Licence to Assign: What Commercial Tenants Need to Know
Taking on a commercial lease can be a significant commitment for any business. However, a tenant’s circumstances may change during the term of the lease, meaning it no longer requires the premises or wishes to transfer the lease to another business. This process of transfer is called an Assignment.
A tenant usually cannot assign its lease without first obtaining the landlord’s consent. Where consent is required, it is legally documented by way of a Licence to Assign.
Understanding the purpose of a Licence to Assign and the information a landlord may require can help tenants avoid unnecessary delays when seeking to transfer their lease.
Why is the Landlord’s Consent Required?
When a commercial lease is granted, a landlord will often have considered the tenant’s financial position, business background and proposed use of the premises before entering into the lease.
If the tenant later wishes to assign the lease, the landlord will usually want to carry out similar checks on the proposed assignee before deciding whether to grant consent. As part of this process, the landlord may request financial information, references and details about the assignee’s business.
Whether consent can be refused will depend on the terms of the lease and the circumstances of the proposed assignment. For example, a landlord may wish to consider the financial standing of the proposed assignee, the nature of its business and whether its intended use of the premises is permitted under the lease.
It is therefore important for tenants to review the terms of their lease at an early stage and understand what information may be required before an assignment can proceed.
Are there any other requirements?
Obtaining a Licence to Assign is often only one part of the process. Depending on the lease, a landlord may require additional security before consenting to the assignment.
This could include an Authorised Guarantee Agreement (AGA), under which the outgoing tenant agrees to guarantee the incoming tenant’s obligations in certain circumstances. A landlord may also request a rent deposit from the incoming tenant.
The precise requirements will vary from transaction to transaction and will largely depend on the terms of the lease and the landlord’s requirements.
Conclusion
A Licence to Assign is a common feature of commercial lease transactions and should not be viewed as a mere administrative step. Obtaining the landlord’s consent can take 4 to 6 weeks, particularly where additional information or security is required.
For tenants considering an assignment, seeking legal advice at an early stage can help identify potential issues and reduce the risk of delays further down the line.
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Our Commercial Property team regularly advises landlords and tenants on lease assignments and can assist throughout the process.
Alec Bequilla is part of the Lewis Nedas law Commercial Property team headed by Richard McConnell .
Contact us on our enquiries page or by telephone on 020 7387 2032.