Commercial Lease Assignment & Licence Solicitors

Commercial Lease Assignment & Licence Solicitors

Businesses and property owners often need to change existing commercial lease arrangements during the lease term.

A tenant may want to sell its business and transfer the lease, relocate and assign its premises, sublet surplus space or alter the property. A landlord may need to assess the proposed incoming tenant, protect the investment and ensure that any transaction complies with the existing lease.

The starting point is the lease itself.

At Knights & Shah Solicitors, we advise commercial landlords, tenants, investors and businesses on:

Commercial lease assignments

Licences to assign

Landlord consent

Authorised Guarantee Agreements

Rent deposits

Guarantors

Underletting

Licences to underlet

Licences to alter

Change of use

Sharing occupation

Lease restrictions

Deeds of variation

Completion requirements

Land Registry requirements

Assignment and licence disputes

We advise from the initial application for consent through to completion and any necessary post-completion formalities.

What Is an Assignment of a Commercial Lease?

An assignment transfers the tenant's remaining interest in a lease to a new tenant.

The existing tenant is the assignor and the incoming tenant is the assignee.

HMRC describes assignment as the transfer of the remaining term of a lease from the existing leaseholder to a new leaseholder.

An assignment is different from:

Granting a new lease

Underletting

Surrendering the lease

Simply allowing another business to occupy

The original lease continues, but the tenant holding the lease changes.

Why Would a Tenant Assign a Commercial Lease?

A tenant may want to assign because:

The business is relocating

Premises have become too large or too small

The business is being sold

The tenant is restructuring

The premises are no longer required

The tenant wants to reduce property liabilities

There is significant time remaining on the lease

Assignment can therefore provide an alternative to remaining liable until expiry or negotiating a surrender with the landlord.

However, the tenant cannot assume that it has an unrestricted right to transfer the lease.

Does the Landlord's Consent to Assignment Need to Be Obtained?

Frequently, yes.

Commercial leases commonly contain alienation provisions controlling assignment, underletting and other dealings with the lease.

The lease may:

Prohibit assignment

Permit assignment of the whole only

Require landlord consent

Impose conditions on consent

Restrict assignment in particular circumstances

GOV.UK confirms that whether a business tenant can assign its lease depends upon the lease and that landlord permission may be required.

The lease should therefore be reviewed before the tenant agrees a transfer with an incoming occupier.

Applying for Landlord Consent

Where consent is required, the tenant will normally make a formal application to the landlord.

The landlord may request information concerning the proposed assignee, potentially including:

• Company details
• Accounts
• Financial information
• Trading history
• References
• Business plans
• Proposed use
• Guarantor information

Rent deposit proposals

The precise requirements depend upon the lease and circumstances.

A properly prepared application can help avoid unnecessary delay.

Landlord and Tenant Act 1988

Where the Landlord and Tenant Act 1988 applies to a written application for consent to assignment, underletting, charging or parting with possession, it can impose important obligations on the landlord.

Broadly, where the statutory duty applies, the landlord must within a reasonable time:

Give consent except where it is reasonable not to do so;

Give the tenant written notice of its decision;

State any conditions where consent is granted subject to conditions; and

Give reasons where consent is withheld.

Conditions themselves must be reasonable where the statutory duty applies.

Whether the Act applies and what constitutes a reasonable response depends upon the particular transaction.

Can a Landlord Refuse Consent to an Assignment?

Potentially.

The landlord's position depends upon:

Wording of the lease

Nature of the covenant

Proposed assignee

Financial position of the incoming tenant

Proposed use

Existing breaches

Statutory framework

Particular circumstances of the application

Where the Landlord and Tenant Act 1988 applies, refusal must comply with the applicable statutory requirements.

A landlord should therefore avoid automatically approving or refusing an application without first considering the lease and legal position.

Can a Landlord Impose Conditions?

Potentially.

A lease may expressly identify circumstances or conditions relevant to an assignment.

Depending upon the transaction, conditions may concern:

Authorised Guarantee Agreement

Guarantor

Rent deposit

Existing arrears

Existing breaches

Documentation

Costs

Other lease requirements

Where the Landlord and Tenant Act 1988 applies, any condition imposed as part of the statutory consent process must satisfy the applicable reasonableness requirements.

Licence to Assign

Where landlord consent is required, it is commonly documented in a licence to assign.

The licence can regulate matters including:

• Landlord's consent
• Identity of assignor
• Identity of assignee
• Proposed assignment
• Conditions of consent
• Authorised Guarantee Agreement

New guarantor

Rent deposit

Existing breaches

Completion timetable

Notice requirements

Registration obligations

The assignment itself and the licence to assign are separate but connected documents.

