Commercial lease assignment is the process of transferring an existing commercial lease from the current tenant to a new tenant. It can be an important part of buying a shop, café, restaurant, salon or another business operating from rented premises.
Understanding how assignment works, when landlord consent is required and what costs or liabilities may arise can help buyers avoid unexpected delays before completing a purchase.
Key takeaways
- Commercial lease assignment transfers an existing lease from one tenant to another, subject to the lease terms and applicable law.
- Landlord consent is commonly required, and buyers should understand the lease obligations before committing to a purchase.
- Buyers should coordinate lease assignment with business sale completion to avoid acquiring a business without secure rights to occupy its premises.
What is commercial lease assignment?
Commercial lease assignment is the legal transfer of an existing commercial lease from one tenant to another.
The outgoing tenant is known as the assignor, while the incoming tenant is called the assignee.
Once the assignment is completed, the incoming tenant generally takes over the tenant’s obligations under the lease, including paying rent and complying with its terms.
For example, someone buying an established café may take an assignment of the seller’s existing premises lease rather than negotiating a completely new lease with the landlord.
An assignment does not normally create a new lease term. The buyer takes over the remaining term of the existing lease, subject to any validly agreed variations.
How does commercial lease assignment work?
The assignment process depends on the lease terms, the landlord’s requirements and the circumstances of the business sale.
1. Review the existing lease
Before proceeding, the buyer should obtain a copy of the commercial lease and review its key terms.
Important details include:
- Remaining lease term
- Current rent and rent review provisions
- Repairing and maintenance obligations
- Service charges and insurance costs
- Permitted use of the premises
- Restrictions on alterations
- Assignment and subletting provisions
- Break clauses and renewal rights
A lease that appears affordable initially may contain future rent increases or significant repair obligations.
Buyers should understand these commitments before agreeing to take over the premises.
2. Check whether landlord consent is required
Many commercial leases restrict assignment without the landlord’s consent.
This is commonly documented through a licence to assign.
The seller will usually need to approach the landlord or managing agent to request consent.
The landlord may ask for financial information about the proposed incoming tenant to assess their ability to meet the lease obligations.
Where the lease requires consent and the relevant statutory protections apply, the landlord must generally deal with the application within a reasonable time and must not unreasonably withhold consent.
However, the precise legal position depends on the lease wording and applicable legislation.
3. Complete the landlord’s checks
The landlord may review the buyer’s financial position, business experience and proposed use of the premises.
Depending on the lease and circumstances, the landlord may request:
- Financial statements or proof of funding
- Business plans or trading forecasts
- References
- A rent deposit
- A guarantor or other permitted security
These requirements should be identified early because they can affect both the cost and timing of the purchase.
4. Agree the licence to assign
Where landlord consent is required, it is commonly documented through a licence to assign.
This document formally records the landlord’s consent and may set out conditions that must be satisfied before the lease is transferred.
The seller, buyer and landlord may each have legal representatives involved in preparing and reviewing the documentation.
Buyers should not assume that verbal approval is sufficient where the lease requires formal written consent.
5. Complete the lease assignment
Once the necessary consent and documentation are in place, the parties can complete the assignment.
The transfer is commonly documented through a deed of assignment.
Completion of the lease assignment should be coordinated with completion of the business purchase.
This helps prevent a buyer from completing the business acquisition without obtaining the necessary rights to occupy its premises.
Depending on the transaction, further requirements may include notifying the landlord, considering Stamp Duty Land Tax and registering the assignment with HM Land Registry.
Why should lease assignment be agreed before completing a business purchase?
For many businesses, the premises are essential to daily operations.
A restaurant, salon or retail shop may depend on its location, customer access and existing facilities.
If a buyer completes the business purchase before securing the necessary lease assignment, they could acquire the business without having the legal right to occupy the premises.
This can create operational disruption and additional costs.
Where appropriate, the business purchase agreement should make completion conditional on obtaining landlord consent and completing the necessary lease documentation.
The buyer’s solicitor can help coordinate these requirements so that the business purchase and lease assignment complete together.
What should buyers check before taking over a commercial lease?
The lease can affect a business’s long-term costs, flexibility and ability to trade from the premises.
Remaining lease term
A short remaining term can create uncertainty, particularly where the buyer plans to invest in refurbishment or equipment.
Buyers should check whether the lease has statutory renewal protection under the Landlord and Tenant Act 1954 or whether that protection has been validly excluded.
Where renewal protection applies, a tenant may have rights to request a new lease, although the landlord may be able to oppose renewal on specified statutory grounds.
Rent reviews and additional charges
The headline rent does not always reflect the full cost of occupying commercial premises.
Buyers should check service charges, insurance contributions, business rates and any upcoming rent reviews.
They should also consider whether the rent is affordable alongside the business’s other operating costs.
Repairing obligations
Some commercial leases require tenants to maintain or repair substantial parts of the property.
A full repairing and insuring lease can expose a tenant to significant costs, depending on its terms.
Buyers should consider obtaining a building survey and reviewing any schedule of condition before accepting these obligations.
Permitted use and alterations
The lease may restrict how the premises can be used.
For example, a buyer purchasing a restaurant should confirm that the proposed trading activities are permitted under the lease.
