Assigning vs Subletting Your Commercial Lease in the UK

If you are leasing commercial business premises in England and Wales, you may consider ending your lease early. In that case, there are a few options available. One option is to check if your lease allows you to assign or sublet it to a new tenant or sublet it. This article will explain how lease assignments and sublets work, the difference between assigning and subletting and how to decide which is most appropriate for your business.

Assigning Your Lease

A lease assignment is where you find a new tenant to take over your lease and lease commitments.

To take advantage of this option, you will need to obtain your landlord’s consent. Importantly, you need their express consent to allow you to assign your original lease to someone else. Likewise, they need to consent to the new tenant you find as well. To ensure that you can easily get your landlord’s consent to the new tenant, ensure that you find a tenant who can abide by all the conditions of your original lease. 

Further, your landlord may want you to enter into an Authorised Guarantee Agreement. This is a document where you guarantee your landlord that you will be liable for any lease breaches the new tenant makes. Whilst one of the benefits of a lease assignment is that the lease assignment releases you from your duties under the commercial lease, in effect, this document makes you responsible for those duties in a different way.

UK Lease Assignment Template

If you are moving out of your leased space and assigning the lease to another party, you are required to notify your landlord and obtain their consent. Use this free proforma template for this purpose.

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Subletting Your Lease

A sublet is different to a lease assignment. Here, your lease agreement with your landlord remains in place, so, legally, you are still the tenant of the property. Likewise, you are still responsible for all commitments contained in your lease. With this option, you find a subtenant to lease the commercial premises (or part of the commercial space you rent) and enter into a sublease with this tenant. 

Importantly, you will still need your landlord’s permission to sublet your original lease. However, since your landlord will not be involved in the sublease, they will not need to approve the subtenant. However, you must satisfy yourself that the subtenant you choose can agree to all the terms and conditions of your lease.

In a sublease, you are still responsible for paying rent on time and that you and your subtenant meet all other responsibilities under your lease agreement. You contract with your subtenant to pay rent and meet these obligations. Additionally, your landlord has no legal contract with your subtenant, just with you. Therefore, if your subtenant does not pay the rent due, your landlord can pursue you for this, and equally, you can pursue the subtenant.

Which is Most Appropriate for Your Business?

Your commercial lease agreement may have express provisions regarding assigning or subletting your lease. For that reason, it is essential to read your lease and check what it says about these two options. If your lease does not give you permission for these options, you may not feel you have many choices. However, it is always worth talking to your landlord and explaining why you want to assign or sublet your lease.

Additionally, suppose you are not using the whole of the premises that you lease or only want to have a tenant for a short amount of time. In that case, a sublease is likely to be the better option for you. 

Alternatively, you may be looking to move to new premises permanently, or feel you no longer need business premises at all. Here, a lease assignment is likely to be the better option. If you are selling your business entirely, then it is common for the purchaser of your business to take your lease via a lease assignment.

Other Options

Commercial tenants potentially have other options for ending their commercial leases early. For example, your lease may have a ‘break’ clause in it. A break clause provides a mechanism for you to end your lease early, often after a particular amount of time or within a specific period.  

Another option is to ask your landlord for permission to end your lease early. If you are in financial difficulties, your landlord may be willing to consider this option. Further, it may be better to allow you to leave the tenancy early than potentially have to collect unpaid rent later or the cost of eviction proceedings.

Key Takeaways

Assigning or subletting your commercial lease are two of the options for ending your commercial lease early. With an assignment of your lease, you will find a new tenant to take over your lease. With a sublet, you are still the tenant of your lease but enter into a new contract with the subtenant that you find. Additionally, with a sublease, you will still be liable for breaches of any of the lease terms in your commercial lease, so it is vital to ensure that the subtenant you choose will abide by these terms. Similarly, your landlord may require you to enter into an Authorised Guarantee Agreement when you assign a lease, which effectively makes you liable if the new tenant breaches the commercial lease terms. Whichever option you choose, make sure you do your homework on prospective new tenants or subtenants.

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

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