Introduction
A lease of less than seven years entitles the tenant only to temporary possession of the premises, therefore it usually has no capital value. Disposal of it is termed an assignment, not a sale. If you are a tenant and you want to assign your lease before its term has expired, you must find someone else willing to pay the rent and take over all the obligations set out in the lease.
Assigning a lease
Subject to certain exceptions, a tenant is usually able to assign the whole of his interest, though rarely can he assign just part of what he rents. There will be other conditions attached to the assignment too. The landlord will want someone who is as “safe” with the money as you are. A guarantor may be required. Before you start looking closely at people willing to take over your business lease, talk to your landlord and find out what he wants. There may be scope for negotiation. Try to avoid the estate agent intermediary because he has less flexibility.
Negotiating the assignment It is usual to instruct a commercial estate agent to advertise and negotiate your assignment. The going rate fee is one year’s rent, but you should be able to negotiate down to half that. Much depends on the value of the rent and how much time the agent will have to expend. You may find the most cost effective deal to be one where you personally attend on prospective tenants, leaving the agent to advertise and “field” the enquirers.
Once you have appointed the agent, find a commercial conveyancing solicitor and get a price for the legal work in the assignment. He will be reluctant to give a fixed price because a slow solicitor on the other side will cost him extra time, but a fixed price will be available if you are firm. When you have a deal, put it to the solicitor. Since you are selling, you do not need to be involved in the legal matters - except to be sure that you do not say “yes” to something where the proper answer should have been “no”. Allow plenty of time for the transaction to be completed.
Ongoing liability of first tenant after parting with the lease
The law for business leases changed on 1st January 1996.
If your business lease started after that date, then you are not liable under any circumstances for any rent arrears, which arise after you have signed the lease to a new tenant.
If your business lease is dated before 1st January 1996, then your landlord may be able to come to you for all of the rent he has not already received in respect of the period from the date of your assignment of the business lease, right up to date. However…
You have to be the original first tenant;
The landlord must serve notice on you within six months of the arrears first falling due;
If the rent is increased since you assigned the property, and the increase is dated after 1st January 1996, then the extra rent is not your responsibility. The landlord can ask you for rent only at the rate you were paying at the date of your assignment. However, if the rent review is before 1996 but after your assignment, you might be liable for the full increased rent;
The landlord has to get the figures right. If you can show that the figures he claims are wrong then you don't have to pay anything;
If you have to pay up for the obligations of a failed assignee, the law gives you three options. You may either:
Occupy the premises again yourself, or
Find another tenant so as to remove your future liability, and
Try to get your money back by chasing the assignee through a claim in court;
The landlord will have made a decision as to whether to bother issuing a claim against the defaulting tenant or against you. If he sees you as a softer target, then it may be worth your while to claim against the tenant in court;
If you take a new business lease you have to accept all the changes to the lease, which have taken place, including any rent reviews and responsibility for any dilapidations.
Unless the values are very small, this is an area where you should take advice from a surveyor or solicitor. Remember in particular that if the landlord gets the figures wrong he may not claim at all. There are other less important areas that we have not covered in these notes. Feel free to contact Net Lawman at any time with any query you may have.
If by chance you find some error of law or fact in any Net Lawman information page, do please tell us. We should also welcome your suggestions for new subjects for information pages. These notes:
Do not provide a complete or authoritative statement of the law;
Do not constitute legal advice by Net Lawman;
Do not create a contractual relationship;
Do not form part of any other advice, whether paid or free.