Restrictions on signage, structural alterations and other changes may also affect future plans.
Can a landlord refuse commercial lease assignment?
A landlord may be able to refuse consent where the lease and applicable law permit it.
For many qualifying leases, the landlord cannot unreasonably withhold consent to an assignment.
Potentially reasonable grounds for refusal may include concerns about the incoming tenant’s financial ability to meet the lease obligations or a proposed use that breaches the lease.
However, whether refusal is reasonable depends on the specific circumstances.
Under the Landlord and Tenant Act 1988, where its requirements apply, a landlord must generally respond within a reasonable time and provide written reasons if consent is refused.
Buyers and sellers should avoid assuming that consent is guaranteed or that a landlord can refuse for any reason.
What is an authorised guarantee agreement?
An authorised guarantee agreement, or AGA, is an arrangement under which the outgoing tenant guarantees certain obligations of the incoming tenant following assignment.
For example, if the buyer fails to pay rent, the landlord may be able to pursue the seller under a valid AGA.
An AGA is not automatically required in every commercial lease assignment.
Whether one can be required depends on the lease, the circumstances and the applicable provisions of the Landlord and Tenant (Covenants) Act 1995.
For sellers, an AGA can mean continuing financial exposure after the business has been sold.
For buyers, it may be an important condition of obtaining landlord consent.
Does a commercial lease need assigning in a share sale?
Not usually.
In a straightforward share sale, the company that holds the lease remains the same legal entity, even though ownership of its shares changes.
This means the lease generally stays with the existing tenant company rather than being assigned to a new tenant.
However, some commercial leases contain change-of-control provisions that may require landlord consent or trigger other contractual consequences when ownership of the tenant company changes.
Buyers should therefore review the lease even where the transaction is structured as a share purchase.
How much does commercial lease assignment cost?
The cost of assigning a commercial lease varies according to the lease, the landlord’s requirements and the complexity of the transaction.
Potential costs include:
- Solicitors’ fees for the buyer and seller
- The landlord’s reasonable legal and administrative costs, where payable
- Property surveys
- Rent deposits or other security
- Registration and other applicable transaction costs
Stamp Duty Land Tax may also need to be considered, depending on the transaction and whether the premises are in England or Northern Ireland. Different land transaction taxes apply in Scotland and Wales.
Buyers should request an estimate of the likely assignment costs before committing to the business purchase.
It is also important to clarify which party will pay the landlord’s fees and any outstanding lease-related charges.
How long does commercial lease assignment take?
There is no fixed timeframe for completing a commercial lease assignment.
The process may take several weeks or longer, depending on the landlord’s response, the quality of the information provided and the complexity of the legal documentation.
Common causes of delay include incomplete financial information, disagreements about guarantees, outstanding lease breaches and unresolved repair obligations.
Buyers and sellers can help reduce delays by reviewing the lease early, identifying consent requirements and preparing the necessary documentation before the intended completion date.
What happens after a commercial lease is assigned?
Completing the deed of assignment does not always mean that every administrative requirement has been satisfied.
Depending on the lease and transaction, the incoming tenant may need to:
- Serve formal notice of assignment on the landlord or managing agent
- Pay any applicable notice or registration fees
- Arrange required insurance or rent deposit documentation
- Consider whether an SDLT return or payment is required
- Register the assignment with HM Land Registry where applicable
For example, the assignment of a registered lease may require an application to update the registered ownership.
Not every assignment requires an SDLT return or Land Registry application, so the buyer’s solicitor should confirm the requirements for the particular transaction.
FAQs about commercial lease assignment
Can you buy a business without taking over its lease?
Yes. Depending on the circumstances, a buyer may acquire a business without taking an assignment of its existing premises lease. However, they will need suitable premises or another lawful arrangement if the business requires a physical trading location.
Is landlord consent always required for commercial lease assignment?
No. The requirement depends on the lease terms. Many commercial leases require consent, but some permit assignment without it or subject to specific conditions.
Does commercial lease assignment create a new lease?
No. Assignment generally transfers the existing lease to a new tenant. The remaining lease term and existing provisions continue unless valid changes are separately agreed.
Can a landlord increase the rent when a lease is assigned?
Assignment does not automatically entitle a landlord to increase the rent. Any change must be supported by the lease terms or a valid agreement between the relevant parties.
Who pays the landlord’s legal fees for a lease assignment?
Responsibility depends on the lease and the agreed transaction terms. The landlord may be entitled to recover reasonable costs associated with considering or documenting consent.
What happens if the lease expires shortly after buying a business?
The buyer may need to negotiate a new lease or rely on statutory renewal rights where available. If the lease is excluded from renewal protection, the buyer may have no automatic right to remain after expiry.
Finding a leasehold business that suits your plans
Commercial lease assignment can be an important part of buying an established business, particularly where its location is central to its success.
Before proceeding, buyers should understand the remaining lease term, occupancy costs, landlord consent requirements and any continuing obligations attached to the premises.
Having a commercial property solicitor review the lease and assignment documents can help identify potential issues before completion.
If you’re exploring opportunities to buy an established business, browse CoGoGo’s businesses for sale to discover available businesses and find one that suits your plans.
