Don't Let Landlord Withhold Consent to Assignment

August 25, 2015
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An assignment and subletting clause that requires you to get the owner's approval for every type of transfer you would like to make is risky business. Corporate transactions are so significant to the continued viability of a tenant that you shouldn't  take the risk of the owner withholding its consent. If the owner doesn't give its consent to a merger or consolidation, the consequences for you can be devastating and downright embarrassing.

Carving out a "permitted transfers" clause in the assignment subletting section of your lease helps avoid issues later. In fact, it's one of the most important clauses because it gives you the ability to undertake certain corporate transactions without the owner's prior consent.

To effectively negotiate this clause for maximum flexibility for a range of business entities, you should consider:

  • Focusing on ensuring flexibility. The landlord's lease form might not allow you to undertake any transfers, whether to an entity buying the business or to an unrelated third party, without consent. Try to negotiate a carve-out for third-party transfers, whereby the landlord will agree not to unreasonably withhold, condition, or delay its consent provided that certain conditions are met.
  • Getting carve-outs crucial to business. The most important carve-outs from the general rule are those transactions that are too significant to the well-being of the tenant that the tenant does not even want to go to the landlord for consent.

For four important tips that will help you protecting your assignment and subletting interests and model lease language to help you accomplish this, see "Guard Assignment, Subletting Rights with Permitted Transfer Clause," available to subscribers here.