sublease and assignment

What is Assignment of Lease and How It Differs from Subletting

The assignment of lease (and rent) is a foggy topic that is often confused with subletting. Let's clear the air once and all right now. Learn the differences between a lease assignment and sublease so you can make the right choice.

What is Assignment of Lease? - The Important Basics

Let's begin by introducing the 3 players in a lease assignment - The landlord, the original tenant (assignor) and the new tenant (assignee). The original tenant has an unexpired lease agreement with the landlord and he wants out. Since the original tenant can't just break the agreement and walk off, what he does is to get a new tenant to swap places... and take over all his rights and obligations for the remainder of the lease period. So if the original tenant signs a 1 year commercial lease and the business goes bust after 8 months, the new tenant will be assigned a 4-month commercial lease (with the same terms and conditions as the original agreement). Now here's the big catch: Even though the original tenant has handed over all his duties and obligations to the new tenant, he is not off the hook... unless the landlord agrees to release him from all liabilities. If the new tenant stirs up trouble, our dear original tenant will find himself in hot soup as well. Of course, whether the original tenant is allowed to pull this assignment trick out of his hat is a whole new matter. Knowing for sure is actually simpler than most people think: First, examine your local landlord tenant laws for any lease assignment rules. Most of the time, landlords are given the right to allow or disallow assignments but once in a while, the local law let tenants have the final say instead. If there's no mention of lease assignments in your law text, then your rental lease agreement shall dictate the terms.

Difference Between Lease Assignment and Subletting

When it comes to subletting vs assignment of lease, there's often a massive mix-up. Sometimes even real estate professional get it wrong by assuming them to be one and same thing. However if you dig deeper, you will find that the differences are not just numerous, but important as well. Let's begin by dragging the landlord into the picture. An assignment of lease launches the new tenant into a direct relationship with the landlord - The landlord collects rent straight from the new tenant and deals with the new tenant directly on all lease issues. So in this case, the original tenant gets to take back seat and doesn't have to manage the new tenant actively. On the other hand, there's no direct relationship between the landlord and new tenant (subtenant) in a sublease. Instead the original tenant plays mother goose and is responsible for collecting rent from the subtenant and making sure that he's following the lease rules. When you compare the two, a sublease is a lot more hands-on for the original tenant. No matter which path you take, you will still want a good new tenant who pays the rent on time and follows the lease rules to the agreement. For the golden rules on screening tenants and running credit checks, Click here for our guide to running tenant credit checks. When you have a lease assignment, the terms and conditions of the lease remains largely unchanged - It's almost like taking the original lease agreement and swapping the tenant's name with another. With a sublease, there's more breathing space - The original tenant can decide how much rent to charge, how long the subtenant is going to stay or even collect security deposit... as long as it stays within the boundaries drawn by the original lease agreement between the landlord and original tenant.

Should You Choose Assignment of Lease or Sublease?

You are the Landlord - A lease assignment is recommended in most cases. You will have more control over your new tenant (instead of leaving matters in the original tenant's hands and hoping that he would do a good job)... plus you still have the original tenant to cover your back in case anything goes wrong. You are the Original Tenant - Now this is a tricky one. If you want to someone to take over the entire lease and property for its remaining duration (e.g. your business goes belly-up and you no longer need the office), then help yourself to a lease assignment. If the landlord's consent is required for assignment (and he doesn't give the nod), you can always try offering him a lease assignment fee as a deal sweetener. However, if you are looking for someone to share the place (and rent)... or perhaps you need someone to cover the rent while you are overseas for a few short months, then a sublease would be ideal. You are the New Tenant - An assignment of lease works better for you most of the time. You won't be at the mercy of the original tenant (for example if he screws up and the landlord terminates the original lease agreement, your sublease might also go up in flames). But if you only want to rent part of the property... or don't want to tie yourself down for the remaining lease duration, then you are better off sticking to a sublease. Now that we have covered the topic of assignment vs sublease, go ahead and take your pick - Click here for an assignment of lease form or Click here for a sublet agreement instead.

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Key terms and definitions

Obtaining landlord permission, tenants and subtenants responsibilities and liabilities, protecting the tenant from sublease pitfalls, putting the agreement in writing, alternatives to subleasing, final takeaways, templates and examples to download in word and pdf formats, tenants and subtenants obligations under a sublease agreement.

From finding a new job in another state to returning home to care for a sick family member to taking the big step of moving in with a new partner, many people find themselves in a situation where they need to cancel their existing lease so they can move somewhere else. Unfortunately, many landlords are reluctant to cancel existing leases, since that puts them in the position of potentially losing money while they look for a new tenant to fill the space. However, there is a solution that is workable for tenants while also being amenable to many landlords: a Sublease Agreement , also known as a sublet. There are many misconceptions about how subleases work and the responsibilities of people involved. This guide will walk through the most important terms to know and the main issues to be aware of when creating a sublease arrangement:

1. Differences between a sublease and an assignment

2. How to get permission from a landlord to sublet

3. Responsibilities and liabilities of the tenant and subtenant

4. Protective measures for the tenant

5. Sublease alternatives

There are many terms used in subleasing that are often used interchangeably and in confusing ways. However, the key distinction is between subleases and assignments . Both of these can be easily created, but have different legal implications and responsibilities for the involved parties that will be explored further in this guide.

What is a "sublease"?

A Sublease Agreement involves a transfer of less than all of the lease . For example, if a person living alone in a leased two bedroom apartment decides to rent out the spare bedroom to a new roommate, that would be a sublease. Or, if a person rents their whole apartment to someone for a couple of months while they travel for the Summer, but then return to the apartment in the Fall, that would also be considered a sublease. The main parties involved in a sublease are:

1. the original tenant , also known as the sublessor , who is the person who first rented the property and plans to rent the space to a new renter, and

2. the subtenant , also known as the sublessee , who is the person who rents their property from the sublessor.

What is an "assignment"?

An Assignment Agreement involves the entire remainder of the lease being transferred to a new tenant. For example, if someone was required to move to a new state for their job and a new tenant takes over the remaining six months on their lease, that would be called an assignment. The main parties involved in an assignment are:

1. the assignor , who is the person who originally rented the property, and

2. the assignee , who is the person renting the property from the assignor and taking over the remainder of their lease.

The first, and most important step, in arranging a sublease or assignment agreement is getting permission from the landlord. The landlord must consent to the arrangement and put this consent in writing using a Consent to Sublease form. If a tenant does not get the consent of the landlord, they leave both themselves and their subtenant or assignee in danger. The landlord would have the option of evicting the tenant, in the case of a sublease, or evicting the assignee, in the case of an assignment, for violation of the original lease agreement. Further, the landlord would feel less obligated to correct defects with the property, such as fixing leaky faucets or broken appliances, given that they do not have a valid agreement with the subtenant or assignee to provide these services.

Unless it says otherwise, when the lease prohibits tenants from subletting or assigning without their landlord's consent, ordinarily the landlord can arbitrarily refuse to permit a sublease or assignment according to their own discretion . However, some states and many leases now provide that the landlord must not unreasonably refuse to give consent to a sublease or assignment. In these instances, if the tenant is able to find a new person who will be at least as good a tenant -- able to pay rent on time, not play the stereo too loud, and follow the other agreements in the lease -- the landlord must accept that person as a subtenant.

If a person's lease prohibits them from assigning the lease without permission from the landlord but does not mention anything about subletting, would that person still be able to sublet the apartment to their friend? Yes, if the lease states only that an assignment is forbidden, the person would still be able to sublet their apartment. Conversely, if the lease prohibits only subletting, the tenant would be able to assign the lease without their landlord's approval. Both actions are prohibited only if the lease says that the tenant cannot sublease the property OR assign the lease without the landlord's consent. Note, however, that some cities, such as New York, have ordinances regulating subleases that take precedence over private agreements.

When subleasing an apartment, the original tenant should try their best to find a person who they think is trustworthy and will continue to pay the rent. The main reason for doing this is that the original tenant remains responsible for making sure the rent gets paid . The subtenant usually does not have to answer to the landlord, only the original tenant; the landlord can generally only sue the original tenant for the rent . If the subtenant does not pay the rent on time, the landlord can start eviction proceedings against the original tenant. If the subtenant owes several months of back rent, the original tenant is responsible for making sure it is paid. In the same way, the original tenant is responsible for making sure the rental is in good shape even if they are not currently living there.

What can a tenant do if they end up paying for the outstanding rent or damage a subtenant did to the property? The tenant can then go to the subtenant to ask that they be reimbursed for this money and take them to small claims court if they refuse to pay.

Unlike in a sublease, in an assignment, if the assignee fails to pay the rent, the landlord can go directly after the assignee for the unpaid rent . The landlord can also sue the assignee for any damage to the apartment that they are responsible for. Be aware, however, that the landlord can still sue the assignor, or original tenant, as well, even if the landlord consented to the assignment. The landlord has their choice of who to go to when they are looking to get paid.

Before subleasing a property or assigning a lease, the original tenant should make sure their subtenant or assignee is a responsible person who will pay the rent on time and will not damage the apartment. In a sublease or assignment, the original tenant essentially steps into the role of landlord to their subtenant or assignee. Therefore, it's important for them to protect themselves the same way a landlord would. When entering into sublease or assignment agreements, the original tenant often puts protective measures in place , including requiring payment of a security deposit, often equal to at least one month's rent, and putting the terms and agreements of the sublease in writing, including details like the length of the sublease or assignment, the amount of rent, when and to whom it must be paid, late charges, payment for damages, and so on.

Since the original tenant is acting as a landlord when subleasing, they are bound by some of the same laws that apply to the landlord . For example, each state has different rules and guidelines about the maximum amount that may be charged for a security deposit. In most cases, the original tenant may not reenter the property without giving appropriate notice to the subtenant. However, particular to assignments, those agreements often include a provision that the original tenant has the right to reenter the property and retake possession of it if the assignee fails to pay the rent. This gives the assignor some additional protection if the assignee defaults on the lease.

Once all parties, including the original tenant, subtenant, and landlord agree to the sublease or assignment, it should be put in writing. A written agreement works to protect all of the parties and their rights and obligations under the lease agreement . An oral agreement is enforceable in some states, but in all cases is subject to potential misunderstandings and challenges in court. A written Lease Assignment Agreement is usually relatively brief since it incorporates all of the provisions included in the original Residential Lease Agreement or Commercial Lease Agreement . A Sublease Agreement is more extensive and includes specifics related to when and to whom rent payments will be made, whether the subtenant will pay a security deposit to the original tenant and if so the method and amount of that payment, who will receive notices related to the rental. Once a Sublease Agreement or Lease Assignment Agreement has been put into writing, it should be signed by all involved parties. The Agreement must always be signed by the tenant and subtenant or assignee. However, the document may also be signed by the landlord to serve as a written record that the landlord grants their permission and is aware of the arrangement.

What if a tenant must move out of their rental property for some reason, say, six months before the lease expires, but they don't want to worry about the potential hassle and risk of finding a subtenant or assignee? The lease may give the tenant the right to cancel their lease by giving a certain amount of notice, usually two to three months. In a month-to-month lease, the tenant usually must give only thirty days notice. If the lease does not allow for this, the tenant has the option of finding a new tenant, subject to their landlord's approval, and the tenant's own trouble and expense. When the tenant finds a suitable person, they can ask their landlord to sign a document releasing them from their original lease . The landlord will then have the new tenant pay a deposit and sign a new lease. If the landlord agrees to do this, the original tenant will no longer be liable for the rent or acts of the new tenant. This solution is often acceptable to reasonable landlords.

Subleasing can be a great option for someone looking to move somewhere else, either temporarily or permanently, while they are in the middle of their current lease term. Here are the most important things to remember when setting up a sublease or assignment agreement:

• A sublease is a transfer of less than all of the lease; an assignment is a transfer of the entire remainder of the lease.
• The landlord must grant their permission for the sublease or assignment in writing if the tenant wants to protect themselves from future liability.
• In a sublease, the landlord can only go after the original tenant for rent or damages owed by the subtenant; in an assignment, the landlord can go after either the original tenant or the assignee.
• The original tenant can use measures such as collecting a security deposit to protect themselves in case the subtenant or asignee fails to pay the rent or causes damages.
• The best way to protect all involved parties is to put the agreement in writing.

