does not have more space available, the company must seek out new or additional space, frequently at a higher rate. Conversely, a change in economic forces can cause the tenant’s business to quickly retract. Thus, prospective tenants should be mindful to negotiate termination and rights of first refusal options for newly available space in the same building, with the end goal of ensuring that the size of their leased space does not impair their business objectives. 84
• The tenant should insist that the landlord’s right to approve a lease transfer not be unreasonably withheld, if the landlord insists on reserving such right. The lease should detail the specific standards the tenant must meet to obtain approval, such as the transferee’s minimum net worth and minimum business experience.
• Counsel for the tenant should attempt to include a provision for automatically releasing the tenant and any guarantor from further liability at the time of the lease transfer or after the transfer occurs if the assignee or sublessee can meet or exceed certain financial marks, such as net worth, sales, or revenue.
• The tenant should negotiate (1) the right to revoke a transfer request during a defined period after the landlord issues a notice to terminate and recapture the premises, and (2) a reasonable period to vacate the premises before the tenant will be subject to eviction proceedings if the tenant does not revoke the transfer request. Where the landlord insists on a termination and recapture provision, this rescission right provides a tenant the flexibility to stop the recapture process according to the tenant’s particular circumstances and commercial exigencies.

The relationships established between the parties to a lease, sublease, or assignment can be complicated. While the ability to transfer the lease can be a valuable tool for the tenant, the landlord’s interest in protecting its investment by choosing its occupants is equally compelling. However, a balance can be struck that provides the tenant the flexibility it needs while preserving the landlord’s control and minimizing its risk. During lease negotiations, both parties should recognize that changing circumstances during the lease term could trigger the need to assign the lease or sublet the premises. If thoughtful attention is given to negotiating the transfer provisions, the parties can assure themselves that, if the need arises to transfer the lease, their respective interests will be reasonably protected.

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Adam F. Aldrich is the founder of Aldrich Legal, LLC, a Denver-based law firm focused on real estate and business transactions and litigation—(303) 325-5683. Coordinating Editor: Christopher D. Bryan .

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1 . Schneiker v. Gordon , 732 P.2d 603, 606 (Colo. 1987) (recognizing the “dual nature of a lease” as both a contract and a conveyance of an interest in land).

2 . Id. at 606–07.

3 . Shaffer v. George , 171 P. 881, 882 (Colo. 1917).

4 . Gordon Inv. Co. v. Jones , 227 P.2d 336, 340 (Colo. 1951).

5 . Shaffer , 171 P. at 882.

6 . Roget v. Grand Pontiac, Inc. , 5 P.3d 341, 345 (Colo.App. 1999) (“after the assignment, the assignee becomes primarily liable for the obligations under the contract, while the assignor remains secondarily liable”).

7 . Gordon Inv. Co. , 227 P.2d at 340.

8 . J.E. Martin, Inc. v. Interstate 8th St. , 585 P.2d 299, 301 (Colo.App. 1978) (“the delegation of duties under a lease and their assumption by a third person do not absolve the original lessee, absent the lessor’s knowledge and consent, simply by virtue of the conduct of the lessee and third party”). See also 1 Friedman and Randolph Jr., Friedman on Leases § 7:7.2 (Practising Law Institute 5th ed. 2013).

9 . V.O.B. Co. v. Hang It Up, Inc. , 691 P.2d 1157, 1159 (Colo.App. 1984).

10 . Friedman and Randolph Jr. , supra note 8 at § 7:4.2.

11 . Barbuti, “Assignments Pro Tanto And Why To Avoid Them,” 22 The Practical Real Estate Lawyer 24, 24–25 (Sept. 2006).

12 . Id. at 24.

13 . Id. at 23 (reprinted in part).

14 . Parrish Chiropractic Ctrs., P.C. v. Progressive Cas. Ins. Co. , 874 P.2d 1049, 1052 (Colo. 1994) (“Contract rights generally are assignable, except where assignment is prohibited by contract or by operation of law or where the contract involves a matter of personal trust or confidence”).

15 . Union Oil Co. of Cal. v. Lindauer , 280 P.2d 444, 447 (Colo. 1955). See also Malouff v. Midland Fed. Sav. and Loan Ass’n , 509 P.2d 1240, 1243 (Colo. 1973) (recognizing that “[t]he common law doctrine of restraints on alienation is a part of the law in Colorado”).

