Every new commercial lease comes with a degree of risk. Landlords often gamble on an entrepreneur’s idea when allowing them to take possession of a commercial space. Most commercial leases last for multiple years, but there is never a guarantee that the business tenant remains solvent for the duration of the lease.
Therefore, many leases include special terms that may apply in scenarios where a tenant business fails. Some leases include force majeure clauses that allow either party to terminate the lease when the business cannot operate due to factors outside of the company’s control. Other times, leases may include provisions either explicitly allowing or prohibiting assignment to a different business.
Is lease assignment beneficial for a commercial landlord in a scenario where a tenant wants to vacate a unit?
What least assignment entails
Lease assignment is essentially the assumption of the remainder of the lease by an outside party. A new business tenant agrees to take over the remainder of the lease by an outside party. The current tenant can vacate the premises without owing multiple months of rent to the landlord.
Such arrangements can be beneficial for the landlord, as they eliminate the need for marketing, collection activity and downtime between tenants. However, there are risks inherent in allowing lease assignments.
The landlord may need to include Provisions about vetting the new tenant before approving the assignment. Otherwise, a struggling tenant might jump at an opportunity to assign their lease to a company that is likely to follow in its footsteps toward failure. Additionally, tenants may be unfamiliar with the law and might agree to a lease assignment arrangement with a business whose proposed operations may violate local, state or federal ordinances.
Some landlords allow lease assignment but require pre-approval of the new tenant. Others may establish baseline requirements in the lease for prospective tenants seeking to acquire the lease via assignment. In some cases, lease assignment can be detrimental and can leave a landlord struggling to evict a problem tenant.
Carefully considering special requests by business tenants, including requests to integrate lease assignment clauses, can help to protect property owners preparing to sign a commercial lease. The inclusion of very clear terms in commercial leases is necessary for the protection of the landlord giving businesses access to commercial spaces for their operations.