What is an Assignment of a Lease?

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An assignment of a lease is when one party to a lease assigns or gives their interest in the lease to another party.  

We frequently see an assignment of lease when someone sells their business to another person or entity. The outgoing tenant (usually the seller) assigns their interest in their lease to an incoming tenant (usually the buyer).

Part of a business sale contract will require that the landlord consent to an assignment of lease. A landlord cannot usually withhold their consent, but they may require a new tenant to provide financial documents, new security deposit, and new guarantee.

Key Terms of the lease

Assignee – The person receiving the interest in the lease and becoming the incoming tenant.

Assignor – The person giving up their interest in the lease and is the outgoing tenant.

Landlord – The person or entity who owns the property.

Deed of Assignment

There are a few ways that a landlord may consent to an assignment, but the most common method is through a Deed of Assignment. This formal document assigns the lease interest to the Assignee and releases the Assignor from their obligations under the lease.

As a departing tenant, it is vitally important to ensure you are released from your obligations under the lease to make sure that the landlord cannot come after you if the new tenant defaults on their lease obligations. Whenever possible, this includes being released from any personal guarantors which you gave under the original lease. 

As an incoming tenant, you want to make sure that you are not responsible for any of the outgoing tenant’s damages, overdue rent, or any outstanding obligations which they still owe. The Deed of Assignment should require the outgoing tenant is responsible and liable for their obligations under the lease up until the date of assignment, and then you will be responsible for your obligations from that day forward.

Ready for your sale?

Preparing for your business sale can be a much bigger endeavor than you realise. From assigning your lease, discharging your PPSR security interests, negotiating the settlement date, due diligence requirements, and dealing with employees. Our team at FC Lawyers has you covered. Contact our team today to discuss your leasing or general business needs.

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