As a business looking to acquire new commercial premises you will come across one of two options for leasing the property: you can take the grant of a new lease or can take over an existing lease from another business that no longer wants to occupy the space. This is known as the “assignment” of a lease.
The process of taking an assignment of an existing lease is not widely understood. As a result, there are cost and practical implications that are often not anticipated at the outset of the transaction.
Where you are taking an assignment of a lease there are usually 3 parties to the transaction (although there can be even more): The landlord (who owns the premises), The person you are acquiring the lease from (the “assignor”) and the person acquiring the lease (you- the “assignee”).
Agreeing the terms of the deal with the assignor is only part of the story.
The assignment of a commercial lease usually requires the consent of the landlord. Landlords generally seek to recover their professional fees in relation to the grant of that consent. The assignor may want you to contribute towards those costs as well as paying your own legal fees and any premium for the lease.
There may also be other parties whose consent to the transaction is required (for example the landlord’s lender or a superior landlord). While this may not have direct cost implications to you, there may be implications in terms of timing. The more people that are involved, the greater the possibility for delay.
Security
Commercial leases usually permit landlords to impose conditions on their consent. You should be prepared to provide a monetary deposit or a personal guarantee.
Existing terms
Where you are taking an assignment of an existing lease you cannot negotiate the terms of the lease in the same way as you can when a new lease is granted. This is because, in theory, on assignment of a lease the only thing that should change is the names on the document, not the document itself. Any changes to the lease would need to be consented to by the landlord and it is up to the landlord whether or not they will agree to vary the lease terms to suit your business needs.
The user covenant is one such example. If you are taking on an existing lease you need to know that the permitted use in the lease includes your intended use of the premises. If it does not you will need to obtain the consent of the landlord to your use and may also need to apply to the Council for planning permission for change of use.
The landlord may have concerns about your proposed use and its impact on nearby properties belonging to the landlord or its investment. It is therefore vital to address these matters with the landlord at the outset.
It is common for clients who have been keen to re-negotiate key terms of the lease – like the rent for example – and to be disappointed when they discover that this is not possible. In the example of the rent payable, it is highly unlikely that a landlord would be willing to agree to vary the rent downwards.
Repair
If you are taking on a lease with what is called a ‘full repairing covenant’ you need to be comfortable that the assignor has complied with its repairing obligations or you may face a hefty repair bill at the end of the term. The fact that the premises may have been in disrepair when you took occupancy will not obviate this responsibility. Your lawyer should try and reach some sort of dilapidations agreement with the assignor and/ or the landlord to protect your position. However, this may not always be possible.
Alterations
You will probably want to change the fit out or layout of your new premises. To do so, you will need to be clear whether or not you will need a licence for alterations from the landlord. If you do, the landlord will want to approve your plans and specification. You should bear in mind that you will no doubt be required to pay the landlord’s professional fees for the grant of a legal licence.
Completion
The landlord may have retained the ability to refuse to complete a licence to assign the lease if the assignor has not complied with certain provisions – for example paying the rent or any service charge up to the date of the assignment. You will not be able to get the keys until the tenant covenants in the lease have been complied with by the assignor. Again, this can have indirect cost implications for you in terms of delay.
What can we do for you?
At Verto Group Legal we have an experienced and approachable team who pride themselves on providing a personal service to our clients and are available with guidance and advice from the heads of terms stage right through to completion and beyond. We offer a city lawyer service without the premium price tag. Contact me for a free consultation on j.lloyd@vertogrouplegal.com or phone on 0203 078 5768.