About the Author: Malissa Durham is a Legal Templates Programmer and Attorney at Wonder .Legal and is based in the U.S.A.

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• Handling Subleases and Assignments as a Landlord

After you have completed the often long process of screening and moving in a new tenant, sometimes tenants inform you that they wish to end their lease early, typically due to reasons such as a job change or moving in with a significant other. This can be disheartening when you have put in the work to get the vacancy filled, and it may be tempting to minimize the additional work you may have to do to get the unit rented again by agreeing to a tenant’s proposal to sublease or assign their tenancy to a new person of their choosing. While there can be benefits to subleases and assignments, and in some places you cannot outright ban or unreasonably refuse a sublease, there are some pitfalls to be aware of with both options, as well as an alternative that may be preferable. It has also become increasingly popular for tenants to use their units for short-term vacation rentals, a practice which additionally carries a number of downsides for landlords.

When a tenant wants to leave their lease early or temporarily, and proposes to have a substitute tenant of their choosing live in the rental in their place and pay rent to the original tenant, this is called a sublease. For example, your original tenant may be a college student who plans to study abroad for a semester, but wishes to return after that. Another example may be if the original tenant wishes to rent out part of the unit, perhaps just one bedroom, in order to help them cover their expenses. In order to give you more control of these situations should they arise, it is best to have a clause in your lease specifying whether subleases are allowed, and if so, setting forth a requirement for the tenant to obtain your written permission or meet other criteria before subleasing the rental. Be sure to check state and local law regarding subleases, as some jurisdictions do not allow you to unreasonably deny requests to sublease, even if your individual lease does not permit them. It is also wise to require a subtenant to undergo the same screening process as the original tenant with regard to credit history, income, and other factors, but as always you should not make your decisions based on discriminatory factors.

Landlords should thoroughly screen potential subtenants and assignees even if the time left on a lease or periodic rental agreement is short. A bad subtenant or assignee can wreak a lot of havoc in a short amount of time or even refuse to leave once the lease or rental agreement is up.

The primary advantage of allowing a sublease is that you will presumably have an uninterrupted stream of income for the rental unit, which won’t sit vacant while you find a new tenant. Especially if the sublease request has come from a good and trustworthy long term tenant, then it may be worthwhile to grant the request and trust their judgment regarding who the subtenant is, subject to meeting your screening requirements. Your original tenant will also remain responsible for any failure to pay rent during the subtenancy, as well as any damage to the property. The downsides of allowing a sublease include that because the original tenant, rather than you, will be the subtenant’s landlord, it may be difficult to enforce the terms of the lease in the event of any violations. The subtenant may also refuse to leave at the agreed-upon time, potentially making it necessary for you to evict both them and the original tenant.

Assignments

An assignment is similar to a sublease in that it involves someone new taking the place of the original tenant, but the original tenant in these cases does not intend to return. The assignee assumes the legal place of the original tenant in the lease, meaning that they are renting from you rather than the original tenant. This means that the assignee is typically responsible for all of the original tenant’s general obligations under the lease, which allows you to pursue legal action against them in the event of a violation. Further, if the assignee fails to pay rent , you can actually pursue payment from the original tenant. Therefore, an assignment allows you the advantage of an uninterrupted supply of income for the unit without requiring you to do as much work to find a new tenant, and permits you to hold the original tenant responsible if the assignee does not follow through on their obligation to pay rent.

• The original tenant remains liable for the rent (the subtenant is liable to the original tenant)
• The original tenant remains liable for lease violations
• The landlord must evict the original tenant in order to evict the subtenant

Assignment:

• The assignee becomes liable for the rent, and the original tenant is only liable if the assignee does not pay
• The assignee becomes liable for lease violations
• The assignee can be evicted for any reason for which the original tenant could have been evicted

Creating a New Tenancy

While allowing a sublease or assignment may be advisable in some situations, in many cases the best and simplest option is to terminate the original tenant’s lease in writing and begin a new lease with the new tenant. This may still allow you to take advantage of the original tenant’s legwork in identifying a replacement tenant provided that the new tenant meets your requirements, but gives all the parties the added benefit of clarity when it comes to the legal relationship between you and the new tenant, especially if things go awry after they move in.

Short-Term Rentals

Particularly in competitive rental markets and large cities, tenants are turning to short-term rental services like Airbnb to rent out the units they themselves rent, and make a profit by collecting a fee from their guests. Many landlords disfavor this practice due to the increased wear and tear on the rental, people they haven’t screened using their property, and possible liability issues, among other things. Further, a number of cities have begun to highly regulate if not outright prohibit short-term vacation rentals of this nature. If you do not wish to allow tenants to host short-term vacation renters, once you have checked your local laws on the topic, it is best to clearly prohibit this practice in your written lease or rental agreement, and distinguish this type of rental from more standard subleases.

Last reviewed October 2023

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Sublease: Definition, How It Works, Laws, and Example

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

What Is a Sublease?

A sublease is the re-renting of property by an existing tenant to a new third party for a portion of the tenant’s existing lease contract. The sublease agreement may also be called a sublet.

Subleasing may or may not be permitted in the terms of the original lease, and may be subject to additional restrictions by jurisdiction. Even if a sublease is permitted, the original tenant is still liable for the obligations stated in the lease agreement, such as the payment of rent each month.

Key Takeaways

• A sublease is the legal transfer of tenancy from an existing tenant to a third party for a specified period.
• The owner of the real estate must typically approve any subletting arrangement offered by the first tenant, subject to local laws and regulations.
• If a tenant decides to sublease, they remain responsible for rent payments and other contractual obligations.

How a Sublease Works

A lease is a contract between a property owner and a tenant that transfers the owner’s rights to the exclusive possession and use of the real estate property to the tenant for an agreed-upon period. The lease states the length of time the contract is to run and the amount of the tenant’s rent. In legal terms, the tenant’s legal right to possess the property is deemed tenancy. Subleasing occurs when the tenant transfers a part of their legal tenancy to a third party as a new tenant.

Subleasing can be established unless the original lease forbids it. However, in most cases, the owner must be notified and must approve any subletting arrangement created by the tenant. Control over the subletting process could be written into the original lease so that the owner has some control over who uses and/or occupies their property.

A tenant who sublets property must understand that subleasing does not release them from their obligations on the original contracted lease. The tenant is responsible for paying rent and for repairs or damage to the property. That means that if a new subtenant does not pay rent for three months, the original tenant that subleased the property is liable to the landlord for the overdue rent amount and any late fees . In turn, the subtenant is liable to the original tenant for the unpaid rent.

Subleasing and State Laws

The laws of many states and local municipalities affect a tenant’s right to sublease. These laws may allow an individual to sublease under certain conditions even if their contract with the landlord forbids it. For example, in New York City, a tenant who lives in a building with four or more units has the right to sublease, as long as the landlord consents—or if they deny the sublet on unreasonable grounds, Any lease provision restricting a tenant’s right to sublease is void as a matter of public policy.

In San Francisco, a tenant can replace a roommate with another, even when prohibited by a written lease, as long as the replacement meets the landlord's application screening standards. For example, a landlord might demand a certain credit score where a tenant is concerned. Subleases can apply to both residential and commercial properties.

When subleasing, it's standard for only the original tenant's name to be on the lease—even if the sublessee pays the landlord directly.

Example of a Sublease

Because a lease is generally for a predefined term, situations can arise that make it difficult or impossible for the original tenant to complete the lease term. For example, if a tenant is renting an apartment in Chicago with a 12-month lease and, during month four, that tenant receives a job offer in Boston, the tenant may decide to sublease the apartment to another tenant for the remaining eight months. The sublease means that the original tenant can accept the job and move and does not have to pay expensive fees to get out of the lease or pay rent on two apartments.

The landlord also benefits because they receive all 12 rent payments and are saved the expense and effort of finding a replacement tenant. The sublease arrangement also means that the original tenant retains an interest in the apartment. Thus, if the original tenant decides to move back to Chicago, they may be able to renew their lease on their old apartment.

Office of the New York State Attorney General. " Residential Tenants’ Rights Guide ," Pages 26-27. Accessed Oct. 7, 2021.

City and County of San Francisco Rent Board. " Topic No. 151: Subletting and Replacement of Roommates ." Accessed Oct. 7, 2021.

• Apartment List. " What is Subletting? Guide to Sublet Apartments ." Accessed Oct. 7, 2021.

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What is the Difference Between an Assignment and a Sublease?

by Pam Pester | Sep 17, 2019

Commercial real estate clients frequently ask how an assignment of a lease differs from a sublease.  The difference is primarily a legal one, although each achieves a similar practical result.

Assignment .  An assignment of a real estate lease is a complete transfer of the right to be the tenant under the lease.  The third-party assignee becomes the “tenant” under the lease, taking over all of the leased premises, and is substituted for the old tenant. The new commerial real estate tenant pays the rent required under the lease directly to the landlord and is treated as the tenant under the lease for all purposes.  However, the catch is that the assignor tenant, unless released from liability by the landlord, remains liable for the obligations under the lease if the new tenant defaults. The old tenant can be sued by the landlord for back rent and other obligations imposed by the lease if the new tenant fails to pay or perform as required by the lease.  Given that a commercial real estate tenant who assigns a lease remains liable for the default of the new tenant, tenants should try to negotiate an automatic release provision.  Unfortunately, many landlords are unwilling to make this concession. An alternative strategy is to ask the landlord for a release if the proposed new tenant is of similar financial strength and creditworthiness.

Sublease. A sublease is a new lease agreement between the real estate tenant as sublessor and a third party as sublessee for all or a portion of the leased premises. The original commercial real estate lease between the tenant and the landlord remains in place, unaffected by the sublease. This means that the tenant remains liable for monthly rent under the original lease, while collecting rent from the subtenant under the sublease, which may be more, less or the same as the rent due under the main lease.

A sublease can be for less than all of the leased premises, while an assignment that transfers the entire lease must be for all of the premises. A sublease is a more involved transaction, as it requires a full sublease document between the commercial tenant as sublessor and the sublessee.

Reasonable Consent .  The landlord must be reasonable in consenting to the proposed assignment or sublease. Under Florida law a landlord cannot be unreasonable or arbitrary in withholding consent to an assignment or sublease. Nonetheless, it is still better to state in the text of the lease that the landlord will be reasonable.

In drafting an assignment or sublease clause, the tenant’s goal is flexibility. Being able to assign or sublet excess space with minimal interference from the landlord and minimal liability in the event the new tenant defaults can be a tremendous benefit to the tenant as the business climate changes from year to year.

When you need assistance with your commercial  lease in Tampa, FL and surrounding areas contact Pam Pester, Owner and President of Mobiliti CRE.  Mobiliti CRE is an independently owned commercial real estate company specializing in exclusive tenant and buyer representation.

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Apr 07, 2021

The differences between assignment and sublease.

By Don Catalano

An assignment is the transfer of the commercial tenant’s entire responsibilities in a lease. When a corporate tenant assigns its lease, the assignee takes over the tenant’s responsibilities under the lease and communicates directly with the landlord.

When a tenant decides to assign a lease, all his rights and responsibilities in the original lease agreement are released to the third-party assignee. Hence, the original tenant (the "assignor") will have to leave the unit and allow the new tenant to take over all of the leased building.

It is important to check the clauses in the original lease agreement before committing an assignment arrangement. In some leases, the original tenant will remain responsible for the terms of the lease, especially if the new tenant defaults on the lease agreement or causes damage to the property. You may want to check your lease agreement for the option to pursue a permanent assignment so you won't be responsible for expenses or damages.

When a corporate tenant subleases an office , the tenant is transferring all or a portion of the premises for less than the entire term of the lease. Subletting is when a corporate tenant gives another tenant the right to occupy a portion of the entire rental unit for a specific period.

Corporate tenants often sublease when market rents have fallen and parties needing space typically sublease to get space already built-out at a much lower rate than they could as a direct tenant.

Do Both Options Need a Landlord’s Consent?

Both subletting and assigning a commercial lease require the permission of the landlord or a representing agent; this is often expressly indicated in the lease agreement itself. Although most state laws prohibit landlords from withholding consent unreasonably. If the landlord objects to the sublet or assignment, then they must do so on reasonable grounds.

