Key Takeaways
- An alienation clause sets out whether and how a tenant can pass on the lease or share the premises, by assignment, subletting, charging or sharing occupation.
- Clauses range from an outright ban to allowing these steps with the landlord’s consent, which by law usually cannot be unreasonably withheld.
- Where consent is needed, the landlord must respond within a reasonable time, give consent unless there are good reasons not to, and put any refusal in writing.
- Landlords often attach conditions, such as an Authorised Guarantee Agreement, which can keep an outgoing tenant on the hook for the new one.
Most business tenants never give the alienation clause a second thought when they sign a commercial lease. Then circumstances change. The business outgrows the space, or shrinks, or needs to move, or wants to let a spare floor to bring in some income, and suddenly this quiet clause tucked in the middle of the lease decides how much freedom they actually have. For a lot of tenants it is the difference between a manageable exit and being stuck paying rent on premises they no longer need.
For landlords it matters just as much, because the alienation clause is the main tool for controlling who ends up occupying the property and whether the rent is secure.
This guide explains what an alienation clause is, the different forms it takes, and what it means in practice for both sides. If you are negotiating a lease or trying to assign or sublet one, Osbourne Pinner offers a free 30-minute consultation with a commercial property solicitor.
What “alienation” actually means
Alienation is the legal word for a tenant dealing with their lease or premises by passing rights to someone else. It covers a few different things: assigning the lease, meaning transferring it entirely to a new tenant; subletting, meaning granting a lease of all or part of the premises to a subtenant; charging the lease, for example as security for borrowing; and sharing or parting with occupation, such as letting another business share the space. The alienation clause is simply the part of the lease that says which of these you can do, and on what terms.
What an alienation clause does
In plain terms, the alienation clause is your exit and flexibility clause. A generous one gives you room to move on, downsize or share the space as your business changes. A restrictive one can leave you tied to premises and rent for the rest of the term. Because commercial leases often run for years, the wording here can have a far bigger financial impact than tenants realise at signing, which is exactly why it is worth reading closely before you commit.
The three types of clause
Alienation clauses generally fall into one of three categories. An absolute prohibition bans a particular dealing outright, so you simply cannot do it without the landlord agreeing to vary the lease. A qualified covenant allows it with the landlord’s consent. A fully qualified covenant allows it with consent that cannot be unreasonably withheld, which is the most tenant-friendly. Helpfully, section 19 of the Landlord and Tenant Act 1927 automatically upgrades a qualified covenant into a fully qualified one where the lease requires consent, so in practice a landlord usually cannot refuse unreasonably even if the lease does not spell that out.
The landlord’s duty when you ask for consent
Where your lease needs the landlord’s consent, they are not free to sit on the request or say no on a whim. Under the Landlord and Tenant Act 1988, a landlord who receives a written application for consent must deal with it within a reasonable time, must give consent unless it is reasonable to refuse, and must give written reasons for any refusal or conditions. A landlord who drags their feet or refuses unreasonably can be liable to the tenant in damages. If you are waiting on consent, always make the request in writing so these duties are clearly triggered.
Common conditions for consent
Giving consent does not have to mean giving it freely. Leases and landlords commonly attach conditions, and reasonable ones are allowed. Typical examples include references and proof that the incoming tenant is financially sound, a rent deposit, a guarantor or personal guarantees, payment of the landlord’s legal and administrative costs, and clearing any arrears or remedying existing breaches first. On an assignment, the biggest condition is often an Authorised Guarantee Agreement.
Authorised Guarantee Agreements
An Authorised Guarantee Agreement, or AGA, is one of the most important things for an outgoing tenant to understand. As a condition of consenting to an assignment, a landlord can require you to guarantee the incoming tenant’s obligations. If the new tenant fails to pay the rent or breaches the lease, the landlord can come after you, the previous tenant. The good news is that an AGA only lasts while that particular assignee remains the tenant and falls away on the next assignment. We explain this in detail in our guide to Authorised Guarantee Agreements.
Assignment or subletting: the key difference
These two get muddled constantly, and the difference matters. With an assignment you transfer the whole lease and the new tenant steps into your shoes, taking on the obligations, though an AGA may keep you partly on the hook. With subletting you keep your lease and remain fully liable to your landlord, while creating a separate lease between you and a subtenant. Subletting can be useful for spare space, but it does not get you off the original lease. Our guide to assigning a commercial lease walks through the process.
When can a landlord reasonably refuse?
Reasonable is the key word, and it is judged on the facts. A landlord can usually refuse where there is a genuine concern about the incoming tenant’s ability to pay the rent and meet the lease terms, where there are unremedied breaches, or where the proposed use would harm the building or the landlord’s wider investment. What a landlord cannot do is refuse to gain some collateral advantage that has nothing to do with the landlord and tenant relationship, such as trying to get the premises back or force a higher rent. Refusing on grounds that amount to discrimination is also unlawful. If a refusal looks like one of these, it can be challenged.
What if you deal with the lease without consent?
Going ahead without the consent the lease requires is a serious step. It is a breach of covenant, and it can give the landlord grounds to forfeit the lease, meaning bring it to an end, as well as claim damages. An assignment or sublease put in place without the necessary consent can also be difficult to unwind and can cause problems later, for example when you come to sell the business or renew the lease. If your lease requires consent, get it in writing before you commit to anything, however straightforward the deal seems.
Why it matters, for both sides
For a tenant, the alienation clause is about flexibility and having a way out if the business changes. For a landlord, it is about protecting the value of the property and the strength of the tenant paying the rent. The two pull in opposite directions, which is why alienation is one of the most negotiated parts of a commercial lease. The time to get it right is before you sign, not when you are trying to move. Our guide on how to negotiate a commercial lease covers what to push for.
Speak to a Commercial Property Solicitor About Your Lease
The alienation clause quietly decides how flexible or how stuck you are for the life of a commercial lease. Getting the wording right at the outset, or getting consent handled properly later, can save a great deal of cost and frustration.
At Osbourne Pinner, our commercial property solicitors can review or negotiate your alienation clause, guide you through assigning or subletting, and advise landlords on responding to consent requests correctly.
Please note that this article is for informational purposes only and does not constitute legal advice. We always recommend speaking to a qualified solicitor for advice tailored to your specific circumstances.
We offer a free 30-minute consultation to discuss your situation. You can speak with us via video call or visit our offices in Harrow, Canary Wharf, Piccadilly Circus or Manchester. To arrange your consultation, call 0203 983 5080, email [email protected] or complete the form below.