16 . Friedman and Randolph Jr., supra note 8 at § 7:3.3. See also Malouff , 509 P.2d at 1243 (holding “that the question of the invalidity of a restraint depends upon its reasonableness in view of the justifiable interests of the parties”).

17 . Beck v. Giordano , 356 P.2d 264, 265 (Colo. 1960).

18 . Lindauer , 280 P.2d at 447.

19 . Fink v. Montgomery Elevator Co. of Colo. , 421 P.2d 735, 738 (Colo. 1966).

20 . Routt Cty. Mining Co. v Stutheit , 72 P.2d 692, 693 (Colo. 1937).

21 . Parr v. Triple L & J Corp. , 107 P.3d 1104 (Colo.App. 2004).

22 . Cafeteria Operators L.P. v. AMCAP/Denver Ltd. P’ship , 972 P.2d 276, 278 (Colo.App. 1998).

23 . Id. See also Basnett v. Vista Vill. Mobile Home Park , 699 P.2d 1343, 1346 (Colo.App. 1984) (holding that a landlord may not unreasonably refuse consent under a silent consent clause because that result “incorporates the principles of fair-dealing and reasonableness and also preserves freedom of contract”), rev’d on other grounds , 731 P.2d 700 (Colo. 1987).

24 . List v. Dahnke , 638 P.2d 824, 825 (Colo.App. 1981).

25 . Cafeteria Operators L.P. , 972 P.2d at 279.

26 . List , 638 P.2d at 825.

28 . Ring v. Mpath Interactive, Inc. , 302 F.Supp.2d 301, 305 (S.D.N.Y. 2004); Toys “R” Us, Inc., No. 88 C 10349, 1995 U.S. Dist. LEXIS 14878 at *111 (N.D.Ill. Sept. 29, 1995); Restatement (Second) of Prop.—Landlord and Tenant § 15.2 cmt. g (American Law Inst. 1976).

29 . E.g., Campbell v. Westdahl , 715 P.2d 288, 293 (Ariz.Ct.App. 1985).

30 . Friedman and Randolph Jr., supra note 8 at § 7:3.4 (citing cases).

31 . Cent. Bus. Coll. v. Rutherford , 107 P. 279, 280 (Colo. 1910); List , 638 P.2d at 825 (dictum).

32 . Kendall v. Ernest Pestana, Inc. , 709 P.2d 837, 845 (Cal. 1985).

33 . Id. at 845. See also Econ. Rentals, Inc. v. Garcia , 819 P.2d 1306, 1317 (N.M. 1991).

34 . Cafeteria Operators L.P. , 972 P.2d at 277.

36 . Id. at 279.

38 . List , 638 P.2d at 825.

39 . Toys “R” Us, Inc. , U.S. Dist. LEXIS 14878 at *124 (landlord’s refusal before it has relevant information that should be obtained in making the consent decision may be unreasonable).

40 . Shaffer, The Sublease and Assignment Deskbook at 80–81 (American Bar Ass’n 2d ed. 2016).

41 . Compare Parr , 107 P.3d at 1107 (affirming trial court’s ruling that the landlord unreasonably withheld consent where the landlord delayed consent, which caused the proposed assignees to withdraw their offer to purchase the business) with Toys “R” Us, Inc. , 1995 U.S. Dist. LEXIS 14878 at *124 (landlord’s refusal before it has relevant information that should be obtained in making the consent decision may be unreasonable).

42 . Fahrenwald v. LaBonte , 653 P.2d 806, 811 (Idaho Ct.App. 1982).

43 . Parr , 107 P.3d at 1106.

45 . Id. at 1107.

46 . Bert Bidwell Inv. Corp. v. LaSalle and Schiffer , P.C., 797 P.2d 811 (Colo.App. 1990).

47 . Id. at 811.

48 . Id. at 812.

50 . Toys “R” Us, Inc. , 1995 U.S. Dist. LEXIS 14878 at *115 (citations omitted) (“where a lease contains provisions giving further meaning to a reasonableness clause, the standard of reasonableness varies”); Shaffer, supra note 40 at 80–81.

51 . Golden Eye, LTC v. Fame Co. , No. 0603166/2007, 2008 N.Y. Misc 8571 at *16 (N.Y. Gen Term Jan. 16, 2008) (“the Court may not determine reasonableness if withholding consent is based on grounds that were not included in the letter refusing consent”).

52 . Shaffer, supra note 40 at 74–75.