In the case of assignment, a vetting procedure which usually includes credit checks may be completed before formalizing the arrangement with the associated documentation.

Is Subletting or Assignment Right For My Company?

Whether to sublet your commercial property or assign a commercial lease depends entirely on your business situation. By subletting unused space, tenants can recover vital running costs and even improve the viability of their own business. Also, the original tenant remains the tenant and is responsible for all clauses in the original lease.

Assigning your commercial lease to a third party is a good option if you want to terminate your tenancy before the end of your agreement and vacate the premises completely. This is often a good idea if you are planning to sell or relocate your business . With an assignment, you will be absolved of all responsibilities as the original tenant from the date of assignment.

Here are a few other articles to check out:

8 working from home tips you should know, 4 site selection tips when looking for office space, 5 tips when moving your office from big cities to the suburbs, subscribe for more great cre tips hbspt.cta._relativeurls=true;hbspt.cta.load(121314, 'cd3ad71f-75e1-4533-9c5a-8e82767e7aba', {"usenewloader":"true","region":"na1"});.

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Assignment, Subleasing, And Why It's Important To Negotiate The Right To Do Both

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In the market for commercial space? Chances are you’re focusing your efforts on sourcing a property that suits your current business requirements.

However, in today’s ever-changing economy/business climate, companies often need to upsize or downsize at short notice.

As a tenant, where does that leave you when locked into a long-term commercial lease?

Keep it flexible

It’s hard to anticipate whether you’ll be faced with breaking a lease before it happens. So, it’s important to keep your contract flexible by negotiating a subleasing and assignment clause into your agreement. This means you’ll be able to transfer all or part of your space to another tenant down the track if the situation calls for it.

What’s the difference between an assignment and a sublease?

Lease assignments and subleases are often viewed in a similar light. This is because both bank on a third party taking over a commercial lease. But, there are some important differences to consider:

Lease assignment

A lease assignment is when an entire property/space, including the existing tenant’s rights and interest in the commercial lease, is transferred over to a new party.

When it comes to leasing assignments, the new tenant takes on the rights and responsibilities of the assigning tenant. That means the original tenant is not liable anymore if the new tenant breaches the lease.

Lease assignment is best undertaken when:

• The whole lease can be disposed of
• The current lease has favourable terms that would be accepted by another tenant

Major hurdles when it comes to lease assignment:

• Requires upfront capital incentive
• Requires landlord consent

A sublease, on the other hand, is a separate contract between the original tenant and a subtenant. Unlike an assignment, a sublease only turns over part of a property. That means that the original tenant shares the rights and responsibilities to the premises.

A sublease may be preferable for tenants who wish to lease out part of their property to another company for the remainder of the lease term. It may also suit if a tenant needs to rent out the entire property for a period within their fixed-term lease.

In this case, the sublessee treats the sublessor as their landlord. In turn, the sublessor assumes liability on behalf of the sublessee.

Subleasing is best undertaken when:

• You're looking for a partial or temporary cost saving initiative
• Your landlord does not consent to or permit assignment
• Your current lease has. onerous clauses that another tenant wouldn’t agree to

Major hurdles when it comes to subleasing:

• Inherent security risks
• You’ll likely recuperate less than 50%-70% of the rent

You can learn more about some of the benefits of commercial subleasing here and what commercial sublessors should expect from subleasing here .

The importance of a lease assignment and sublease clause

The right to assign or sublet a premises comes down to the language used in the commercial leasing agreement.

If there is no prohibiting or limiting clause, a tenant does not need the landlord’s permission to do so. However, if the contract contains such provisions, the existing tenant needs to get the landlord’s consent. This can prove quite costly for the tenant, who may have to continue to pay rent even if they no longer occupy the premises.

Other options for breaking a commercial lease

The odds usually aren’t stacked in the tenant’s favour when it comes to breaking a commercial lease . However, if you used a tenant representation specialist before signing your contract, you should have received the right advice to protect yourself.

Break clause

Well negotiated leases may have a ‘break clause’, however, most landlords are reluctant to include one of these. A break clause basically lays out the circumstances and the manner in which a tenant can break a commercial lease early.

As with any contract, it’s up to the two parties to negotiate terms. One option may be to allow early termination of a lease if a new tenant with similar financial security takes over. This is similar to an assignment. However, the new tenant would take over the full liability of the remaining lease.

Pay out the commercial lease term

Not a desirable option for most tenants, however, there may be situations where it is the only choice. For example, if you were closing your business before the expiry of your lease term and there was no way to arrange an assignment or sublease, paying out the remainder of your term may be the only course of action.

Most people would consider this a worst-case scenario. This, again, highlights the importance of seeking the help of a tenant representation specialist prior to signing any commercial lease .

Commercial tenants should try to mitigate their risks upfront. Before signing a lease, or even at the heads of agreement stage , we suggest negotiating a clause which requires a landlord to act reasonably in the case of lease assignment or sublease.

Work with a commercial tenant advocate

Negotiating commercial lease terms can be tricky (even daunting at times). This is because most businesses only have to do it once every 5-10 years. Being able to negotiate provisions that would not otherwise be included may also prove challenging because landlords prefer not to limit their options.

Luckily, an experienced tenant representative will guide you through the lease negotiation process so your needs are met every step of the way. So, the next time you face a lease negotiation, let Tenant CS balance the playing field.

Considering breaking your lease? Whether you're exploring options like subleasing, assigning, or surrendering, a detailed property strategy is crucial.

Consulting with a tenant representation specialist is your best move, especially if there's less than a year remaining on your lease. At Tenant CS, we exclusively represent tenants, not landlords. Whether you need assistance with subleasing, exiting your lease, finding and negotiating a new lease, or undertaking a mid-lease rent review, appointing us can potentially save you hundreds of thousands of dollars over your lease term while protecting your interests.

Book a call with us today to discover how we can help you effectively negotiate your next lease or exit your current lease early !

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Assignment of Lease

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What is an assignment of lease.

The assignment of lease is a title document that transfers all rights possessed by a lessee or tenant to a property to another party. The assignee takes the assignor’s place in the landlord-tenant relationship.

You can view an example of a lease assignment here .

How Lease Assignment Works

In cases where a tenant wants to or needs to get out of their lease before it expires, lease assignment provides a legal option to assign or transfer rights of the lease to someone else. For instance, if in a commercial lease a business leases a place for 12 months but the business moves or shuts down after 10 months, the person can transfer the lease to someone else through an assignment of the lease. In this case, they will not have to pay rent for the last two months as the new assigned tenant will be responsible for that.

However, before the original tenant can be released of any responsibilities associated with the lease, other requirements need to be satisfied. The landlord needs to consent to the lease transfer through a “License to Assign” document. It is crucial to complete this document before moving on to the assignment of lease as the landlord may refuse to approve the assignment.

Difference Between Assignment of Lease and Subletting

A transfer of the remaining interest in a lease, also known as assignment, is possible when implied rights to assign exist. Some leases do not allow assignment or sharing of possessions or property under a lease. An assignment ensures the complete transfer of the rights to the property from one tenant to another.

The assignor is no longer responsible for rent or utilities and other costs that they might have had under the lease. Here, the assignee becomes the tenant and takes over all responsibilities such as rent. However, unless the assignee is released of all liabilities by the landlord, they remain responsible if the new tenant defaults.

A sublease is a new lease agreement between the tenant (or the sublessor) and a third-party (or the sublessee) for a portion of the lease. The original lease agreement between the landlord and the sublessor (or original tenant) still remains in place. The original tenant still remains responsible for all duties set under the lease.

Here are some key differences between subletting and assigning a lease:

• Under a sublease, the original lease agreement still remains in place.
• The original tenant retains all responsibilities under a sublease agreement.
• A sublease can be for less than all of the property, such as for a room, general area, portion of the leased premises, etc.
• Subleasing can be for a portion of the lease term. For instance, a tenant can sublease the property for a month and then retain it after the third-party completes their month-long sublet.
• Since the sublease agreement is between the tenant and the third-party, rent is often negotiable, based on the term of the sublease and other circumstances.
• The third-party in a sublease agreement does not have a direct relationship with the landlord.
• The subtenant will need to seek consent of both the tenant and the landlord to make any repairs or changes to the property during their sublease.

Here is more on an assignment of lease here .

Parties Involved in Lease Assignment

There are three parties involved in a lease assignment – the landlord or owner of the property, the assignor and the assignee. The original lease agreement is between the landlord and the tenant, or the assignor. The lease agreement outlines the duties and responsibilities of both parties when it comes to renting the property. Now, when the tenant decides to assign the lease to a third-party, the third-party is known as the assignee. The assignee takes on the responsibilities laid under the original lease agreement between the assignor and the landlord. The landlord must consent to the assignment of the lease prior to the assignment.

For example, Jake is renting a commercial property for his business from Paul for two years beginning January 2013 up until January 2015. In January 2014, Jake suffers a financial crisis and has to close down his business to move to a different city. Jake doesn’t want to continue paying rent on the property as he will not be using it for a year left of the lease. Jake’s friend, John would soon be turning his digital business into a brick-and-mortar store. John has been looking for a space to kick start his venture. Jake can assign his space for the rest of the lease term to John through an assignment of lease. Jake will need to seek the approval of his landlord and then begin the assignment process. Here, Jake will be the assignor who transfers all his lease related duties and responsibilities to John, who will be the assignee.

You can read more on lease agreements here .

Image via Pexels by RODNAE

Assignment of Lease From Seller to Buyer

In case of a residential property, a landlord can assign his leases to the new buyer of the building. The landlord will assign the right to collect rent to the buyer. This will allow the buyer to collect any and all rent from existing tenants in that property. This assignment can also include the assignment of security deposits, if the parties agree to it. This type of assignment provides protection to the buyer so they can collect rent on the property.

The assignment of a lease from the seller to a buyer also requires that all tenants are made aware of the sale of the property. The buyer-seller should give proper notice to the tenants along with a notice of assignment of lease signed by both the buyer and the seller. Tenants should also be informed about the contact information of the new landlord and the payment methods to be used to pay rent to the new landlord.

You can read more on buyer-seller lease assignments here .

Get Help with an Assignment of Lease

Do you have any questions about a lease assignment and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from real estate lawyers who specialize in lease assignment.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Meet some of our Assignment of Lease Lawyers

As an attorney licensed in California and currently practicing in Ohio, my primary focus is on drafting and reviewing prenuptial and postnuptial agreements. I offer help in drafting or navigating these agreements, ensuring they are tailored to each client's unique situation and needs. While my background includes experience in cybersecurity, my current legal services are centered around family law, particularly in the creation and revision of prenuptial and postnuptial agreements. Additionally, I provide services in wills and trusts, along with other legal areas, to offer comprehensive solutions to my clients.

As a licensed AL lawyer with over 7 years of experience in the legal field, I have spent more than 15 years working in the business and finance sector. I am deeply passionate about immigration, contracts, & my expertise spans a wide range of projects. From handling ICOs & IPOs to navigating VCs, SaaS, OnlyFans, Wholesaler & Manufacturing Agreements, Prenups, Movie Finance, M & As, Visas, Green Cards and more. I have a comprehensive understanding of various contractual needs. Whatever your contract requirements may be, feel free to reach out to me—I can craft or work on any contract with precision and expertise.

Generated 20+ types of legal documents: contractual agreements, settlement agreements, demand letters, court orders, motions, mediation reports, briefs, complaints. Maintained active caseloads of 30+ clients at a time in high conflict, high emotional costs litigation. Prepared for daily client meetings, weekly trials, multiple daily hearings by creating legal documentation, timelines, case notes, conducting research.

