Lease Assignment Agreements - Critical Aspects

Lease Assignment Agreements are a necessary part of getting your successful brick and mortar business going. Imagine that a business - let's say a group of optometrists - wants to open up shop. The first thing they need to do is find space for their office. So they shop around and choose a building. When they've decided which building they want to operate their business out of, they negotiate with the landlord the terms of a lease agreement. Let's further imagine that the optometrists wanted to lock in a certain lease rate for five years, so they don't have to worry about the landlord raising the rent for a while. So they negotiate a five-year lease at a certain rate, they sign the lease agreement, and they open up their office.

Now let's imagine that the optometrists do so well in just two years that soon they don't have enough space to accommodate all their patients. In order to grow, the optometrists want to move into a bigger space, maybe in the same building or maybe in a different one. But what about the lease? The agreement surely doesn't allow the optometrists to break the lease without significant penalties. So how do the doctors move into a bigger space without breaking their lease and suffering these penalties? What they probably want to do is "assign" their part of the agreement to another party; that is, they must find another lessee who wants to take over their lease and "assume" its terms and obligations, namely, the promise to pay rent.

There's just one problem: the lease agreement says that the doctors cannot assign the lease to a third party without the landlord's consent. So the lessee must find an "assignee" that meets the landlord's requirements. Generally this means that the assignee must have a good credit rating, so that it can illustrate to the landlord that it will be able to comply with the terms of the original lease. So the optometrists ask their friends and colleagues if they know of another practice looking for space, and maybe they put up an advertisement in a trade magazine or newspaper. Finally they find a group of dentists who want to assume the terms of their lease, they meet with the landlord, and the landlord approves. Great! Now the parties are ready to execute a Lease Assignment Agreement. This is an agreement between the original lessees, in this case the optometrists, also known as the "Assignors", and the dentists, the new lessees, also called the "Assignees." However, the landlord must also sign the agreement.

The Lease Assignment Agreements should contain certain material terms. First, the agreement should lay out the terms of the assignment. The term will read that the assignor "transfers, assigns, and conveys to assignee, its successors and assigns, all of assignor's right, title, and interest in and to the lease." Likewise, the Lease Assignment Agreement must state the terms of the assumption - ensuring that the assignee understands that it accepts the assignment and expressly assumes and agrees to timely perform the obligations and liabilities of assignor under the lease. Finally, the landlord's consent must be secured in writing. Sometimes the agreement will say that the agreement is contingent on securing the landlord's approval within a certain amount of time, say 30 or 60 days. If the parties are unable to secure the landlord's consent, the agreement will automatically become null and void.

An assignment can be a great way for an original lessee to relieve itself of it's obligations under the lease, and for a new lessee to assume terms of a lease that may be more favorable than they can find elsewhere or if they had to sign a new lease with a landlord. It can thus be a win-win situation. But generally the landlord's consent is required, and if so, that can be the biggest hurdle to overcome.