To develop what you believe is a terrific idea for a video game, you lease 50,000 square feet in an office building from Commercial Property, LLC, under a written five year lease. Your goal is to...
To develop what you believe is a terrific idea for a video game, you lease 50,000 square feet in an office building from Commercial Property, LLC, under a written five year lease. Your goal is to put the game on the market within two years. Several months into the term, a competitor unexpectedly releases a new game title featuring play that would make your game appear to be a poorly crafted imitation. Can you assign the lease to another party? Explain.
In general, so long as the commercial lease does not expressly restrict assigning or subleasing the property to another party, the tenant is free to do so even without the landlord's permission. So long as there are ambiguities in the lease concerning transferring the lease through assigning or subleasing, courts will favor the tenant's right to transfer the lease. But if restrictions on transferring the lease are clearly laid out in the lease, then the court will uphold the landlord's restraints.
When a lease is transferred, the original tenant does not make any revisions to the lease with the purpose of benefiting from the assignee. Instead, the original lease is upheld as it is, and the landlord can now enforce the terms of the lease upon the assignee.
Some clauses in leases will forbid the transfer of a lease without the landlord's consent. Some clauses will also grant the landlord the right to "recapture," meaning to take back the property, should the tenant express an interest in transferring the lease.
Other clauses will grant the tenant the right to freely transfer. Most leases will allow for transfer within the reasonable consent criteria set forth by the landlord. Reasonable bases for allowing a transfer set forth in a lease usually include permitting the transfer if the assignee has credit or net worth that is as good as or better than the original tenant's, if the original tenant has any experience in transferring a lease, if the property will be suitable for the assignee's purposes, if the assignee's purposes for the use of the property do not violate any restrictions already on the lease, and whether or not the landlord already has other space that would suit the assignee.
Hence, in the above scenario, the tenant leasing the office building from Commercial Property, LLC, has full legal rights to assign the lease to a second party so long as the landlord did not lay out any restrictions in the lease on transferring the lease nor lay out any criteria for receiving reasonable approval from the landlord for the transfer.
In most commercial property leases, there is clause usually called "Assignment and Sublet," which sets out the tenant's right to assign or sublet the premises to a third party and the landlord's ability to decline or agree to an assignment or sublet. Most leases predicate the landlord's consent in this way--"Landlord (or Lessor) shall not unreasonably withhold its consent to such assignment or sublet." If your lease does not even contain an assignment or sublet clause--that is, the lease is completely silent on that issue--in many states you have the right to assign or sublet the premises without the landlord's consent. There are a few states with exceptions to the rule. In practical terms, most experienced lessors of commercial property properly protect their interests by including the clause and stipulating conditions under which it can be used.
Assigning and subletting are two different concepts. In an assignment, the tenant assigns all of its interest in the premises to a new party, and the new party pays rent directly to the landlord and is responsible for meeting other obligations of tenancy--for example, maintaining appropriate licenses for doing business and insurance. In many leases, even when the tenant assigns the lease to another party, the assignment clause may require the original tenant to remain fully or partly responsible for the assignee's obligations. On the other hand, if the tenant subleases space to another party (the sub-tenant), the tenant remains responsible for all the terms of the lease. For example, the sub-tenant pays its rent to the tenant, which then makes the full rental payment to the landlord. If the sub-tenant damages property or fails to maintain appropriate insurance, the tenant is responsible for making the landlord whole for any losses. In the scenario above, the tenant can sublet to multiple sub-tenants.
Because the ability to assign and sublet is based on the "reasonable" consent of the landlord, the tenant and landlord may agree on certain standards for assignees and sublets, most of which are financial related, but one or two standards will take the ambiguity out of the concept of "reasonable" consent.
Unless the original lease agreement forbids assignment then you can assign the lease to another party. Many commercial leases will either bar the practice or require landlord permission prior to assignment. However, it is often in the best interest of the commercial landlord to allow for assignment of a lease.
A lease assignment transfers all rights to the property from the original leasee to the assignee. This means the assignee not only takes over the property but the rent payments as well. Rent is paid directly to the landlord and the leasee has no other direct obiligations. However, the leasee is still under contract with the landlord. Should the assignee fail to pay rent or damage the property, the leasee assumes responsability for the damages according to the assignment agreement.
An assignment differs from a sublease in this aspect. In a sublease, the leasee can evict the assignee upon non-payment or violations. Think of a lease assignsment as co-signing on a loan. The assignee is responsbile for maintaining the property and paying rent; however, if the assignee fails to do so, the landlord can expect the original leasee to make the payments under their contract.