Fabian graduated with honors from the University of Miami School of law, where he served as the articles and comments editor for the law school's Race and Social Justice Law Review. He received the John F. Evans Memorial Scholarship Award for excellence in the university's Litigation Skills Program and the HOPE Pro Bono award for completing more than one hundred (100) pro bono hours. Additionally, he received the CALI Excellence for the future award in Sports Law. He focuses his practice on corporate, real estate and immigration matters. Fabian has experience representing luxury hotel owners and operators in connection with the drafting of hotel management agreements, restaurant license agreements, and complex restaurant leases for domestic and international projects including: Nobu Tulum, Nobu Punta Cana, Nobu Orlando, Nobu Chicago and the Nickelodeon Hotel in Riviera Maya, Mexico, among others. He has represented clients in the commercial real estate industry in connection with the drafting of purchase and sale agreements, promissory notes, and mortgages. Lastly, Fabian routinely counsels corporate clients in connection with the drafting of articles of organization, operating agreements, and other documents related to acquisitions, restructurings and investments.

Erik J. Washington completed his undergraduate studies at Florida A&M University, where he earned his Bachelor of Science degree in Business Administration with a concentration in Finance. Mr. Washington went on to earn his Juris Doctor from Florida A&M University College of Law. Upon receiving his J.D., Mr. Washington was admitted to The Florida Bar and the United States District Court, Middle District of Florida. Mr. Washington started his legal career by working with a boutique Orlando law firm where his practice concentrated on family law, bankruptcy, helping clients with estate planning and probate matters, and advising homeowner’s association boards on proper administration. After that experience Mr. Washington later joined another mid-size Orlando law firm where he would eventually become the Managing Consumer Bankruptcy Attorney where he oversaw the filing and administration of hundreds of chapter 7 and chapter 13 cases. Prior to starting the Washington Law Firm, Mr. Washington was an associate at a Central Florida Bankruptcy law firm working under the tutu ledge of a highly respected bankruptcy attorney with over 20 years of bankruptcy experience. Mr. Washington has learned that bankruptcy is a tool designed that not only benefits a person in debt but is also good for the economy as a whole. It is because this new beginning and fresh start that it becomes a means of not only helping a person in debt, but it gives that person once in debt the chance to reestablish good credit and yet again borrow money to spend. Mr. Washington focuses on consumer bankruptcy, real estate, probate, and auto accidents.

Christopher M.

Skilled and experienced business attorney with vast experience in a wide array of commercial contracts. Strong emphasis on the lodging and hospitality practice field, including real estate acquisition and disposition, management agreements, franchise agreements, design & construction contracting and finance.

I have been licensed for 23 years in Texas and federal courts. I am available to work as registered In House Counsel in other states. For the past 14 years I have practiced Corporate Law, Oil and Gas, Agricultural Law, Commercial Real Estate (transactional), HR Law, and Environmental and Land Use. Prior to that, I practiced Criminal Law for both the prosecution and defense for ten years.

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I’m planning on leasing land from a church. Putting a gym on the property. And leasing it back to the school.

Ok; first step is that you will need a leasing contract with the church. Ask them to prepare one for you so you would just need an attorney to review the agreement and that should cost less than if you had to be the party to pay a lawyer to draft it from scratch. You need to ensure that the purpose of the lease is clearly stated - that you plan to put a gym on the land so that there are no issues if the church leadership changes. Step 2 - you will need a lease agreement with the school that your leasing it do (hopefully one that is similar to the original one your received from the church). Again, please ensure that all the terms that you discuss and agree to are in the document; including length of time, price and how to resolve disputes if you have one. I hope this is helpful. If you would like me to assist you further, you can contact me on Contracts Counsel and we can discuss a fee for my services. Regards, Donya Ramsay (Gordon)

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Subleasing and Assignment Provisions in Commercial Leases

• June 17, 2020

Before the COVID-19 pandemic, many business owners paid little attention to subleasing and assignment provisions when negotiating commercial leases . It was common to focus on rent, maintenance, taxes, and insurance, which affect a tenant’s bottom line, and options to renew the lease if the business thrives. Recently, however, one of the top concerns of commercial tenants is flexibility in case they no longer need to use a portion, or all, of the leased space. In this context, subleasing and assignment provisions are key deal terms.

The Difference Between Subleasing and Assignment

A sublease does not alter the relationship between the landlord and the tenant, who remains liable for all of the tenant’s obligations under the lease. However, the tenant enters into a subordinate lease (the sublease) with a subtenant regarding a portion, or all, of the leased space. After a sublease is signed, the landlord interacts with the tenant, and the tenant interacts with the subtenant.

An assignment alters the relationship between the landlord and the tenant by assigning the tenant’s rights and obligations from the first tenant (the assignor) to the second tenant (the assignee). The assignee steps into the shoes of the assignor, and has a direct contractual relationship with the landlord. After an assignment of the lease, the landlord interacts directly with the assignee.

Important Deal Points Regarding Subleasing and Assignment

Leases may include many provisions regarding subleasing and assignment. Some of the most common issues include the following:

• In what circumstances is landlord consent required? Leases typically require the landlord’s consent for any sublease or assignment. However, some leases have different provisions for special circumstances, such as subleasing or assignment to a related entity, or assignment of the lease in connection with the sale of the tenant’s business.
• What is the standard for landlord consent? Provisions that require the landlord’s consent may be followed by a standard such as “in the landlord’s sole discretion,” or “which may not be unreasonably withheld.” Obviously, the second standard is more favorable to the tenant. However, as a practical matter, if a dispute arises regarding whether a landlord’s denial was reasonable or unreasonable, arbitration or litigation would be expensive, the outcome would be uncertain, and the prospective subtenant or assignee may be unwilling to wait to see how the dispute is resolved.
• What information must be provided regarding the proposed subtenant or assignee? Many leases require confidential financial information regarding the proposed subtenant or assignee. The proposed subtenant or assignee may be more comfortable providing information if the lease contains confidentiality and non-disclosure requirements to restrict the landlord’s use of the information. An argument can be made that less information should be required regarding a proposed subtenant than a proposed assignee, because the landlord will not enter into a direct contractual relationship with the subtenant and the tenant will remain liable under the lease.
• What are the landlord’s alternatives? A tenant might assume that if the tenant requests consent to a sublease or assignment, the landlord’s alternatives will be limited to granting or withholding consent. However, many leases give the landlord a third alternative, to cancel the lease if the tenant requests a sublease or an assignment. This is known as a right of recapture.
• When is the landlord’s response due? Some leases do not set a deadline for the landlord’s response to a request for consent to a sublease or assignment. A delayed response would prevent the tenant from moving forward until the response is received. A delayed response also may result in a lost opportunity, if the proposed subtenant or assignee is under time constraints.
• What is the effect if the landlord fails to provide a timely response? A lease may provide that if the landlord fails to respond to a request for consent within a specified period of time, then consent is deemed granted, or a lease may provide that in such circumstances, consent is deemed denied. The first alternative is more favorable for a tenant, but the prospective subtenant or assignee might not be willing to rely on a “deemed consent” provision and may require actual consent before moving forward.
• What are the landlord’s remedies if a sublease or assignment is made without requesting consent? Generally, if a tenant subleases or assigns a lease without obtaining required consent from the landlord, then the tenant is in default and the landlord can exercise all remedies under the lease. The lease also may provide that a sublease or assignment without the landlord’s consent is invalid and unenforceable.
• Will the assignor be released from liability for the tenant’s obligations after an assignment? It may seem like common sense that if a lease is assigned with the landlord’s consent, then the original tenant (assignor) will no longer be responsible for the tenant’s obligations under the lease. However, a lease may provide that the assignor will remain liable under the lease after an assignment. Similarly, the landlord’s written consent may state that both the assignor and the assignee will be responsible for the tenant’s obligations after the lease is assigned. In order to be released, the assignor should obtain a written agreement from the landlord stating that after an assignment, the assignor will no longer be responsible for the tenant’s obligations under the lease.
• Will a guarantor be released from liability for the tenant’s obligations after an assignment? Many landlords require a personal guaranty from an individual, or a corporate guaranty from a related entity, to ensure payment of the tenant’s obligations under a commercial lease. Guarantees typically provide that they will remain in effect even if the lease is assigned. However, the tenant may be able to negotiate for the termination of the guarantee in the event that the lease is assigned.  In some cases, the landlord may require a substitute guarantor.
• What is the effect of subleasing on the obligations of the tenant and the guarantor? A sublease does not affect the tenant’s obligations to the landlord under the lease, or the guarantor’s obligations to the landlord under the guaranty.

If a business owner is considering entering into a new lease, it is important to carefully review the subleasing and assignment provisions and negotiate any necessary changes before signing the lease. If a tenant desires to sublease or assign an existing lease, it is important to review the applicable requirements and restrictions before taking any action. An experienced real estate attorney can assist the tenant by spotting issues, explaining alternatives, and negotiating with the landlord to help the tenant accomplish its business objectives.

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Michael D. Klemm

Phone: 952-746-2198, email: [email protected], due diligence in commercial real estate transactions, three alternatives for a buyer to keep a seller’s low mortgage interest rate, webinar replay: hoa fall legal updates 2022, escalation clause tips and traps for buying a home (or an island), webinar replay: hoa fall webinar, on-demand webinar – covid-19 and hoas: how to operate during the pandemic, covid-19 and commercial real estate leases in minnesota, january 1 deadline for preventative maintenance plans, schedules and budgets, crossing the line obtaining building permits for decks in cic’s.

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• Lease Assignment and Sublease

Assignment of Lease (Lease Transfer) vs. Sublease

by emre · Published October 4, 2014 · Updated October 12, 2014

The lease transfer (assignment of lease) is a foggy topic that is often confused with subletting. Let’s clear the air once and all right now.

What is Assignment of Lease? There are  the 3 players in a lease assignment: the landlord, the original tenant (assignor) and the new tenant (assignee).The original tenant has an unexpired lease agreement with the landlord and (s)he wants out. Since the original tenant can’t just break the agreement and walk away, what (s)he does is to get a new tenant to swap places… and take over all his/her rights and obligations for the remainder of the lease period.

So if the original tenant signs a 12-month lease and the tenant has to leave town or finds a better place after 8 months, the new tenant will be assigned a 4-month ease (with the same terms and conditions as the original agreement). Now here’s the big catch: Even though the original tenant has handed over all his duties and obligations to the new tenant, (s)he is not off the hook… unless the landlord agrees to release him/her from all liabilities. If the new tenant stirs up trouble, the original tenant will find himself/herself in hot soup as well. Of course, whether the original tenant is allowed to pull this assignment trick out of his hat is a whole new matter. Knowing for sure is actually simpler than most people think: First, examine your local landlord tenant laws for any lease assignment rules. Most of the time, landlords are given the right to allow or disallow assignments but once in a while, the local law let tenants have the final say instead. If there’s no mention of lease assignments in your law text, then your rental lease agreement shall dictate the terms.

Differences Between Lease Assignment and Subletting

When it comes to subletting vs. assignment of lease, there’s often a massive mix-up. Sometimes even real estate professional get it wrong by assuming them to be one and same thing. However if you dig deeper, you will find that the differences are not just numerous, but important as well.

Let’s begin by dragging the landlord into the picture. An assignment of lease launches the new tenant into a direct relationship with the landlord – The landlord collects rent straight from the new tenant and deals with the new tenant directly on all lease issues. So in this case, the original tenant gets to take back seat and doesn’t have to manage the new tenant actively.

On the other hand, there’s no direct relationship between the landlord and new tenant (subtenant) in a sublease. Instead the original tenant plays mother goose and is responsible for collecting rent from the subtenant and making sure that he’s following the lease rules. When you compare the two, a sublease is a lot more hands-on for the original tenant.

No matter which path you take, you will still want a good new tenant who pays the rent on time and follows the lease rules to the agreement. For the golden rules on screening tenants and running credit checks. When you have a lease assignment, the terms and conditions of the lease remains largely unchanged – It’s almost like taking the original lease agreement and swapping the tenant’s name with another.

With a sublease, there’s more breathing space – The original tenant can decide how much rent to charge, how long the subtenant is going to stay or even collect security deposit… as long as it stays within the boundaries drawn by the original lease agreement between the landlord and original tenant.

Should You Choose Assignment of Lease or Sublease?

You are the landlord – A lease assignment is recommended in most cases. You will have more control over your new tenant (instead of leaving matters in the original tenant’s hands and hoping that he would do a good job)… plus you still have the original tenant to cover your back in case anything goes wrong.