53 . Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc. , 826 P.2d 710 (Cal. 1992).

54 . Lindauer , 280 P.2d at 447.

55 . Murphy v. Traynor , 135 P.2d 230, 231 (Colo. 1943).

56 . Shoemaker v. Shaug , 490 P.2d 439, 441 (Wash.Ct.App. 1971) (finding that the tenant was not in default of the anti-assignment provision because it could reassign the lease back to itself).

57 . La Casa Nino, Inc. v. Plaza Esteban , 762 P.2d 669, 672 (Colo. 1988) (citing Schneiker v. Gordon , 732 P.2d 603 (Colo. 1987)).

58 . Gordon Inv. Co. , 227 P.2d at 260–61 (tenant’s subletting was held a breach that permitted landlord to terminate the lease).

59 . Shakey’s Inc. v. Caple , 855 F.Supp. 1035, 1043–44 (E.D.Ark. 1994) (holding that the landlord was estopped from terminating a lease on account of an unapproved sublease because the landlord did not act promptly).

60 . Merkowitz v. Mahoney , 121 Colo. 38, 42 (Colo. 1949) (“It is the general rule that any act done by a landlord, with knowledge of an existing right of forfeiture, which recognizes the existence of the lease is a waiver of the right to enforce the forfeiture”); Werner v. Baker , 693 P.2d 385, 387 (Colo.App. 1984) (“the lessor’s acceptance of rent accruing after the breach of an anti-assignment clause, with knowledge of the breach, constitutes a waiver of the right to terminate the lease for breach of that clause”). Cf. Nouri v. Wester & Co. , 833 P.2d 848, 851 (Colo.App. 1992) (holding that waiver of conditions against assignment by accepting rent did not carry over to other provisions in the lease).

61 . La Casa Nino, Inc. , 762 P.2d at 672.

62 . Carma Developers (Cal.), Inc. , 826 P.2d 710.

63 . Schneiker , 732 P.2d at 611.

64 . Friedman and Randolph Jr., supra note 8 at §§ 7:5.1 and 7:7.1.

65 . Tiger Crane Martial Arts Inc. v. Franchise Stores Realty Corp. , 235 A.D.2d 994, 995 (N.Y.App.Div. 1997) (“It is well settled that where, as here, a sublease is expressly made subject to the terms of a master lease, the subtenant has no legal right to compel the tenant to exercise an option for renewal of the entire demised premises in order to permit the subtenant to exercise an option for renewal of its subleased premises, absent proof of an agreement on the part of the tenant to exercise its option to renew for the benefit of the subtenant or evidence of special circumstances entitling the subtenant to such relief”).

66 . Burgess Pic-Pac, Inc. v. Fleming Cos. , 190 W. Va. 169, 175 (W.Va. 1993) (discussing liability of sublandlord to subtenant for failure to exercise renewal option after request from subtenant).

67 . Senn, Commercial Real Estate Leases: Preparation, Negotiation, and Forms , § 13.14 (Wolters Kluwer 6th ed. 2019).

68 . 11 USC § 1107.

69 . 11 USC § 365(a).

70 . 11 USC § 365(f)(2)(B).

71 . 11 USC § 365(d)(3).

72 . In re DB Capital Holdings, LLC , 454 B.R. 804, 816 (Bankr. D.Colo. 2011) (“waivers, unless they were part of a previous bankruptcy proceeding . . . should not be enforced”).

73 . NLRB v. Bildisco & Bildisco , 465 U.S. 513, 528 (1984); 11 USC § 502(b)(6).

74 . In re Shane Co. , 464 B.R. 32, 38–41 (Bankr. D.Colo. 2012) (discussing damages claim under 11 USC § 502(b)(6)).

75 . 11 USC § 365(b)(1).

76 . 11 USC § 365(f); In re Bricker Systems, Inc. , 44 B.R. 952 (Bankr. E.D. Wis. 1984) (recognizing that § 365(f) invalidates restrictions on assignment of contracts or leases by a debtor or trustee and allows assignment of assumed contracts at a later date).

77 . In re Federated Dep’t Stores, Inc. , 135 B.R. 941 (Bankr. S.D. Ohio 1991); In re Martin Paint Stores , 199 B.R. 258 (Bankr. S.D.N.Y. 1996), aff’d , S. Blvd., Inc. v. Martin Paint Stores , 207 B.R. 57 (S.D.N.Y. 1997).