The licence authorises the transaction; the assignment transfers the tenant's leasehold interest.

Advice for Outgoing Tenants

A tenant seeking to assign should understand whether any liability may remain after completion.

Important questions include:

Does the lease permit assignment?

What consent is required?

What information must be supplied?

Can the landlord require an AGA?

Will an existing guarantor remain involved?

What happens to the rent deposit?

Are there outstanding rent, service charge or repair issues?

What post-completion notices are required?

An assignment should not be treated simply as finding another business willing to take the premises.

Advice for Incoming Tenants

An incoming tenant is taking over an existing lease rather than negotiating an entirely new lease from scratch.

Due diligence can therefore be particularly important.

The incoming tenant should understand:

Remaining lease term

Current rent

Future rent reviews

Service charges

Repairing obligations

Insurance

Permitted use

Alteration provisions

Assignment and underletting restrictions

Break rights

Security of tenure

Existing licences and variations

Property condition

Existing breaches or disputes

The assignee will generally take the lease subject to its existing terms.

A solicitor should therefore review the lease and related documents before the incoming tenant becomes committed.

Advice for Commercial Landlords

For landlords, an assignment changes the identity and potentially the covenant strength of the occupational tenant.

Relevant considerations may include:

• Financial standing of the assignee
• Proposed business
• Intended use
• Tenant mix
• Rent-payment history
• Existing breaches

Rent deposit

Guarantee

AGA

Investment value

Lender requirements

The objective is to protect the landlord's legitimate position while complying with the lease and applicable statutory duties.

Authorised Guarantee Agreements

An Authorised Guarantee Agreement (AGA) can require an outgoing tenant to guarantee the incoming tenant's performance of relevant lease obligations following an assignment.

The Landlord and Tenant (Covenants) Act 1995 regulates the circumstances in which an AGA may be required and the obligations it may contain.

An AGA is therefore not something a landlord should automatically demand in every assignment.

The lease, statutory framework and circumstances need to be considered.

For an outgoing tenant, entering into an AGA can mean retaining significant financial exposure after transferring the lease.

Guarantors and Assignments

An assignment may also raise questions about guarantees.

Depending upon the lease and transaction:

An incoming tenant may provide a guarantor

A corporate parent may provide security

A rent deposit may be required

Existing guarantee arrangements may need to be reviewed

An AGA may be requested from the outgoing tenant

Guarantee structures should be considered carefully under the Landlord and Tenant (Covenants) Act 1995.

We advise landlords, outgoing tenants and incoming tenants on the appropriate documentation.

Rent Deposits on Assignment

Where a rent deposit exists, the parties need to establish what happens when the lease is assigned.

Depending upon the documentation:

Existing deposit may be returned

Incoming tenant may provide a new deposit

New rent deposit deed may be required

Landlord may have rights against the existing deposit before release

The rent deposit deed should be reviewed alongside the lease and assignment documentation.

Existing Breaches Before Assignment

A proposed assignment may reveal existing lease breaches.

These could include:

• Rent arrears
• Service charge arrears
• Unauthorised alterations
• Repair issues
• Unauthorised use
• Other covenant breaches

The landlord may require matters to be addressed before consenting, subject to the lease and applicable law.

Outgoing tenants should identify potential issues early rather than discovering them shortly before completion.

Underletting Commercial Premises

Underletting is different from assignment.

With an assignment, the existing tenant transfers its lease to another tenant.

With an underletting, the existing tenant keeps its own lease but grants a sublease to another occupier.

GOV.UK confirms that the original tenant remains responsible for paying rent to its landlord even where a subtenant fails to pay the original tenant.

Whether underletting is permitted depends upon the headlease.

Licence to Underlet

Where the headlease requires landlord consent, the parties may enter into a licence to underlet.

The landlord may need to consider:

Proposed undertenant

Proposed rent

Length of underlease

Permitted use

Security of tenure

Terms of the proposed underlease

Consistency with the headlease

Property-management implications

The underlease should be structured so that it does not place the tenant in breach of its own obligations to the head landlord.

Assignment or Underletting?

The correct option depends upon the tenant's objective.

Assignment may be appropriate where the tenant wants to transfer its entire remaining leasehold interest.

Underletting may be appropriate where the tenant wants to retain its lease while allowing another occupier to use all or part of the premises.

The legal and financial consequences are different.