You are the Original Tenant – Now this is a tricky one. If you want to someone to take over the entire lease and property for its remaining duration , then help yourself to a lease assignment. If the landlord’s consent is required for assignment (and he doesn’t give the nod), you can always try offering him a lease assignment fee as a deal sweetener.However, if you are looking for someone to share the place (and rent)… or perhaps you need someone to cover the rent while you are overseas for a few short months, then a sublease would be ideal.

You are the New Tenant – An assignment of lease works better for you most of the time. You won’t be at the mercy of the original tenant (for example if (s)he screws up and the landlord terminates the original lease agreement, your sublease might also go up in flames).

Please fell free to contact us if you have additional questions.

Tags: assignee assignor landlord lease assignment lease transfer leasee Montreal rent sublease sublet tenant

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What Is the Difference Between Subletting and Assigning Your Lease?

By Sarah Roberts Head of Client Success

Updated on September 1, 2020 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

Why Would I Need to Assign or Sublet?

• What is an Assignment? 
• What is Subletting? 
• How Do I Assign or Sublet? 
• Which Option is Best for Me? 

Assigning and Subletting Retail Premises

Key takeaways.

If you are looking to exit your lease before the date set out in the lease agreement, it is important to understand the options available. Understanding the difference between subletting and assigning the lease is important because it can have an ongoing impact on your obligations to the landlord. This article will outline the differences between subletting and assigning your lease.

There are a number of reasons you may want to assign or sublet your lease. This includes because you are:

• selling your business; 
• needing to move to a new premises; 
• winding down your business; or 
• looking for extra revenue through a sublease. 

What is an Assignment? 

An assignment of lease usually occurs when you want to assign your interest in the lease to another party – the assignee. 

For example, this could mean assigning the whole of the shop or leased space.

When you assign your lease, you are transferring your entire proprietary interest to the assignee. Once the lease is properly assigned, the assignee will assume your obligations under the lease, and you should be released from these obligations.

What is Subletting? 

Subletting occurs when you transfer  part  of your interest in the property to another party. This party is known as the ‘sub-tenant’. Here, you can sublease part of the property, like a room or section of the tenancy. This means you do not have to give up the entire property. Alternatively, you can sublet the entire premises for a fixed period of time within the lease period.

Usually, the sub-tenant will pay you rent under a sublease agreement and treat you as their landlord. As the head-tenant, you will assume liability on behalf of the subtenant for any damage or loss that may occur.

It is important to understand that a sublease does not release you from your obligations under the lease. You still retain your lease with the landlord, irrespective of any issues that may arise with the sublease.

How Do I Assign or Sublet? 

The process for assigning or subletting your lease should be set out in your lease agreement. Unless otherwise stated, you will need the written consent of the landlord before you can assign or sublet your lease.

In the case of an assignment, the landlord usually has the right to approve the new assignee. The landlord is likely to request information such as:

• financial statements;
• a CV or business history; and
• identity documents of the proposed assignee.

This way, they can determine whether or not they think they will be suitable to maintain the lease.

In both cases, it is a good idea to have either a:

• deed of consent and assignment; or 
• deed of consent to sublease and a sublease drafted.

Ensuring that the terms of the sublease or assignment are in writing can be key in ensuring your lease is properly assigned or subleased. 

Which Option is Best for Me? 

Your reason for needing to assign or sublet will determine what the best option for you is. Assignment is best when you want to completely release yourself from your obligations under the lease. Conversely, subleases are more suitable when you still want to retain your interest in the property or are unable to assign. 

Subleasing can be an effective way of managing some changes in business needs and may be the best option for you if you want to temporarily vacate your premises or are looking to downsize. Subleasing can also be a good option for businesses seeking to earn extra revenue, or for growing businesses leasing premises larger than what they currently need.

If your premises are considered retail premises, the relevant retail leases legislation in your state likely governs the conditions of your assignment or sublease. This is likely to include laws:

• stipulating what is required to gain the landlord’s consent;
• preventing landlord’s from unreasonably withholding consent; and 
• outlining what happens if the landlord fails to respond to a request for consent.

It is important to understand the difference between assigning and subletting a lease, so you can choose the best option for your business.

The key differences are that:

• assignments transfer your entire interest in the property and usually releases you from your obligations;
• subleases do not release you from your obligations and allow you to transfer part of your interest in the property and retain your entire interest;
• in both cases, your lease will set out when and how you can assign or sublet. 

If you need assistance with assigning or subletting your lease, contact  LegalVision’s leasing lawyers  on 1300 544 755 or fill out the form on this page. 

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Commercial Lease Assignment and Sublet Provisions

A balancing act for landlords and tenants, july 2020 by adam f. aldrich.

This article identifies common problems involved in commercial lease transfers through assignments and subleases. It offers both landlords and tenants tips for solving these problems when negotiating assignment and sublease provisions in leases.

The modern commercial lease is a complex, integrated document that attempts to balance the competing interests of the landlord and tenant. As a result, commercial leases are the subject of much negotiation and are never “one size fits all.” In fact, commercial leases are one of the least standardized documents in real estate practice.

When any commercial lease is to be transferred in part through a sublet or in its entirety through an assignment, the issues multiply. The transfer provisions, which once seemed moot, become operative to determine whether the lease can be transferred and, if so, under what conditions. If, during lease negotiations, the parties overlooked the lease transfer provisions or gave them cursory consideration, they may be unpleasantly surprised by the result. While landlords and tenants have divergent economic interests with respect to transferring the lease, their legitimate concerns can be appropriately addressed through thoughtfully crafted transfer provisions.

This article explores common problems, issues, and solutions encountered in commercial lease transfers through assignments and subleases. It is intended to be useful both to the lawyer who infrequently encounters lease transfer problems and the seasoned practitioner who deals with lease transfer issues every day.

Distinguishing Between an Assignment and Sublease

Assignments and subleases have fundamental differences that are frequently misunderstood. A lease is both a conveyance of an interest in property and a contract. 1 After executing the lease, the landlord and tenant are bound to one another by privity of contract and by privity of estate. As a result, they may each enforce the provisions of the written lease through privity of contract and the promises that arise from privity of estate. 2 Privity of contract allows enforcement of the lease provisions, while privity of estate allows enforcement of only those promises that run with the land. 3

Whether the landlord, tenant/assignor, and subtenant/assignee call their arrangement an assignment or a sublease, courts typically look at the substance of the transaction. In an assignment, a tenant transfers its entire interest in the lease. 4 After assigning its interest in the lease, the assignee has privity of estate with the landlord, but the assignee and the landlord are not in privity of contract unless the assignee assumes the tenant’s obligations under the lease. 5 Assignment of the lease ends the original tenant’s rights to possession, but absent an express release under the lease terms, its liability under the lease continues. 6 This means the original tenant remains secondarily liable for the assignee’s obligations under the lease. Thus, the tenant/assignor may find itself liable at a future date if the assignee fails to perform its obligations under the lease.

In a sublease, however, the tenant transfers less than the remaining term or less than the tenant’s entire interest in the lease, leaving the original tenant with a reversionary interest in the lease. 7 The relationship between the original landlord and the original tenant, including both privity of contract and privity of estate, remains intact, thereby creating the relationship of landlord and tenant between the original tenant (sublandlord) and the new tenant (subtenant). The original landlord and the subtenant have no privity of estate or privity of contract with one another, so the original tenant remains liable for the actions and omissions of the subtenant. 8 However, the subtenant’s rights will terminate with the original lease or when the landlord declares a forfeiture of the tenant’s lease term. 9

A third, less common type of transfer is a partial assignment of a lease. Such assignments are called assignments “pro tanto,” not subleases, because they grant possession of a portion of the leased premises to the new tenant for the balance of the lease term. 10 The landlord now has two tenants and, in effect, two leases. There is little guiding case law on this hybrid lease transfer, so it is not entirely clear whether the assignee has a contractual relationship with the landlord. 11 Due to the vagaries and uncertainties that can result when a transfer of possession encompasses less than all of the space, partial assignments should be avoided. To avoid assignments pro tanto, landlords should consider prohibiting assignments of less than the original tenant’s entire interest in the lease. If a landlord proceeds with a partial assignment, it should clearly document the arrangement, including the rights and remedies of the landlord, original tenant, and new tenant, and acknowledge the transaction as a partial assignment and not a sublease. 12

The accompanying table illustrates the many differences between an assignment, sublease, and partial assignment. 13

Restrictions on Assignments and Subleases

Colorado law favors the free transferability of rights. 14 As a result, landlords frequently attempt to limit the tenant’s right to transfer the lease by including lease provisions specifically restricting the tenant’s right to assign or sublet. Under Colorado law, outright prohibitions against assignments are permissible and are not considered invalid restraints on alienation. 15 Even if outright prohibitions on assignments or subletting are enforced, such provisions “are construed against the restriction.” 16 This means a court generally will construe such stipulations “against the party invoking them.” 17 A breach of the restriction against transfer does not terminate the lease, 18 but may give rise to a claim for default. 19 Generally, tenants in commercial leases negotiate exceptions to strict prohibitions against assignments or subletting because transfer provisions may be their only viable exit strategy if they find they can no longer afford the space or no longer need it.

Consent to Assignments and Subleases

Recognizing that absolute prohibitions are neither favored by the courts nor acceptable to most tenants, some landlords include modified prohibitions in their leases that limit the tenant’s rights to transfer the lease and, if a transfer is permitted, allow the landlord to enforce the lease against both the original tenant and the new tenant to the maximum extent possible. Such provisions may reserve to the landlord, either in its sole discretion or without unreasonably withholding its consent, the right to approve a proposed lease transfer. Although the reservation of the landlord’s right to approve a proposed assignment or sublease is for the landlord’s benefit, 20 the landlord is bound to the standards set out in the lease for consents to an assignment or sublease. 21 Accordingly, once the landlord has established the standards for its consent in the lease, it cannot object to a proposed assignment or sublease if the tenant has met the appropriate requirements.

It is well established in Colorado law that “without a freely negotiated provision in the lease giving the landlord an absolute right to withhold consent, a landlord’s decision to withhold consent must be reasonable.” 22 Thus, if a lease contains a provision against subletting or assignment, but is silent on a landlord’s right to withhold consent, Colorado law forbids the landlord from withholding its consent unreasonably if the tenant tenders a suitable subtenant or assignee to the landlord. 23

Disputes often arise as to what is a ‘‘reasonable” withholding of the landlord’s consent. This debate has led to the enunciation of specific standards of reasonableness. If a lease provision “requires that consent to an assignment will not be unreasonably or arbitrarily withheld, a landlord is held to the standard of conduct of a reasonably prudent person.” 24 Therefore, a landlord must only consider “those factors that relate to a landlord’s interest in preserving the value of the property,” 25 which do not include “[a]rbitrary considerations of personal taste, convenience, or sensibility . . . .” 26 Whether a landlord has acted reasonably is a fact-specific inquiry. 27 Most courts have held that the tenant bears the burden of proving that the landlord acted unreasonably in withholding consent, 28 but some courts have required the landlord to prove it acted reasonably. 29 Courts have been divided on a tenant’s right to terminate a lease where the landlord has been found to have unreasonably withheld consent. 30

There are several reliable rules that courts follow in determining whether a landlord acted reasonably. First, a landlord cannot refuse consent for racial or other discriminatory reasons. 31

Second, a landlord may not deny consent to improve its general economic position or to receive increased rent. 32 However, a landlord may deny consent to protect its interest in the value, condition, and operation of the property or the performance of lease covenants. 33 For example, in Cafeteria Operators L.P. v. AMCAP/Denver Limited Partnership , the tenant leased the premises to run a cafeteria-style restaurant. 34 After several failed attempts to operate the restaurant, the tenant marketed the space to prospective subtenants, including non-cafeteria restaurant owners. 35 When a non-cafeteria restaurant owner expressed interest in subleasing the premises, the tenant sought the landlord’s approval to the proposed sublease, but the landlord refused. The Court found that the landlord reasonably withheld consent because the proposed sublessee would have changed the “character” of the shopping center by operating “the largest restaurant of its kind, raising concerns about lighting, maintenance, traffic, and parking.” 36 Moreover, the subtenant would sell alcohol and stay open late, and its proposed occupancy raised “concerns about security, safety of patrons, and parking requirements.” 37 Similarly, the Court in List v. Dahnke found that the landlord reasonably withheld consent where the landlord determined that a Thai-American restaurant operated by the assignee would not be successful at that location, but the Court did not identify the facts that led the landlord to such conclusion. 38

