What is the difference between an assignment and a sub-lease?
As a smaller Jersey business you may be looking for your first premises and see taking over an existing lease as a good proposition. When you initially negotiate, always consider your rights to terminate or pass on your lease.
There are many reasons why a business needs to move premises; business growth, a merger or acquisition. Whatever the case, the tenant should always ensure the commercial lease contains clauses dealing with assignment and or sub-lease rights, and if possible, a break clause.
Assignment
An assignment of a commercial lease is where the rights and obligations of the commercial lease are transferred in their entirety to a third-party tenant.
On assignment, the new tenant would be obligated to pay the rent and be responsible for everything else set out under the lease direct to the landlord. In general terms, the old tenant would no longer be under an obligation to the Landlord.
What is required to assign a lease?
- Consent – Consent of the landlord will be required to enable the assignment to be effected and the landlord may seek recovery of their legal costs
- Security – The landlord may insist on a deposit being paid or personal guarantee being granted to the business taking on the lease
- Assignment agreement – In essence an assignment of the lease means that the only material thing that will change will be the tenant. It is not usual for the terms of the existing lease to be changed upon an assignment
Sub-Lease
A sub-lease of a commercial lease is a new (sub)lease between the tenant as a sub-landlord and the sub tenant. The lease that was signed between the landlord and the tenant remains in place. The sub-landlord still remains the tenant of the Landlord. The process of a sublease is more involved than that of an assignment because a sub-lease would need to be drafted.
It is important that you are aware of the terms, especially your rights to assign and sublet before entering a commercial lease. If you do not consider these carefully you may find yourself locked into a lease for the entire term.