Navigating the assignment of a commercial lease

Special circumstances can require a tenant or a landlord to assign a commercial lease. Find out the most common situations for a commercial lease assignment and whether it's right for your situation.

Find out more about real estate and business

Ronna L. DeLoe, Esq.

by Ronna L. DeLoe, Esq.

Ronna L. DeLoe is a freelance writer and a published author who has written hundreds of legal articles. She does.

Updated on: January 9, 2024 · 3 min read

Tenant's assignment of a commercial lease
Getting the landlord's consent
Contents of a tenant's assignment agreement
Landlord's assignment of a commercial lease

If you're running a business, you may find yourself in a situation where you need to break a commercial lease. As a tenant, one option is to assign the lease, which means removing yourself completely from the lease and transferring it to a third party.

Woman typing on laptop on wooden desk in airy office with powder blue bike resting against full length windows

There are also instances when a landlord may need to assign a commercial lease, such as when a property is sold. In doing so, you sell the building with any leases intact, which requires assigning your right to collect rent to the new owner.

Tenant's assignment of a commercial lease

There are many reasons a tenant may want to get out of a commercial lease, including not being able to afford the rent and needing less or more space. Because it's unlikely a landlord will simply let you walk away from your commitment, you should check what your lease says about early termination. Most commercial leases require the tenant to pay rent for the rest of the term and possibly additional fees for breaking the lease.

Assignment of the lease is another alternative to breaking it. In doing so, you give the new tenant, known as the assignee, the right to occupy the premises in your place for the remainder of your lease term.

Getting the landlord's consent

Almost all assignments of commercial leases by the tenant need the landlord's consent, so check your original lease for any such language. As with a residential lease, a landlord cannot unreasonably withhold consent for you to assign the lease. However, it's up to you as the assignor, or original tenant, to ensure that your assignee is reliable, responsible, and can pay the rent—or you may end up being held financially liable.

If the tenant assigns a commercial lease to a new tenant without the landlord's permission, the landlord can sue the original tenant for breaking the lease. The landlord can also collect damages against one or both tenants if he can show that the assignee isn't a good-paying tenant or doesn't have the type of business he wants in the building. He can also end the lease and evict the new tenant.

Contents of a tenant's assignment agreement

Assignment of a commercial lease is almost always accompanied by a written agreement to preserve both the tenant's and landlord's rights. Some states require written assignment agreements. Many commercial assignment agreements contain provisions for the:

Payment of fees to the landlord for having another business substitute for yours
Assignor's and assignee's names, addresses, and business names
Landlord's name, address, and business name
Amount of the new tenant's rent and the dates for payment
Date of the agreement
Date the assignment is effective
Date the lease ends
The landlord's, assignor's, and assignee's signatures

Assignment agreements usually don't contain a provision releasing the assignor from paying rent, meaning that you, as the assignor, are held responsible for payment. Even so, assignment can be a financially responsible option for a tenant who's going out of business or who needs new space immediately.

Landlord's assignment of a commercial lease

Sometimes a commercial landlord needs to sell his property. After the new owner, or assignee-buyer, buys the property subject to existing leases, the assignor-landlord assigns the leases to the new owner, who can then collect rent. The assignor-landlord notifies tenants by sending a notice of sale, a notice of assignment of lease, or a notification on letterhead listing the assignee-buyer's address for payment of rent.

Unless the lease states otherwise, you, as landlord, can sell your property to anyone, but make sure to get a hold harmless clause, also known as an indemnity clause, in your contract of sale. Such clauses protect you from liability to the tenant if the buyer doesn't perform her duties as a landlord. Otherwise, as the original landlord, you're still liable for your obligations to the tenant, such as keeping the premises habitable.

Under the right circumstances, assignment of a commercial lease can work for both landlords and tenants. If you need assistance with your assignment agreement, consider using an online service provider to prepare it for you.

Find out more about Real Estate and Business

This article is for informational purposes. This content is not legal advice, it is the expression of the author and has not been evaluated by LegalZoom for accuracy or changes in the law.