Third, a court may make a finding of unreasonableness if a landlord refuses consent to a proposed transfer without obtaining relevant information to make its decision. 39 Before making the decision, the landlord should obtain sufficient information on the transferee’s financial condition; the transferee’s experience in operating its business; how the premises are to be used; projected sales, gross income, and income per square foot; and, in the case of a sublease, the size of the subleased space. 40

Fourth, courts may consider how long it takes the landlord to make the decision on the requested assignment. If the landlord instantly refuses consent or waits too long to make a decision, the court could make a finding of unreasonableness. 41 Conversely, if the tenant fails to allow the landlord a reasonable amount of time to issue a decision, the withholding of consent can be found reasonable. 42 In Parr v. Triple L&J Corp. , the Court found that the landlord unreasonably withheld consent when it deferred making a decision on the proposed assignment, thereby delaying the sale of the tenant’s business until the prospective buyer withdrew his offer. 43 The tenant sought approval from the landlord for an assignment of the lease as part of the sale of its business. The landlord requested all personal and financial information on the proposed assignee and the assignee’s business plan, and the tenant provided prompt responses that demonstrated the assignee’s experience in restaurant management and “perfect credit score.” 44 Because the landlord unreasonably withheld consent, the landlord was held liable to the tenant under a breach of contract theory, as well as for lost profits on the sale of its business. 45

Similarly, the Court in Bert Bidwell Investors Corp. v. LaSalle and Schiffer, P.C. addressed whether the landlord unreasonably withheld consent to the tenant’s request to transfer the lease where the assignee was “ready, willing, and able to assume the lease as written, and to use the premises for the same business as that of the tenants.” 46 The landlord ultimately refused consent because it “didn’t like” the proposed assignee. 47 Based on the lease, which required the landlord’s consent to assign, the landlord argued that it “had the right to relet the premises as it saw fit and to be arbitrary in doing so.” 48 Relying on List , the Court found that the landlord acted unreasonably in refusing to accept the proposed new tenant. 49 Nevertheless, parties may create their own standards and definition of reasonableness, and if they do, courts will enforce and apply such standards. 50

As these cases illustrate, if a landlord wishes to withhold consent absent a sole and unconditional contractual right to do so, it must have fact-based reasons for doing so and cannot arbitrarily withhold or delay its consent. The landlord should communicate its decision in writing to the tenant and enumerate all fact-based reasons to preserve all arguments for reasonableness. 51 Before making the request to assign or sublet the premises, the tenant should gather information about the proposed assignee’s or subtenant’s financial status, business acumen, and proposed operations, and then submit this information to the landlord, along with an assignment or sublease document signed by the tenant and assignee or subtenant. While the landlord must still consent to the transaction, 52 such documentation places the tenant in a stronger position to rebut any superficial or arbitrary reasons the landlord may proffer for denying consent. And if litigation ensues, it will be critical for the tenant’s case to show that it supplied the landlord with as much information as possible concerning the assignee’s or subtenant’s financial status and operations, to avoid having the trier of fact determine that the landlord acted reasonably in denying consent due to a lack of information from the tenant.

Recapture, Termination, and Renewal Rights

Leases may grant the landlord the right to terminate the lease and to retake the tenant’s space if the tenant wishes to assign its lease or sublet its space, or if the tenant transfers the lease without the landlord’s consent. Replacing the tenant by recapturing the premises can benefit both the landlord and the tenant, but each party will want to weigh the pros and cons of such an agreement.

Terminating the lease allows the landlord to eliminate existing lease weaknesses and to enter into a new lease with a potentially better tenant on a clean slate. Moreover, recapturing the premises and directly leasing it to the proposed assignee can save the landlord substantial dollars in tenant improvements that can be passed on to the new tenant through reduced or free rent for a portion of the lease term. But the landlord must pay close attention to market conditions before terminating the lease. Terminating the lease in a strong market when space is at a premium and rents are high allows the landlord to enter into a new lease with a new tenant at a higher rate, but the landlord may take a loss on its investment in the premises in a down market when rates are depressed and there is an oversupply of space.

The tenant, on the other hand, risks losing its investment in its business and the leased premises. Before requesting a transfer, the tenant should closely scrutinize the lease to determine the potential outcome. Under some leases, the act of notifying the landlord of an intent to assign or sublet can trigger the recapture provision. 53 Similarly, if the lease is assigned without the landlord’s consent, it may trigger the recapture right if that right is expressly provided in the lease. 54 Landlords should closely review the recapture language before terminating the lease because restraints on alienation and lease forfeitures are disfavored. 55

When a tenant violates the transfer provisions by transferring the lease without the landlord’s consent, the landlord should send a notice of default to the tenant and demand that the default be cured by nullifying the transfer, 56 unless the lease provides that transferring the lease is an automatic termination. If the tenant is unable to nullify the transfer when it receives the notice, it could be liable for default damages incurred by the landlord. 57 If the tenant does not cure the default and the landlord will not approve (and has the right not to approve) the assignee or subtenant, the landlord may terminate the lease (or the tenant’s right to possession) if the lease so permits. 58 If the landlord fails to terminate the lease 59 or accepts rent after breach of the anti-assignment clause, 60 it may be deemed to have waived the right to terminate. Once the lease is terminated as a result of the default, the landlord must consider its duty to mitigate damages. 61

If the space is recaptured and the lease terminated, the tenant’s lease obligations will be terminated with respect to all recaptured space, including the payment of rent. 62 Moreover, the tenant will no longer have privity of contract or estate with the landlord, assignee, or subtenant because the lease will be terminated as to the tenant. 63 If the landlord recaptures the premises, the tenant is spared the rent expense while it finds a transferee. But if the landlord does not recapture, the tenant can make a transfer without fear that the landlord will then exercise its recapture rights.

Another important issue is whether an option to renew contained in a lease assigned or subleased to a third party remains exercisable following the transfer. If the assigned lease gives the original tenant a renewal option, the assignee can extend the term unless the renewal option is reserved from the assignment. 64 If a tenant/sublandlord grants its subtenant an option to renew based on the tenant’s option in the prime lease, the subtenant is dependent on the tenant/sublandlord for a lease extension because it does not have contractual privity with the landlord. 65 If the tenant/sublandlord refuses to exercise its renewal option so as to enable the subtenant to take advantage of the rights that were granted to it, the tenant may be liable to the subtenant. 66 To protect its option to renew, the subtenant should request or require a recognition agreement from the landlord when negotiating a sublease, whereby the landlord agrees to recognize the sublease if the prime lease terminates due to the tenant/sublandlord’s default. 67

The Impact of Bankruptcy Proceedings on Assignments and Subleases

Bankruptcy laws can have a significant impact on commercial leases when the tenant files for bankruptcy protection. Generally, a trustee is appointed to administer the bankruptcy estate, except in Chapter 11 cases where the debtor-in-possession is the tenant. 68 For debtors with executory contracts and/or unexpired leases, 11 USC § 365 contains a series of rules that govern those documents. Section 365 of the bankruptcy code provides the tenant/debtor with the statutory right to assume or reject executory contracts and unexpired leases to which it is a party, subject to objections by creditors and other parties-in-interest, and ultimately the court’s approval. 69 The debtor may, in turn, assign the lease if the assignee provides “adequate assurance of future performance.” 70 During the period between filing the bankruptcy petition and the date on which the lease is assumed or rejected, the tenant must continue to pay rent and perform the material terms of the lease. 71 It should be noted that written waivers of § 362’s automatic stay have been found to be unenforceable unless they are part of a previous bankruptcy proceeding. 72 Thus, landlords should not assume that a waiver in the lease is enforceable if the tenant files for bankruptcy.

From the debtor’s perspective, the right to reject the lease is “vital to the basic purpose of Chapter 11” because it can free the tenant from the obligation to pay all future rent under the lease. 73 If a lease is rejected with bankruptcy court approval, the debtor has no legal interest in the lease or the leased premises, and it must vacate the leased premises. If, however, the debtor fails to vacate the premises, the landlord can file a motion to lift the automatic stay so it can file or continue an eviction action in state court. If the debtor rejects the lease, the landlord may have a claim for “rejection damages” pursuant to 11 USC § 502(b)(6), subject to the mitigation-of-damages duty. 74

As a condition to assuming the lease, the debtor must cure all monetary defaults and provide adequate assurances of future performance under the lease. 75 A debtor who assumes the lease may be able to assign the lease free of restrictions on transfer set forth in the lease and over the landlord’s objection, 76 which may turn out to be a significant right for the debtor if it holds a below-market lease with sufficient time remaining on the lease term. However, a bankruptcy court has discretion to reject an assignment if it finds, for example, that the assignment would disrupt the tenant mix by changing the image of a shopping center or violating the use restriction in the lease. 77 A landlord may favorably view the debtor’s assumption because it assures continuation of the lease and the cure of existing defaults. But if the tenant is holding a below-market lease, the landlord may favor rejection to enable it to negotiate a new lease. A landlord may object to the debtor’s attempted lease assumption if the landlord disagrees with the debtor’s plan to cure the default or believes the debtor has not provided adequate assurance that the default will be cured or the debtor will perform in the future.

Section 365(b)(3)(C) of the bankruptcy code provides specific protections for “a lease of real property in a shopping center” by providing that no assignment can occur without assurances that use clauses and other provisions vital to the operation of the shopping center will continue to be performed, “including (but not limited to) provisions such as a radius, location, use, or exclusivity provision, and will not breach any such provision contained in any other lease, financing agreement, or master agreement relating to such shopping center.” The purpose of § 365(b)(3)(C) “is to preserve the landlord’s bargained-for protections with respect to premises use and other matters that are spelled out in the lease with the debtor-tenant.” 78 Moreover, § 365(b)(3)(D) requires adequate assurance “that assumption or assignment of such lease will not disrupt any tenant mix or balance in such shopping center.” Despite the bankruptcy code’s language protecting shopping centers, some bankruptcy courts have found lease provisions that limit the use of the shopping center premises to be per se restraints on alienation. 79 To avoid an adverse ruling if a shopping center tenant files for bankruptcy, a landlord should arm itself with as much evidence and expert testimony as possible to show a disruption in tenant mix or a real potential for violating other tenants’ rights if an assignment is allowed. 80

While a tenant’s bankruptcy filing places the lease in limbo, a landlord can be proactive by approaching the tenant to determine whether it intends to reject or assume the lease. Landlords and tenants should not treat the existing lease as a static document that presents the tenant with a “take it or leave it” proposition for assumption. If the tenant voices concerns about the current lease, the landlord can renegotiate the lease to entice the tenant to assume a modified lease (subject to court approval) that keeps the tenant in the premises and paying rent.

Negotiating Lease Transfer Provisions

Negotiating lease transfer provisions is an important process for both the landlord and the tenant because, at some time in the future, the landlord or the tenant may be forced to accept a previously unknown or undesirable counterparty to the lease. It is critical that attorneys impress upon their respective clients the short-term and long-term ramifications that could result from their negotiations of the lease transfer provisions. Landlords and tenants should consider the following issues when negotiating assignment and subletting provisions.