78 . In re Trak Auto Corp. , 367 F.3d 237, 244 (4th Cir. 2004) (internal citation omitted).

79 . In re Bradlee Stores, Inc. , No. 00-16033, 2001 U.S. Dist. LEXIS 14755 (S.D.N.Y. Sept. 20, 2001) (holding that restriction on assignment violated the anti-assignment provisions of § 365(f)); In re Rickel Home Ctrs., Inc. , 240 B.R. 826, 832 (D.Del. 1998) (striking restrictive use provision).

80 . In re Trak Auto Group , 367 F.3d at 242 (enforcing use provision concerning the sale of automobile parts and accessories in shopping center lease); In re J. Peterman Co. , 232 B.R. 366 (Bankr. E.D.Ky. 1999) (rejecting assignment of shopping center lease where proposed assignment would violate radius restriction in lease and assignee did not sell similar merchandise as the original tenant). But see In re Toys “R” Us, Inc. , 587 B.R. 304, 307 (Bankr. E.D.Va. 2018) (overruling landlord’s objection to the debtor’s assignment on the grounds that it would violate the exclusivity provision of another lease in the shopping center and would disrupt the shopping center’s tenant mix and balance).

81 . Friedman and Randolph Jr., supra note 8 at § 7:1.1.

82 . In re Ames Dept. Stores, Inc. , 127 B.R. 744, 752–54 (Bankr. S.D.N.Y. 1991) (discussing rights of landlord to protect the tenant mix at the shopping center in the context of the lease and a subsequent bankruptcy filing of the tenant).

83 . Carma Developers (Cal.), Inc. , 826 P.2d 710 (upholding the landlord’s contractual right to capture excess rent).

84 . For an interesting discussion on the assignability of rights of first refusal, see Mitchell, “Can a Right of First Refusal Be Assigned?” 985 U. Chi. L. Rev. (2001).

As these cases illustrate, if a landlord wishes to withhold consent absent a sole and unconditional contractual right to do so, it must have fact-based reasons for doing so and cannot arbitrarily withhold or delay consent.

Subleasing and Assignment Provisions in Commercial Leases

• June 17, 2020

Before the COVID-19 pandemic, many business owners paid little attention to subleasing and assignment provisions when negotiating commercial leases . It was common to focus on rent, maintenance, taxes, and insurance, which affect a tenant’s bottom line, and options to renew the lease if the business thrives. Recently, however, one of the top concerns of commercial tenants is flexibility in case they no longer need to use a portion, or all, of the leased space. In this context, subleasing and assignment provisions are key deal terms.

The Difference Between Subleasing and Assignment

A sublease does not alter the relationship between the landlord and the tenant, who remains liable for all of the tenant’s obligations under the lease. However, the tenant enters into a subordinate lease (the sublease) with a subtenant regarding a portion, or all, of the leased space. After a sublease is signed, the landlord interacts with the tenant, and the tenant interacts with the subtenant.

An assignment alters the relationship between the landlord and the tenant by assigning the tenant’s rights and obligations from the first tenant (the assignor) to the second tenant (the assignee). The assignee steps into the shoes of the assignor, and has a direct contractual relationship with the landlord. After an assignment of the lease, the landlord interacts directly with the assignee.

Important Deal Points Regarding Subleasing and Assignment

Leases may include many provisions regarding subleasing and assignment. Some of the most common issues include the following:

• In what circumstances is landlord consent required? Leases typically require the landlord’s consent for any sublease or assignment. However, some leases have different provisions for special circumstances, such as subleasing or assignment to a related entity, or assignment of the lease in connection with the sale of the tenant’s business.
• What is the standard for landlord consent? Provisions that require the landlord’s consent may be followed by a standard such as “in the landlord’s sole discretion,” or “which may not be unreasonably withheld.” Obviously, the second standard is more favorable to the tenant. However, as a practical matter, if a dispute arises regarding whether a landlord’s denial was reasonable or unreasonable, arbitration or litigation would be expensive, the outcome would be uncertain, and the prospective subtenant or assignee may be unwilling to wait to see how the dispute is resolved.
• What information must be provided regarding the proposed subtenant or assignee? Many leases require confidential financial information regarding the proposed subtenant or assignee. The proposed subtenant or assignee may be more comfortable providing information if the lease contains confidentiality and non-disclosure requirements to restrict the landlord’s use of the information. An argument can be made that less information should be required regarding a proposed subtenant than a proposed assignee, because the landlord will not enter into a direct contractual relationship with the subtenant and the tenant will remain liable under the lease.
• What are the landlord’s alternatives? A tenant might assume that if the tenant requests consent to a sublease or assignment, the landlord’s alternatives will be limited to granting or withholding consent. However, many leases give the landlord a third alternative, to cancel the lease if the tenant requests a sublease or an assignment. This is known as a right of recapture.
• When is the landlord’s response due? Some leases do not set a deadline for the landlord’s response to a request for consent to a sublease or assignment. A delayed response would prevent the tenant from moving forward until the response is received. A delayed response also may result in a lost opportunity, if the proposed subtenant or assignee is under time constraints.
• What is the effect if the landlord fails to provide a timely response? A lease may provide that if the landlord fails to respond to a request for consent within a specified period of time, then consent is deemed granted, or a lease may provide that in such circumstances, consent is deemed denied. The first alternative is more favorable for a tenant, but the prospective subtenant or assignee might not be willing to rely on a “deemed consent” provision and may require actual consent before moving forward.
• What are the landlord’s remedies if a sublease or assignment is made without requesting consent? Generally, if a tenant subleases or assigns a lease without obtaining required consent from the landlord, then the tenant is in default and the landlord can exercise all remedies under the lease. The lease also may provide that a sublease or assignment without the landlord’s consent is invalid and unenforceable.
• Will the assignor be released from liability for the tenant’s obligations after an assignment? It may seem like common sense that if a lease is assigned with the landlord’s consent, then the original tenant (assignor) will no longer be responsible for the tenant’s obligations under the lease. However, a lease may provide that the assignor will remain liable under the lease after an assignment. Similarly, the landlord’s written consent may state that both the assignor and the assignee will be responsible for the tenant’s obligations after the lease is assigned. In order to be released, the assignor should obtain a written agreement from the landlord stating that after an assignment, the assignor will no longer be responsible for the tenant’s obligations under the lease.
• Will a guarantor be released from liability for the tenant’s obligations after an assignment? Many landlords require a personal guaranty from an individual, or a corporate guaranty from a related entity, to ensure payment of the tenant’s obligations under a commercial lease. Guarantees typically provide that they will remain in effect even if the lease is assigned. However, the tenant may be able to negotiate for the termination of the guarantee in the event that the lease is assigned.  In some cases, the landlord may require a substitute guarantor.
• What is the effect of subleasing on the obligations of the tenant and the guarantor? A sublease does not affect the tenant’s obligations to the landlord under the lease, or the guarantor’s obligations to the landlord under the guaranty.

If a business owner is considering entering into a new lease, it is important to carefully review the subleasing and assignment provisions and negotiate any necessary changes before signing the lease. If a tenant desires to sublease or assign an existing lease, it is important to review the applicable requirements and restrictions before taking any action. An experienced real estate attorney can assist the tenant by spotting issues, explaining alternatives, and negotiating with the landlord to help the tenant accomplish its business objectives.

ABOUT THE AUTHOR(S)

Michael D. Klemm

Phone: 952-746-2198, email: [email protected], due diligence in commercial real estate transactions, three alternatives for a buyer to keep a seller’s low mortgage interest rate, webinar replay: hoa fall legal updates 2022, escalation clause tips and traps for buying a home (or an island), webinar replay: hoa fall webinar, on-demand webinar – covid-19 and hoas: how to operate during the pandemic, covid-19 and commercial real estate leases in minnesota, january 1 deadline for preventative maintenance plans, schedules and budgets, crossing the line obtaining building permits for decks in cic’s.

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When your tenant wants to assign your commercial lease – what landlords need to know before withholding consent.

January 07, 2020

Many commercial real estate landlords would be surprised to learn that, under Florida common law, a tenant has the right to assign a lease without the landlord’s consent.  That right derives from the principle that the law generally favors free alienation of property.  

This common law right can, however, lawfully be restricted or eliminated by contract, and indeed, most landlords today include an express provision in their lease agreements prohibiting any assignment or subletting without the landlord’s prior written consent.  

Most such assignment provisions include language stating that the landlord’s consent will “not be unreasonably withheld.”  But what does that mean, exactly? 