A tenant should therefore consider the available exit and occupation options before deciding which route to pursue.

Licence to Alter

Commercial tenants frequently need to alter premises to suit their business.

Depending upon the lease, alterations may be:

Permitted

Permitted with consent

Restricted

Prohibited

Where landlord consent is required, a licence to alter may document the approved works.

The licence can deal with:

Plans and specifications

Scope of works

Contractors

Building regulations

Planning requirements

Insurance

Professional supervision

Reinstatement

Costs

Completion of works

The tenant should obtain required consent before carrying out alterations.

Reinstatement of Alterations

A landlord granting consent to alterations may require the tenant to reinstate the premises at the end of the lease.

This can involve:

Removing installations

Removing partitions

Reversing structural changes

Making good damage

Reinstating previous layouts

Redecoration

For tenants, reinstatement can create a significant future cost.

For landlords, clear documentation helps establish what must happen when the lease ends.

The position should therefore be addressed when the licence to alter is negotiated.

Change of Use

A tenant may wish to change the way premises are used.

The lease may require landlord consent to a change of use.

The proposed use should also be considered separately from:

Planning requirements

Regulatory requirements

Licensing requirements

Estate restrictions

Landlord consent under the lease does not itself amount to planning permission or other regulatory approval.

Where appropriate, a licence or deed of variation may document the contractual change.

Sharing Occupation

A tenant may wish to share premises with:

Group companies

Associated businesses

Concession operators

Service providers

Other commercial occupiers

The lease may restrict sharing occupation or parting with possession.

Even where no formal underlease is proposed, the existing lease should therefore be reviewed before another business is permitted to occupy the premises.

Deeds of Variation

Sometimes the proposed transaction cannot be accommodated simply through a licence.

The landlord and tenant may instead need to vary the lease.

A deed of variation can potentially alter matters such as:

• Permitted use
• Alienation provisions

Property extent

Rights

Repair obligations

Other lease terms

Any impact upon lenders, guarantors, superior landlords and registration requirements should also be considered.

Selling a Business With Leasehold Premises

A business sale often involves commercial premises occupied under an existing lease.

The lease assignment can become a critical part of the wider transaction.

The parties may need to coordinate:

Business sale agreement

Landlord consent

Licence to assign

Assignment

AGA

Rent deposit

Guarantees

Completion date

Transfer of occupation

Delay in obtaining landlord consent can potentially delay completion of the business sale.

Property issues should therefore be identified early.

Assignment and Commercial Property Finance

Where the property or lease is subject to finance, lender involvement may also be relevant.

Depending upon the transaction, consent may be required from:

Landlord's lender

Tenant's lender

Superior landlord

Other interested parties

The registered titles and relevant documentation should be reviewed to establish any consent requirements before completion.

Land Registry Requirements

Assignment can also trigger HM Land Registry requirements.

HM Land Registry confirms that most transfers of registered leases are compulsorily registrable, irrespective of the remaining lease term. It also confirms that assignments of certain unregistered leases with more than seven years remaining can trigger compulsory first registration.

The exact requirements depend upon the leasehold title and transaction.

Post-completion requirements should therefore be established before the assignment completes.

Notice of Assignment

The lease may require formal notice of the completed assignment to be given to the landlord or managing agent.

The lease may specify:

Form of notice

Recipient

Time period

Supporting documents

Registration fee

These requirements should be checked and completed following assignment.

SDLT and Tax Considerations

An assignment, underlease or other lease transaction can have tax consequences depending upon its structure and consideration.

HMRC distinguishes between granting, assigning and surrendering leases for tax purposes.

Where relevant, the transaction should be considered for:

SDLT

VAT

Capital gains or other tax consequences

Transaction-specific tax treatment

We identify transactional property-tax issues arising from the legal documentation and can coordinate with specialist tax advisers or accountants where detailed tax advice is required.

What Happens If the Landlord Delays Consent?

Where the Landlord and Tenant Act 1988 applies, the landlord owes statutory duties following a written application for consent.

The Act requires the relevant decision to be communicated within a reasonable time and requires reasons to be given where consent is withheld.

What amounts to a reasonable time depends upon the circumstances.

A tenant experiencing delay should therefore obtain advice rather than simply proceeding with the transaction without consent.

What If Consent Is Unreasonably Refused?

Where a tenant believes consent has been withheld unreasonably, the legal position depends upon:

Lease wording

Nature of the covenant

Application made

Information supplied

Landlord's reasons

Applicable statutory provisions

The Landlord and Tenant Act 1988 can provide remedies where its statutory duties are breached.