The Landlord’s Perspective

• The landlord’s primary objective in negotiating assignment and subleasing provisions is control , including control over the mix of tenants and control over the use of the leased premises. Thus, the landlord will use the transfer provisions to protect its interests in the premises.
• A landlord’s foremost concern is almost always the tenant’s ability to pay rent, in full, on a timely basis. A landlord should negotiate requirements that a prospective assignee or subtenant must meet, such as minimum net worth and minimum gross sales.
• The landlord can protect itself by including a right to recapture the premises if a tenant seeks to assign its lease or to sublet its premises. However, landlords should carefully consider whether to include language that terminates the lease automatically upon receipt of an assignment request because it could constitute a restraint on alienation, which is disfavored, and the landlord may prefer the leasehold to continue. 81
• The landlord should keep the original tenant on the hook. Landlords should oppose any transfer provision that relieves the original tenant of its obligations under the lease upon an assignment. Having a tenant with a vested interest in the assignee’s ability to perform the lease is helpful to ensure that a lease is transferred to a worthy transferee. Additionally, in the event the assignee does default, if the original tenant’s liability has been preserved, the landlord’s chances of recovery are improved.
• The landlord should limit the use rights of a subsequent assignee or subtenant. A landlord should seek to protect its right to control the mix of tenants, particularly in retail settings, so as not to violate exclusive use provisions. 82 Moreover, exclusives and use restrictions held by other tenants at a shopping center must be considered in conjunction with a potential change in use that may occur upon assignment or subletting.
• The landlord should seek to share in excess rent. 83 For example, where a tenant assigns its lease or subleases its premises, it may be paid more than the amount the tenant is obligated to pay the landlord under the lease. If the assignment or sublease had not been entered into, those same financial accommodations would theoretically have been available to the landlord if it had leased directly to the assignee or subtenant. Accordingly, a landlord should seek the right to share in this excess financial consideration along with the tenant, or if it has the leverage, to obtain 100% of such excess.

The Tenant’s Perspective

• The tenant’s goal is maintaining flexibility. The tenant’s ability to maintain flexibility through the lease largely depends on its leverage to negotiate favorable lease terms. A new business seeking space in a desirable retail shopping center may have little or no leverage to negotiate the transfer provisions, but a large corporation leasing significant space may have considerable negotiating strength. Thus, it is imperative that the tenant’s leasing broker and attorney understand the market forces at play in any lease negotiation.
• The tenant should seek flexibility to share the leased premises or certain portions of it (i.e., floor space, utilities, and parking) with its related entities and affiliates with which it has a business relationship, without having to seek the landlord’s consent in each instance. This issue is particularly important for large companies with divisions that operate under different business names.
• The tenant should also seek flexibility to restructure its organization without the landlord and the lease acting as an impediment to such alteration, by negotiating into the lease specific language permitting such changes. The tenant’s ability to reorganize its business, either through a merger, consolidation, or sale, could be delayed or impeded by the landlord under the transfer provisions if these provisions are not properly negotiated at the letter of intent stage or before the lease is executed.
• The tenant should maintain an exit strategy if the premises no longer satisfy its business needs because it has outgrown the space or needs less space. This is particularly important in the era of COVID-19. For example, start-up companies can quickly outgrow their leased premises, but if the landlord does not have more space available, the company must seek out new or additional space, frequently at a higher rate. Conversely, a change in economic forces can cause the tenant’s business to quickly retract. Thus, prospective tenants should be mindful to negotiate termination and rights of first refusal options for newly available space in the same building, with the end goal of ensuring that the size of their leased space does not impair their business objectives. 84
• The tenant should insist that the landlord’s right to approve a lease transfer not be unreasonably withheld, if the landlord insists on reserving such right. The lease should detail the specific standards the tenant must meet to obtain approval, such as the transferee’s minimum net worth and minimum business experience.
• Counsel for the tenant should attempt to include a provision for automatically releasing the tenant and any guarantor from further liability at the time of the lease transfer or after the transfer occurs if the assignee or sublessee can meet or exceed certain financial marks, such as net worth, sales, or revenue.
• The tenant should negotiate (1) the right to revoke a transfer request during a defined period after the landlord issues a notice to terminate and recapture the premises, and (2) a reasonable period to vacate the premises before the tenant will be subject to eviction proceedings if the tenant does not revoke the transfer request. Where the landlord insists on a termination and recapture provision, this rescission right provides a tenant the flexibility to stop the recapture process according to the tenant’s particular circumstances and commercial exigencies.

The relationships established between the parties to a lease, sublease, or assignment can be complicated. While the ability to transfer the lease can be a valuable tool for the tenant, the landlord’s interest in protecting its investment by choosing its occupants is equally compelling. However, a balance can be struck that provides the tenant the flexibility it needs while preserving the landlord’s control and minimizing its risk. During lease negotiations, both parties should recognize that changing circumstances during the lease term could trigger the need to assign the lease or sublet the premises. If thoughtful attention is given to negotiating the transfer provisions, the parties can assure themselves that, if the need arises to transfer the lease, their respective interests will be reasonably protected.

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1 . Schneiker v. Gordon , 732 P.2d 603, 606 (Colo. 1987) (recognizing the “dual nature of a lease” as both a contract and a conveyance of an interest in land).

2 . Id. at 606–07.

3 . Shaffer v. George , 171 P. 881, 882 (Colo. 1917).

4 . Gordon Inv. Co. v. Jones , 227 P.2d 336, 340 (Colo. 1951).

5 . Shaffer , 171 P. at 882.

6 . Roget v. Grand Pontiac, Inc. , 5 P.3d 341, 345 (Colo.App. 1999) (“after the assignment, the assignee becomes primarily liable for the obligations under the contract, while the assignor remains secondarily liable”).

7 . Gordon Inv. Co. , 227 P.2d at 340.

8 . J.E. Martin, Inc. v. Interstate 8th St. , 585 P.2d 299, 301 (Colo.App. 1978) (“the delegation of duties under a lease and their assumption by a third person do not absolve the original lessee, absent the lessor’s knowledge and consent, simply by virtue of the conduct of the lessee and third party”). See also 1 Friedman and Randolph Jr., Friedman on Leases § 7:7.2 (Practising Law Institute 5th ed. 2013).

9 . V.O.B. Co. v. Hang It Up, Inc. , 691 P.2d 1157, 1159 (Colo.App. 1984).

10 . Friedman and Randolph Jr. , supra note 8 at § 7:4.2.

11 . Barbuti, “Assignments Pro Tanto And Why To Avoid Them,” 22 The Practical Real Estate Lawyer 24, 24–25 (Sept. 2006).

12 . Id. at 24.

13 . Id. at 23 (reprinted in part).

14 . Parrish Chiropractic Ctrs., P.C. v. Progressive Cas. Ins. Co. , 874 P.2d 1049, 1052 (Colo. 1994) (“Contract rights generally are assignable, except where assignment is prohibited by contract or by operation of law or where the contract involves a matter of personal trust or confidence”).

15 . Union Oil Co. of Cal. v. Lindauer , 280 P.2d 444, 447 (Colo. 1955). See also Malouff v. Midland Fed. Sav. and Loan Ass’n , 509 P.2d 1240, 1243 (Colo. 1973) (recognizing that “[t]he common law doctrine of restraints on alienation is a part of the law in Colorado”).

16 . Friedman and Randolph Jr., supra note 8 at § 7:3.3. See also Malouff , 509 P.2d at 1243 (holding “that the question of the invalidity of a restraint depends upon its reasonableness in view of the justifiable interests of the parties”).

17 . Beck v. Giordano , 356 P.2d 264, 265 (Colo. 1960).

18 . Lindauer , 280 P.2d at 447.

19 . Fink v. Montgomery Elevator Co. of Colo. , 421 P.2d 735, 738 (Colo. 1966).

20 . Routt Cty. Mining Co. v Stutheit , 72 P.2d 692, 693 (Colo. 1937).

21 . Parr v. Triple L & J Corp. , 107 P.3d 1104 (Colo.App. 2004).

22 . Cafeteria Operators L.P. v. AMCAP/Denver Ltd. P’ship , 972 P.2d 276, 278 (Colo.App. 1998).

23 . Id. See also Basnett v. Vista Vill. Mobile Home Park , 699 P.2d 1343, 1346 (Colo.App. 1984) (holding that a landlord may not unreasonably refuse consent under a silent consent clause because that result “incorporates the principles of fair-dealing and reasonableness and also preserves freedom of contract”), rev’d on other grounds , 731 P.2d 700 (Colo. 1987).

24 . List v. Dahnke , 638 P.2d 824, 825 (Colo.App. 1981).

25 . Cafeteria Operators L.P. , 972 P.2d at 279.

26 . List , 638 P.2d at 825.

28 . Ring v. Mpath Interactive, Inc. , 302 F.Supp.2d 301, 305 (S.D.N.Y. 2004); Toys “R” Us, Inc., No. 88 C 10349, 1995 U.S. Dist. LEXIS 14878 at *111 (N.D.Ill. Sept. 29, 1995); Restatement (Second) of Prop.—Landlord and Tenant § 15.2 cmt. g (American Law Inst. 1976).

29 . E.g., Campbell v. Westdahl , 715 P.2d 288, 293 (Ariz.Ct.App. 1985).

30 . Friedman and Randolph Jr., supra note 8 at § 7:3.4 (citing cases).

31 . Cent. Bus. Coll. v. Rutherford , 107 P. 279, 280 (Colo. 1910); List , 638 P.2d at 825 (dictum).

32 . Kendall v. Ernest Pestana, Inc. , 709 P.2d 837, 845 (Cal. 1985).

33 . Id. at 845. See also Econ. Rentals, Inc. v. Garcia , 819 P.2d 1306, 1317 (N.M. 1991).

34 . Cafeteria Operators L.P. , 972 P.2d at 277.

36 . Id. at 279.

38 . List , 638 P.2d at 825.

39 . Toys “R” Us, Inc. , U.S. Dist. LEXIS 14878 at *124 (landlord’s refusal before it has relevant information that should be obtained in making the consent decision may be unreasonable).

40 . Shaffer, The Sublease and Assignment Deskbook at 80–81 (American Bar Ass’n 2d ed. 2016).

41 . Compare Parr , 107 P.3d at 1107 (affirming trial court’s ruling that the landlord unreasonably withheld consent where the landlord delayed consent, which caused the proposed assignees to withdraw their offer to purchase the business) with Toys “R” Us, Inc. , 1995 U.S. Dist. LEXIS 14878 at *124 (landlord’s refusal before it has relevant information that should be obtained in making the consent decision may be unreasonable).

42 . Fahrenwald v. LaBonte , 653 P.2d 806, 811 (Idaho Ct.App. 1982).

43 . Parr , 107 P.3d at 1106.

45 . Id. at 1107.

46 . Bert Bidwell Inv. Corp. v. LaSalle and Schiffer , P.C., 797 P.2d 811 (Colo.App. 1990).

47 . Id. at 811.

48 . Id. at 812.

50 . Toys “R” Us, Inc. , 1995 U.S. Dist. LEXIS 14878 at *115 (citations omitted) (“where a lease contains provisions giving further meaning to a reasonableness clause, the standard of reasonableness varies”); Shaffer, supra note 40 at 80–81.

51 . Golden Eye, LTC v. Fame Co. , No. 0603166/2007, 2008 N.Y. Misc 8571 at *16 (N.Y. Gen Term Jan. 16, 2008) (“the Court may not determine reasonableness if withholding consent is based on grounds that were not included in the letter refusing consent”).

52 . Shaffer, supra note 40 at 74–75.

53 . Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc. , 826 P.2d 710 (Cal. 1992).

54 . Lindauer , 280 P.2d at 447.

55 . Murphy v. Traynor , 135 P.2d 230, 231 (Colo. 1943).

56 . Shoemaker v. Shaug , 490 P.2d 439, 441 (Wash.Ct.App. 1971) (finding that the tenant was not in default of the anti-assignment provision because it could reassign the lease back to itself).

57 . La Casa Nino, Inc. v. Plaza Esteban , 762 P.2d 669, 672 (Colo. 1988) (citing Schneiker v. Gordon , 732 P.2d 603 (Colo. 1987)).

58 . Gordon Inv. Co. , 227 P.2d at 260–61 (tenant’s subletting was held a breach that permitted landlord to terminate the lease).

59 . Shakey’s Inc. v. Caple , 855 F.Supp. 1035, 1043–44 (E.D.Ark. 1994) (holding that the landlord was estopped from terminating a lease on account of an unapproved sublease because the landlord did not act promptly).

60 . Merkowitz v. Mahoney , 121 Colo. 38, 42 (Colo. 1949) (“It is the general rule that any act done by a landlord, with knowledge of an existing right of forfeiture, which recognizes the existence of the lease is a waiver of the right to enforce the forfeiture”); Werner v. Baker , 693 P.2d 385, 387 (Colo.App. 1984) (“the lessor’s acceptance of rent accruing after the breach of an anti-assignment clause, with knowledge of the breach, constitutes a waiver of the right to terminate the lease for breach of that clause”). Cf. Nouri v. Wester & Co. , 833 P.2d 848, 851 (Colo.App. 1992) (holding that waiver of conditions against assignment by accepting rent did not carry over to other provisions in the lease).