According to at least one appellate court in Florida, it means a landlord cannot deny consent because it wishes to enter into an entirely new lease with the proposed subtenant or assignee to charge a higher rent than originally contracted.   See Fernandez v. Vazquez , 397 So.2d 1171, 1174 (Fla. 3d DCA 1981).  That’s because in every contract there is an implied covenant of good faith and fair dealing.  Lease agreements are, of course, contracts, which means this principle applies to them, too.  Thus, along with a denial based on the landlord’s desire to charge a higher rent than contracted for in the original lease, denying consent to an assignment because of personal taste, convenience or sensibility are considered arbitrary reasons that fail the tests of good faith and reasonableness under commercial leases.   See id.

Most importantly, however, a withholding of consent to assign a lease that fails the tests for good faith and commercial reasonableness constitutes a breach of the lease agreement that could put a landlord in the position of being sued by the tenant.   See id.   Courts have held a landlord’s refusal to consent to an assignment of the lease to a tenant who is acceptable by reasonable commercial standards to be an unreasonable exercise and thus violative of the lease.   Id.  

Some factors the jury will consider in applying the standards of good faith and commercial reasonableness—and thus, some factors a landlord should weigh in making its decision—include: 

(a) the financial responsibility of the proposed subtenant or assignee;

(b) the “identity” or “business character” of the subtenant or assignee (such as the proposed subtenant or assignee’s suitability for a particular building); 

(c) the need for alteration of the premises;

(d) the legality of the subtenant or assignee proposed use of the premises; and

(e) the nature of the occupancy (that is, whether it’s an office, factory, clinic, etc.). 

Id.  

Landlords most often encounter assignment requests when a commercial tenant wants to sell its business.  If this issue arises in your commercial real estate business and you’re considering withholding consent, be sure to check the particular assignment provision in your lease first and then consult with a lawyer.  

The AV-rated attorneys at Chane Socarras regularly handle real estate and commercial landlord/tenant disputes and litigation. For more information on this or other topics related to commercial landlord-tenant law,  click here to contact the business litigation firm of Chane Socarras, PLLC or call us at (561) 309-3190.

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Lease Assignment Agreement

Rating: 4.9 - 137 votes

A Lease Assignment Agreement is a short document that allows for the transfer of interest in a residential or commercial lease from one tenant to another. In other words, a Lease Assignment Agreement is used when the original tenant wants to get out of a lease and has someone lined up to take their place.

Within a Lease Assignment Agreement, there is not that much information included, except the basics: names and identifying information of the parties, assignment start date, name of landlord, etc. The reason these documents are not more robust is because the original lease is incorporated by reference , all the time. What this means is that all of the terms in the original lease are deemed to be included in the Lease Assignment Agreement.

A Lease Assignment Agreement is different than a Sublease Agreement because the entirety of the lease interest is being transferred in an assignment. With a sublease, the original tenant is still liable for everything, and the sublease may be made for less than the entire property interest. A Lease Assignment transfers the whole interest and puts the new tenant in place of the old one.

The one major thing to be aware of with a Lease Assignment Agreement is that in most situations, the lease will require a landlord's explicit consent for an assignment. The parties should, therefore, be sure the landlord agrees to an assignment before filling out this document.

How to use this document

This Lease Assignment Agreement will help set forth all the required facts and obligations for a valid lease assignment . This essentially means one party (called the Assignor ) will be transferring their rights and obligations as a tenant (including paying rent and living in the space) to another party (called the Assignee ).

In this document, basic information is listed , such as old and new tenant names, the landlord's name, the address of the property, the dates of the lease, and the date of the assignment.

Information about whether or not the Assignor will still be liable in case the Assignee doesn't fulfill the required obligations is also included.

Applicable law

Lease Agreements in the United States are generally subject to the laws of the individual state and therefore, so are Lease Assignment Agreements.

The Environmental Protection Agency governs the disclosure of lead-based paint warnings in all rentals in the States. If a lead-based paint disclosure has not been included in the lease, it must be included in the assignment. Distinct from that, however, required disclosures and lease terms will be based on the laws of the state, and sometimes county, where the property is located.

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A guide to help you: Tenants and Subtenants Obligations under a Sublease Agreement

Lease Assignment Agreement - FREE - Sample, template

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Assignment And Assumption Of Lease Lawyers for Florida

Meet some of our florida assignment and assumption of lease lawyers.