A disputed consent application can become contentious and may require advice from our Commercial & Property Litigation team.

Assigning Without Landlord Consent

Where a lease requires landlord consent, completing an assignment without obtaining that consent can place the tenant in breach of lease.

It can also create complications for:

Incoming tenant

Registration

Future dealings

Property management

Enforcement

The correct consent procedure should therefore be completed before the assignment takes place.

The Commercial Lease Assignment Process

Step 1 — Review the Lease

We establish whether assignment is permitted and what conditions apply.

Step 2 — Identify the Incoming Tenant

The proposed assignee and transaction structure are confirmed.

Step 3 — Apply for Landlord Consent

The tenant provides the information reasonably required for the application.

Step 4 — Landlord Review

The landlord considers the proposed assignee, lease requirements and supporting information.

Step 5 — Negotiate the Licence to Assign

The licence and any AGA, guarantee or rent deposit documentation are negotiated.

Step 6 — Due Diligence by the Assignee

The incoming tenant reviews the lease, title and relevant property documentation.

Step 7 — Assignment Documentation

The transfer or assignment documentation is prepared and agreed.

Step 8 — Completion

The licence and assignment complete in the appropriate sequence.

Step 9 — Notices

Required notices of assignment are served.

Step 10 — Registration

Any required HM Land Registry application and other post-completion formalities are completed.

Common Assignment and Licence Problems

Problems can arise where:

Lease prohibits the proposed transaction

Landlord consent has not been obtained

Application contains insufficient information

Landlord delays responding

Consent is refused

Parties dispute whether conditions are reasonable

AGA requirements are disputed

Proposed assignee has weak covenant strength

Existing breaches remain unresolved

Alterations were previously carried out without consent

Rent deposit documentation is unclear

Land Registry restrictions prevent registration

Lender or superior landlord consent is outstanding

Identifying these matters early can prevent delay close to completion.

A Commercial Approach to Assignments and Licences

For an outgoing tenant, the objective may be to exit premises with the minimum continuing liability.

For an incoming tenant, the priority may be understanding exactly what lease obligations are being acquired.

For a landlord, the focus may be protecting the quality and value of the investment.

We therefore consider questions such as:

Does the lease permit the transaction?

What consent is actually required?

Can an AGA lawfully be required?

Is the proposed assignee financially suitable?

Are there existing breaches?

What happens to the rent deposit?

Are lender or superior-landlord consents required?

What must happen after completion?

The objective is to move the transaction forward while protecting the client's legal and commercial position.

How Knights & Shah Solicitors Can Help

We can advise on:

• Commercial lease assignments
• Licence to assign
• Applications for landlord consent
• Advice to landlords considering consent
• Advice to outgoing tenants
• Advice to incoming tenants
• Authorised Guarantee Agreements
• Guarantors
• Rent deposits
• Underletting
• Licences to underlet
• Licences to alter
• Change of use
• Sharing occupation
• Deeds of variation
• Business sales involving leasehold premises
• Land Registry requirements
• Post-completion notices
• Delayed consent
• Disputed consent applications

Where consent becomes contentious, we can coordinate support through our Commercial & Property Litigation practice.

Why Choose Knights & Shah Solicitors?

Landlord and Tenant Experience

We advise landlords, outgoing tenants and incoming tenants, allowing us to understand the practical issues arising on each side of the transaction.

Commercially Focused Advice

We focus on achieving the client's commercial objective while ensuring that the transaction complies with the lease.

Full Transaction Support

We can advise from the initial review of the lease through to landlord consent, documentation, completion and registration.

Joined-Up Commercial Property Advice

Assignment and licence work can be coordinated with commercial lease advice, investment transactions, finance, business sales and property management.

Contentious Support Where Required

If consent or another aspect of the transaction becomes disputed, the matter can be supported through our Commercial & Property Litigation practice.

Based in Woking, Serving England

Knights & Shah Solicitors is based in Woking, Surrey and advises commercial landlords, tenants, investors and businesses across England.

Speak to Our Commercial Lease Assignment & Licence Solicitors

Whether you are a tenant seeking to transfer your lease, an incoming tenant taking over commercial premises, a landlord considering an application for consent, or a business requiring permission for underletting or alterations, early legal advice can help keep the transaction moving and protect your position.

Knights & Shah Solicitors advises throughout the commercial lease assignment and licence process — from reviewing the existing lease and obtaining consent through to documentation, completion and registration.

Contact our Commercial Property team to discuss your lease assignment or licence.