61 . La Casa Nino, Inc. , 762 P.2d at 672.

62 . Carma Developers (Cal.), Inc. , 826 P.2d 710.

63 . Schneiker , 732 P.2d at 611.

64 . Friedman and Randolph Jr., supra note 8 at §§ 7:5.1 and 7:7.1.

65 . Tiger Crane Martial Arts Inc. v. Franchise Stores Realty Corp. , 235 A.D.2d 994, 995 (N.Y.App.Div. 1997) (“It is well settled that where, as here, a sublease is expressly made subject to the terms of a master lease, the subtenant has no legal right to compel the tenant to exercise an option for renewal of the entire demised premises in order to permit the subtenant to exercise an option for renewal of its subleased premises, absent proof of an agreement on the part of the tenant to exercise its option to renew for the benefit of the subtenant or evidence of special circumstances entitling the subtenant to such relief”).

66 . Burgess Pic-Pac, Inc. v. Fleming Cos. , 190 W. Va. 169, 175 (W.Va. 1993) (discussing liability of sublandlord to subtenant for failure to exercise renewal option after request from subtenant).

67 . Senn, Commercial Real Estate Leases: Preparation, Negotiation, and Forms , § 13.14 (Wolters Kluwer 6th ed. 2019).

68 . 11 USC § 1107.

69 . 11 USC § 365(a).

70 . 11 USC § 365(f)(2)(B).

71 . 11 USC § 365(d)(3).

72 . In re DB Capital Holdings, LLC , 454 B.R. 804, 816 (Bankr. D.Colo. 2011) (“waivers, unless they were part of a previous bankruptcy proceeding . . . should not be enforced”).

73 . NLRB v. Bildisco & Bildisco , 465 U.S. 513, 528 (1984); 11 USC § 502(b)(6).

74 . In re Shane Co. , 464 B.R. 32, 38–41 (Bankr. D.Colo. 2012) (discussing damages claim under 11 USC § 502(b)(6)).

75 . 11 USC § 365(b)(1).

76 . 11 USC § 365(f); In re Bricker Systems, Inc. , 44 B.R. 952 (Bankr. E.D. Wis. 1984) (recognizing that § 365(f) invalidates restrictions on assignment of contracts or leases by a debtor or trustee and allows assignment of assumed contracts at a later date).

77 . In re Federated Dep’t Stores, Inc. , 135 B.R. 941 (Bankr. S.D. Ohio 1991); In re Martin Paint Stores , 199 B.R. 258 (Bankr. S.D.N.Y. 1996), aff’d , S. Blvd., Inc. v. Martin Paint Stores , 207 B.R. 57 (S.D.N.Y. 1997).

78 . In re Trak Auto Corp. , 367 F.3d 237, 244 (4th Cir. 2004) (internal citation omitted).

79 . In re Bradlee Stores, Inc. , No. 00-16033, 2001 U.S. Dist. LEXIS 14755 (S.D.N.Y. Sept. 20, 2001) (holding that restriction on assignment violated the anti-assignment provisions of § 365(f)); In re Rickel Home Ctrs., Inc. , 240 B.R. 826, 832 (D.Del. 1998) (striking restrictive use provision).

80 . In re Trak Auto Group , 367 F.3d at 242 (enforcing use provision concerning the sale of automobile parts and accessories in shopping center lease); In re J. Peterman Co. , 232 B.R. 366 (Bankr. E.D.Ky. 1999) (rejecting assignment of shopping center lease where proposed assignment would violate radius restriction in lease and assignee did not sell similar merchandise as the original tenant). But see In re Toys “R” Us, Inc. , 587 B.R. 304, 307 (Bankr. E.D.Va. 2018) (overruling landlord’s objection to the debtor’s assignment on the grounds that it would violate the exclusivity provision of another lease in the shopping center and would disrupt the shopping center’s tenant mix and balance).

81 . Friedman and Randolph Jr., supra note 8 at § 7:1.1.

82 . In re Ames Dept. Stores, Inc. , 127 B.R. 744, 752–54 (Bankr. S.D.N.Y. 1991) (discussing rights of landlord to protect the tenant mix at the shopping center in the context of the lease and a subsequent bankruptcy filing of the tenant).

83 . Carma Developers (Cal.), Inc. , 826 P.2d 710 (upholding the landlord’s contractual right to capture excess rent).

84 . For an interesting discussion on the assignability of rights of first refusal, see Mitchell, “Can a Right of First Refusal Be Assigned?” 985 U. Chi. L. Rev. (2001).

As these cases illustrate, if a landlord wishes to withhold consent absent a sole and unconditional contractual right to do so, it must have fact-based reasons for doing so and cannot arbitrarily withhold or delay consent.

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• Sublease and Assignment

Do you know the difference between a sublease and an assignment?  We can help…

The right of possession may be transferred by the tenant to a third person either by sublease or assignment, provided the landlord gives  consent when required. The substance of the transfer, rather than its form, may well determine the parties’ liabilities to the landlord (see below). Thus, when the tenant retains some right of reentry onto the leased premises, the law deems the transfer a sublease. On the other  hand, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, the transfer is an assignment.

Landlord’s Consent Required

Texas Property Code § 91.005 provides that a tenant may not sublease or rent leased premises during the term of the lease without first obtaining the landlord’s consent. The statute has been held to apply to assignments as well as subleases.  Since the statutory prohibition of assignments or subletting is solely for the landlord’s benefit, only the landlord may bring an action for any wrong done as a result of a  sublease or  assignment made without consent. If the original tenant does assign or sublet the lease without the landlord’s consent, the landlord may refuse to accept rent and treat the lease as forfeited.

The statutory prohibition against assigning a lease without the landlord’s consent may be avoided only by a clear expression of such an intent. For example, a lease provision granting the lessee the right to assign the lease without the landlord’s consent when the tenant is mortgaging its interest will not operate as a relinquishment by the landlord of the right to consent to subsequent assignments.

A landlord traditionally has no duty to consent to the proposed assignment of a lease unless such a duty is expressly stated in the lease. However, the Texas Supreme Court’s 1997 decision to impose a duty to mitigate damages on landlords will limit the right to refuse consent in many cases. A lease to a named person and that person’s heirs has been held to amount to an express authorization of either an assignment or a sublease.

A lease may include a provision that the landlord may not unreasonably withhold consent to a sublease or assignment. In that case, the reasonableness of the landlord’s refusal to consent is determined by reference to the terms and conditions of the original lease. It is unreasonable for the landlord to condition consent on a change in the terms and conditions of the original lease based on what the landlord finds economically advantageous at the time of the attempted assignment or sublease.

The landlord’s acceptance of payments with knowledge of a sublease raises a material fact issue as to whether the landlord has waived the right to object to the sublease.

Liabilities of Parties Upon Sublease or Assignment

Even when the landlord consents to an assignment or sublease, the original tenant is not released from the obligations of the original lease. In an assignment situation, the assignee, as well as the original  tenant, is bound by the covenants of the original lease. For instance, when the landlord does not receive rent from the lessee’s  assignees, and the assignees appear to have abandoned the premises, the landlord has the  right to re-let the property. By so doing, the landlord will not abrogate the lease and may recover from the former lessee or the assignees  the amount of  the agreed rent for the entire contract period, less any sum realized from re-letting

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What’s the difference between a sublet and an assignment?

With both a sublet and a lease assignment, the departing tenant remains responsible for the rent unless a landlord explicitly releases you. 

When Ismail Mustafa, a tenant in Dumbo, wanted to break his lease recently, the landlord gave him three options: He could arrange a sublet, transfer the lease to someone else, or end the lease by paying two months of rent upfront.

There’s obviously a financial cost to paying two months rent as a penalty for breaking your lease but it is also the most clear-cut break with your landlord. If you're considering the same options as Mustafa, it's important to know the difference between transferring your lease to someone else (also known as an assignment) and subletting. Neither are without risk.

"The bottom line is—none of the options is perfect—each has advantages and disadvantages," says  attorney Steven Kirkpatrick, a partner at the law firm  Romer Debbas.

It's worth pointing out that a fourth option might be  offered to you: To move out and pay rent until the landlord finds a tenant. This is highly "problematic," says  Catherine Grad, a tenant attorney with her own practice.  "You no longer have control over the process and you are still on the hook for the rent and you’ve given the power to someone who’s incentive is less than yours." 

Subletting vs. assignment

When you sublet your place it's typically because you intend to return to the apartment. A sublet will usually end a week—but it could be just a day—before the actual end of your original lease.

Subletting for the entire length of the lease is an assignment. An assignment allows you to hand off the rental to a new tenant for the rest of the lease term. This is what Mustafa ended up doing.  What's important is that either way—with both a sublet and an assignment—you are giving up your rights to the rental  but in both scenarios you are often still liable if there is damage to the apartment or the next tenant fails to pay. The risks are "tremendous," Grad says. 

When you assign a lease, the person you are assigning to would pay the landlord directly and deal with the landlord for repairs. 

If you are subletting you stand in the shoes of the landlord. The subtenant pays you the rent and you then pay the landlord. "If there are problems in the apartment, it is your duty to get it fixed," Grad says. This is the case, even if you are not authorized to make the repairs.  So while a sublet and an assignment are technically different, in terms of the risk for the departing tenant, Grad  says,  "it is the same." 

"The fact that you assign your rights does not eliminate your obligation to pay," Kirkpatrick  says.

The only situation in which you wouldn't be responsible for the apartment in any way is if you were released by the landlord from your original lease in writing. In practical terms, Grad says, "y ou will never get that with a sublease but might get it for an assignment. The landlord has no incentive to give that to you. Why not have two people on the hook—both you and assignee?" she asks.

A payment or additional security might be the incentive a landlord needs to release you. Security deposits are capped at one months rent making this type of payment "problematic," says Kirkpatrick but he adds there might be ways to structure it as a quid pro quo to release you of liability.  

Negotiations around lease breaks

A landlord cannot unreasonably deny your request to sublet or assign a lease in a residential situation.  If your landlord isn’t responding to your request to assign the lease, that silence becomes default consent within 30 days of you alerting them or of them receiving any additional information about the arrangement. If a landlord's refusal to assign is unreasonable, that terminates your lease.

If the refusal is unreasonable for a sublet, you aren't released from the lease but you are able to sublet the apartment and can fight it out in court. 

Grad says seeking to sublet or to assign your lease often leads to discussions about lease termination. Landlords know they cannot unreasonably deny your request but they also entered an agreement with you and want you to pay up. Yes, the  landlord has a duty to mitigate—which means they must do all they can to find a replacement tenant if you want to break your lease—but as Grad points out, this benefit isn't a given. 

"You have to fight for it—that's the nature of legal rights. It  doesn’t mean you have a right to break your lease, it just gives you a defense when you get sued for all the rent," she says. 

Insurance considerations

Without release from your own lease you will want to set up a separate agreement with the incoming tenant. Kirkpatrick advises having an indemnification agreement although points out that for practical purposes if the person stops paying the rent, there are no guarantees they will still be able to pay you. "If it were me, I’d want a guarantor," Kirkpatrick says. 

To protect yourself, run a credit report on a prospective subtenant or assignee. Phil Horigan, founder of  Leasebreak,  a website where you can find renters to take over an unwanted lease tells Brick, "in most cases I have heard where a tenant has gotten burned by a sublet, the tenant did not run credit."

You also need to make sure the subtenant or assignee has apartment insurance and that you too have apartment insurance, Grad says. If your landlord has not released you from the lease you remain liable if the tenant, for example, floods the apartment below or there's a fire in the place. 

You also want your tenant to know you are not covering their contents or liability. Jeffrey Schneider, president of Gotham Brokerage (a Brick Underground sponsor) says, "there are various ways to cover this, depending on whether you are an owner or former tenant."

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Emily Myers

Emily Myers is a senior writer, podcast host, and producer at Brick Underground. She writes about issues ranging from market analysis and tenants' rights to the intricacies of buying and selling condos and co-ops. As host of the Brick Underground podcast,  she has earned four silver awards from the National Association of Real Estate Editors.

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