Assigning a commercial lease is a common process in the business world. Whether you’re a tenant looking to exit your premises early or a landlord managing a change in occupancy, the lease assignment process must be handled with care. There are legal steps, approvals and potential liabilities that both parties need to be aware of.
In this guide, we’ll walk you through the step-by-step process of assigning a commercial lease in the UK, highlighting key considerations for tenants, landlords and prospective assignees. Any questions? Set up a free 30-minute consultation with our commercial lease solicitors.
What is a commercial lease assignment?
A lease assignment is when the existing tenant (the assignor) transfers their lease obligations and rights to a new party (the assignee). The new tenant takes over the lease for the remainder of its term and becomes responsible for rent, repairs and any other conditions set out in the lease.
Unlike subletting, where the original tenant remains liable and creates a new tenancy under them, assignment transfers the original lease completely.
Why might a tenant assign a lease?
There are several reasons why a commercial tenant may wish to assign their lease:
- Downsizing or expanding to new premises
- Business restructuring or relocation
- Sale of the business including the premises
- Financial difficulties or lease terms no longer being suitable
Assigning a lease allows a tenant to exit a binding contract without having to terminate it early – which may not always be possible or affordable.
Step 1: Review the lease terms
Before proceeding with an assignment, the current tenant should carefully check the terms of their lease. Most commercial leases contain a clause stating whether assignment is allowed – and under what conditions.
Common provisions include:
- Assignment is permitted only with the landlord’s written consent
- The landlord may not unreasonably withhold or delay consent
- The incoming tenant must be of equal or better financial standing
- An Authorised Guarantee Agreement (AGA) may be required
An AGA means the outgoing tenant remains liable if the new tenant defaults.
If the lease prohibits assignment entirely or if conditions are too restrictive, you may need to renegotiate with the landlord or explore alternatives such as surrender or subletting.
Step 2: Seek landlord consent
In most cases, the landlord’s written consent is required for an assignment to proceed. This is a formal legal step – and the landlord has a right to carry out checks before granting permission.
As the outgoing tenant, you should submit a formal licence to assign request, which includes:
- Details of the proposed assignee
- The assignee’s financial accounts or business plan
- References and evidence of trading history
- Information on the assignee’s intended use of the premises
The landlord will review this and may request additional information or conditions, such as an AGA or rent deposit.
Under the Landlord and Tenant Act 1988, landlords must act reasonably and respond within a reasonable timeframe – though they are not obliged to accept any assignee put forward.
Step 3: Draft the licence to assign
Once the landlord agrees in principle, a licence to assign must be drafted. This is a legal document that:
- Records the landlord’s consent
- Sets out any conditions of the assignment
- Identifies the parties involved
- May include the AGA or other security provisions
This document must be signed by all parties – the landlord, outgoing tenant and new tenant – before the lease can be legally transferred.
This is a critical stage and legal advice from commercial property solicitors is essential to ensure the licence is correctly drafted and your obligations are clear.
Step 4: Prepare and sign the deed of assignment
The next step is to prepare a deed of assignment. This is the legal document that formally transfers the lease from the assignor to the assignee.
It sets out:
- The lease being assigned
- The date of transfer
- Any payments or consideration being made
- Confirmation that the assignee accepts the lease obligations
Both parties must sign the deed and it may need to be witnessed. Once executed, the new tenant becomes bound by the lease.
Step 5: Register with the Land Registry (if required)
If the lease is for more than seven years, the assignee is required to register the assignment with the Land Registry. This involves:
- Completing form AP1
- Providing the deed of assignment
- Paying the relevant registration fee
Failure to register means the assignee won’t be recognised as the legal tenant, which can cause future problems, especially if they wish to assign, mortgage or sell the lease later.
If the lease is for seven years or less, registration is not mandatory but may still be advisable.
Step 6: Update service providers and insurers
Once the lease has been assigned, the new tenant should inform:
- Utilities and service providers
- The local authority for business rates
- The property’s insurers (where applicable)
- Any managing agents involved in the building
This ensures a smooth handover and prevents disputes over liability or payment.
Key considerations for each party
Outgoing tenant (assignor):
- Understand whether you’ll remain liable via an AGA
- Ensure the assignee is financially capable
- Get written landlord consent and formal documentation
Incoming tenant (assignee):
- Review the lease terms thoroughly before signing
- Seek advice on any rent reviews or break clauses
- Ensure the licence to assign and deed are legally sound
Landlord:
- Carry out due diligence on the assignee
- Consider requiring guarantees or security
- Act promptly to avoid unreasonable delay claims
Get expert legal advice on lease assignment
Assigning a commercial lease involves multiple legal steps and risks. Whether you’re a tenant looking to transfer your lease or a landlord reviewing an assignment request, getting the paperwork wrong can lead to disputes, liabilities or even loss of income.
At Osbourne Pinner Solicitors, we advise landlords, tenants and agents on all aspects of commercial lease assignment – including drafting licence to assign documents, negotiating terms and ensuring compliance with lease covenants.
If you’d like to arrange a free 30-minute consultation, please call us on 0203 983 5080, email [email protected] or use the enquiry form below. You can come to our offices in Harrow, Canary Wharf, Piccadilly Circus or Manchester City Centre – or speak to us on a video call if you’re based further afield.