Rishma D. Eckert, Esq. is a business law attorney who primarily represents domestic and international companies and entrepreneurs. A native of both Belize and Guyana, she remains engaged with the Caribbean community in South Florida: as a Board Member and General Counsel for the Belize American Chamber of Commerce of Florida, and Member of the Guyanese American Chamber of Commerce. She holds a Bachelor of Laws degree (LL.B.) from the University of Guyana in South America, a Master’s degree in International and Comparative Law (LL.M.) from Stetson University College of Law in Gulfport, Florida, and earned a Juris Doctor degree (J.D.) from St. Thomas University School of Law in Miami, Florida. Licensed to practice in the State of Florida and the Federal Court in the Southern District of Florida, Mrs. Eckert focuses her passion and practice on domestic and international corporate structuring and incorporation, corporate governance, contract negotiation and drafting, and trademark and copyright registrations.

Founder and Managing partner of Emerald Law, PLLC, a business law firm specializing in contract drafting and corporate transactions. Kiel worked as in house counsel for a variety of companies before launching his own firm, and most recently served as the Chief Legal Officer for an international private equity firm.

Ayelet G. Faerman knows what influencers mean to brands today. With experience as legal counsel for a beauty brand for over 5 years, and overseeing multiple collaborations, Ayelet has experienced the rise of influencer marketing. As the founder and managing partner of Faerman Law, PA her practice focuses on influencer relations including a specialization in contract negotiations.

Melissa D. Goolsarran Ramnauth, Esq. is an experienced trial-winning trademark and business attorney. She has represented large businesses in commercial litigation cases. She now represents consumers and small businesses regarding federal trademarks, contracts, and more. Her extensive litigation knowledge allows her to prepare strong trademark applications and contracts to minimize the risk of future lawsuits.

A business-oriented, proactive, and problem-solving corporate lawyer with in-house counsel experience, ensuring the legality of commercial transactions and contracts. Michael is adept in reviewing, drafting, negotiating, and generally overseeing policies, procedures, handbooks, corporate documents, and more importantly, contracts. He has a proven track record of helping lead domestic and international companies by ensuring they are functioning in complete compliance with local and international rules and regulations.

Mark A. Addington focuses his practice primarily on employment litigation, including contractual disputes, restrictive covenants (such as non-competition, non-solicitation, or confidential information restrictions), defense of wage and hour, harassment, retaliatory discharge, disability, age, religion, race, and sex discrimination.

Elizabeth R.

Elizabeth is an experienced attorney with a demonstrated history of handling transactional legal matters for a wide range of small businesses and entrepreneurs, with a distinct understanding of dental and medical practices. Elizabeth also earned a BBA in Accounting, giving her unique perspective about the financial considerations her clients encounter regularly while navigating the legal and business environments. Elizabeth is highly responsive, personable and has great attention to detail. She is also fluent in Spanish.

Jonathan D.

Miami-based duly licensed attorney and customs broker with significant experience in various types of supply chain business agreements, as well as experience in entertainment law.

Samantha B.

Samantha has focused her career on developing and implementing customized compliance programs for SEC, CFTC, and FINRA regulated organizations. She has worked with over 100 investment advisers, alternative asset managers (private equity funds, hedge funds, real estate funds, venture capital funds, etc.), and broker-dealers, with assets under management ranging from several hundred million to several billion dollars. Samantha has held roles such as Chief Compliance Officer and Interim Chief Compliance Officer for SEC-registered investment advisory firms, “Of Counsel” for law firms, and has worked for various securities compliance consulting firms. Samantha founded Coast to Coast Compliance to make a meaningful impact on clients’ businesses overall, by enhancing or otherwise creating an exceptional and customized compliance program and cultivating a strong culture of compliance. Coast to Coast Compliance provides proactive, comprehensive, and independent compliance solutions, focusing primarily on project-based deliverables and various ongoing compliance pain points for investment advisers, broker-dealers, and other financial services firms.

Anna is an experienced attorney, with over twenty years of experience. With no geographical boundaries confining her practice, Anna works on corporate, healthcare and real estate transactions. Anna brings extensive big firm experience, garnered as an associate in the Miami office of the world's largest law firm, Baker and McKenzie, and the Miami office of the international law firm Kilpatrick Townsend. Her areas of expertise include: mergers and acquisitions, initial public offerings, private placements, healthcare transactions, corporate finance, commercial real estate transaction and acting as a general corporate counsel. Anna is certified to practice law in Florida and was admitted to the Florida Bar in 1998. Anna is also a Certified Public Accountant. She passed May 1995 CPA Exam on the first sitting. She is fluent in Russian (native).

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