Commercial Property Transfer in Business Sales: Legal Guide

In Short

• You must obtain your landlord’s written consent before assigning your lease to a buyer.
• The landlord may request financial evidence from the buyer and can set reasonable conditions before approval.
• Key documents include a Licence to Assign, Deed of Assignment, and possibly an Authorised Guarantee Agreement (AGA).

Tips for Businesses

Plan ahead when selling your business and assigning a lease, as landlord approval and document preparation can take time. Budget for legal and landlord costs, and understand any ongoing liability under an AGA. Clear coordination between all parties helps avoid delays and ensures a smooth handover.

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Table of Contents

• Obtaining Consent for Assigning Your Lease
• Documents Required to Assign Your Lease
• Key Takeaways
• Frequently Asked Questions

As a business operating from a commercial property, you will most likely have entered into a lease. If you are looking to sell your business, the buyer may be interested in operating from the same property. There are different types of business sales and processes involved in changing the tenancy of a lease. This article will focus on business sales of assets and the related assignment of a commercial lease. It will explain how to obtain the proper consent for the assignment of your lease, what documents are required and what the key considerations are in this process. 

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Obtaining Consent for Assigning Your Lease

If you are looking to sell the assets of your business and assign your lease, the terms of that lease will determine the process.

Standard assignment provisions usually specify that you are permitted to assign the whole of your lease, provided that the landlord’s prior consent is obtained. Generally, the first step in obtaining this consent is for the landlord to approve of the assignee. You will need to send the landlord a formal written request for this.

Typically, the landlord will want to ensure that the assignee (the person who will become the tenant) can comply with all their obligations under the lease. To do so, they may ask you to provide evidence of the assignee’s financial standing. This can include:

• financial statements;
• trade references;
• landlord references; or
• business plans.

Under the Landlord and Tenant Act 1988, there is an implied requirement that landlords cannot unreasonably withhold consent, but they can impose reasonable conditions and may require certain criteria to be met before approval is granted. Obtaining consent can take some time, so it is essential to plan ahead for this process. 

If the assignee is unable to demonstrate sufficient financial standing, especially if they are a new business, the landlord may sometimes impose additional requirements on the assignee. For example, a larger deposit or a personal guarantee. 

Documents Required to Assign Your Lease

At the start of the consent process, the landlord might require you to cover their costs for the assignment. These will usually be any relevant professional fees, such as solicitor fees for preparing documents.

A separate document, the Deed of Assignment, will be entered into between you and the assignee. This formally transfers any of your rights and obligations under the original lease to the assignee and must be signed, witnessed, and registered. The deed will identify the premises, reference the original lease terms, and specify the effective date of the assignment. 

Lastly, depending on the terms of your lease, the landlord may require you to enter into an Authorised Guarantee Agreements (AGA). This document requires you, as the outgoing tenant, to guarantee the incoming tenant’s performance for the duration of their occupancy.

Key Takeaways

There are several key points for you to consider before initiating a lease assignment, particularly in the context of a business sale. 

Overall, it is essential to plan ahead regarding time and budget. You will most likely incur business costs and be required to cover some of the other parties’ costs. Additionally, it can take time for the landlord to approve the assignee, and negotiations may require some back-and-forth. This requires strategic planning in line with the business sale, to ensure coordination and avoid undue delay or frustration. 

Another consideration is the AGA, which means you remain liable for the remainder of the term. This creates a potential ongoing exposure that must be carefully evaluated and, where possible, limited in scope and duration.

If you need assistance with a property transfer, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions