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A cornerstone provision in commercial lease agreements is the lease term. The lease term refers to the time period in which the commercial tenant agrees to occupy commercial premises. Commercial tenants, for a host of reasons, may need to exit their commercial lease sooner than they anticipated. Lease assignment is one of the most common ways for commercial tenants to exit their lease early. Commercial tenants, via this method, obtain their landlord’s consent to transfer the existing lease to another business owner. This can be beneficial for tenants who find themselves needing to downsize, relocate, or cease operations altogether. Additionally, landlords often prefer lease assignments over lease terminations as they ensure continued occupancy and rental income. This article will explain the importance of registering a lease assignment in the UK.
Assignment
Commercial lease assignment is when a tenant transfers their existing lease to a new tenant. The existing tenant is the outgoing tenant or assignor, and the incoming tenant is the assignee. Lease assignment means that the commercial lease does not end, but the tenant is merely substituted. The assignee takes on all the outgoing tenant’s lease obligations and enjoys the tenant’s rights in the lease agreement. Ultimately, the incoming tenant will enjoy sole possession of the commercial property as their commercial premises. The incoming tenant will also start making rent payments for the commercial property.
The assignor starts the process of lease assignment. Leases between the outgoing tenant and the landlord that have less than several years before the conclusion of the lease term will need to go through a formal process of assignment. The assignor will need to execute a deed of assignment to transfer the lease to the incoming tenant.
Registering a Lease Assignment
The assignor or the assignee may need to register a lease assignment. The assignor or assignee may be required to register the lease assignment instead of using a deed of assignment. A lease assignment will generally need to be registered in two instances. The assignor will need to register the lease assignment if the commercial lease has seven years or more left on the lease term.
Also, the assignor is required to register the lease assignment if the lease has already been registered with the HM Land Registry Office. They must complete and submit a TR1 form to the HM Land Registry Office for a lease assignment to be valid. Once the Land Registry receives this, they will process the lease assignment and place the incoming tenant’s name as the titleholder to the lease in the Land Register.
Importance of Registering a Lease Assignment
When you enter or exit a commercial lease through assignment, the process of registering the lease assignment is a crucial part of assigning a lease. This is because until this is complete, the assignee is not legally the new tenant for the commercial lease. Therefore, the lease assignment process is not fully complete. The assignor’s failure to register the lease assignment with the Land Registry Office adversely impacts the assignee. Due to the lease assignment process not being legally complete, the assignee has none of the rights usually granted to them in a commercial lease. The assignee will not have the right to sole occupation of the commercial premises. The assignor will also continue to be responsible for all the lease obligations in the commercial lease agreement. Had the lease assignment been validly registered, the assignee would be responsible for the lease obligations after that.
It is essential to have a solicitor to see you through the lease assignment process. The outgoing tenant’s solicitor will usually draft the transfer for the Land Registry Office. However, you, as the assignee, will want your solicitor to confirm the lease assignment is correct and complete.
Timing
Land registration is time-consuming. The assignor should register the lease assignment as soon as possible. Legal rules concerning the timeframe for registration of a lease assignment also impact the practicality of registering land. As the assignor, you can only register the lease assignment for up to two months from the lease completion date. The law will deem the lease to be void if not registered within this timeframe. You are then reliant on a discretionary agreement with the Land Registrar. The Land Registrar may extend the timeframe for you to register the lease with the use of an order.
Break Clause Within a Commercial Lease
The assignor needs to register the lease assignment with the Land Registry Office. The assignor’s act of registering the lease assignment ensures the law considers the lease assignment process to be complete. Further, the assignor registering the lease assignment protects the incoming tenant’s ability to rely on a break notice provision in the commercial lease agreement. A break clause simply allows the incoming commercial tenant to terminate the lease agreement before the lease term ends. The assignor typically needs to register the commercial lease assignment for the incoming tenant to rely on the break clause.
If the assignor has not registered the lease assignment with the Land Registry Office, the incoming tenant will be left in a precarious position. The assignee may need to end the lease early but cannot rely on the break clause.
This cheat sheet outlines what you should be aware of in your lease agreement.
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Key Takeaways
Lease assignment is where a commercial lease transfers from the existing commercial tenant to a new tenant. The assignor must register the lease assignment with the Land Registry Office in two situations. Where the commercial lease being assigned has seven years or more left on the lease term, the lease assignment will need to be registered. Likewise, registration of a lease assignment is required if the commercial lease is registered. Registration of a lease assignment is essential for assigning a commercial lease. Without it, the assignment is not legal, and it is crucial that registering the lease assignment is done within the correct time frame. Registering a lease assignment may also allow the assignee to exercise the break clause in the lease agreement if necessary.
If you need help understanding the importance of registering a lease assignment in the UK, contact our experienced leasing lawyers 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.
Frequently Asked Questions
Lease assignment is where the existing tenant to a commercial lease, the assignor, transfers it to a new tenant, the assignee. The lease continues between the assignee and the current commercial landlord.
Registering a lease assignment is often part of the lease assignment process and requires a TR1 form to be completed with the Land Registry Office.
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