Don’t Get Left on Hook for Your Assignee’s Actions
If you anticipate that an upcoming move might be necessary for your business but you need to renegotiate your lease that’s almost up so you can stay in the same space for now, you’ve probably explored the idea of assigning your lease to another tenant that wants the space. But don’t be tricked into thinking that because the tenant—the “assignee”—has taken over your space, it’s also responsible for all of the obligations you were when you operated there. It’s not that simple. As the assignor, you’ll legally stay on the hook for most tenant lease obligations unless the owner chooses to release you.
And that’s critical for you as the assignor. Remaining responsible for lease obligations that arose before the assignment can be dicey; you don’t occupy or control the space, so the assignee could be causing damage, failing to pay rent, or defaulting in some other way that you’ll have to make up for. To make an assignment work for everyone involved, there are several things you can do when you renegotiate your lease.
The most important step is to get a release. Getting a “release” is critical for liability reasons. But owners will typically resist giving you the right to a release from any further lease obligations after an assignment. That’s because they fear being left without protection if you’re released and then your assignee turns out to be a nightmare tenant. So expect some pushback and be prepared to agree to certain conditions for release.
For example, you might agree that the assignee will use the space as permitted by the lease’s use clause. This way, the owner isn’t getting a completely new kind of occupant that conflicts with its current deals. An owner will also insist that the assignee must be financially strong. One of the factors used to determine this will be the assignee’s net worth. And, don’t be surprised if the owner won’t allow an assignment if you’re in default of your lease at the time you want to pass your space on to a new tenant.
For more tips on how to achieve a post-assignment release, and model language that you can use to include conditions that you and the owner agree on, see “Shift Obligations to New Tenant after Assigning Lease,” available to subscribers here.