Assigning a Lease
Under certain unforeseen circumstances, the tenant may have to exit the lease before expiry and leave the current premises. Perhaps the current premises are not suitable for the growing business or the leaseholder needs to find a new lease with favorable terms due to financial difficulty. A common solution to this problem is the assignment of lease.
Assigning a Lease
Simply put, assigning a lease means transferring or selling the leasehold interest. Assignment of lease involves passing the lease to another person or business. Once the assignment of the lease has taken place, the new tenant becomes liable for all the obligations in the existing lease.
Finding the Assignee
Exiting the lease can get quite complicated and the landlord can take you to the court for breaking the lease. Importantly, the leaseholder has to find a new tenant (assignee) willing to take over the lease. The assignee will review the lease agreement to confirm there are no unacceptable terms.
Since the assignee will be taking over the existing lease, they have little or no opportunity to propose alternate terms. It would be difficult to assign the lease if it contains unacceptable terms. It is a time-consuming process as the prospective tenants will investigate and may raise queries with the local authorities to find out about any issues.
Transferring the Lease
Once the assignee is found, the next step is to transfer or assign the lease. Generally, it is transferred using a Land Registry form called TR1. A lease can be assigned using a deed of agreement for a lease term of fewer than 7 years. These two documents have the same effect and are executed by the current tenant and assignee.
Mostly, landlords do not allow the tenant to assign a lease to whoever they like. Therefore, it is written in the lease agreement on to whom the tenant can assign a lease and on what basis. Moreover, The landlord should be contacted and informed about the assignment of the lease.
What liabilities will you have after the assignment of the lease?
Your responsibilities do not automatically end after the assignment of the lease to a new tenant. Once the lease assignment has taken place, you will still be liable if the new leaseholder misses payments and break the terms of the lease agreement.
If the lease began before January 1996 you will be liable for all payments by subsequent tenants when the lease is assigned several times more after you.
If the lease began after January 1996 you will sign an Authorised Guarantee Agreement which means you will only be liable for the payments of the next tenant and not any subsequent tenants.
Lease Assignment Cost
Exactly what you will be required to pay depends on the specific circumstances of the lease. If the rent is above the market rate for a new lease, you may have to pay a premium to the prospective assignee to compensate for the costs.
In contrast, the new tenant may have to pay you a premium if the rent is below the market rate. Also, you will have to decide whether to charge VAT or opt to tax. Plus, consider the solicitor’s fees when calculating the cost of lease assignment.
Registering the Lease Assignment
The assignee must register the assignment at the Land Registry, otherwise, the assignment would not be considered complete. Upon successfully processing the application, the Land Registry will update the title register for the lease to be in your name.
The assignee would not become a new tenant legally until it is registered at the Land Registry. The lease becomes void if the assignee fails to register within 2 months of the date of completion of the lease. It can only be registered if the Land Registrar makes an order extending the 2-month period. After registration, notify the landlord and send them a copy of the assignment document.
Disclaimer:
The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Connaught Law and authors accept no responsibility for loss that may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Connaught Law. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Connaught Law.
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