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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 .

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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

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Benjamin W.

I am a California-barred attorney specializing in business contracting needs. My areas of expertise include contract law, corporate formation, employment law, including independent contractor compliance, regulatory compliance and licensing, and general corporate law. I truly enjoy getting to know my clients, whether they are big businesses, small start-ups looking to launch, or individuals needing legal guidance. Some of my recent projects include: -drafting business purchase and sale agreements -drafting independent contractor agreements -creating influencer agreements -creating compliance policies and procedures for businesses in highly regulated industries -drafting service contracts -advising on CA legality of hiring gig workers including effects of Prop 22 and AB5 -forming LLCs -drafting terms of service and privacy policies -reviewing employment contracts I received my JD from UCLA School of Law and have been practicing for over five years in this area. I’m an avid reader and writer and believe those skills have served me well in my practice. I also complete continuing education courses regularly to ensure I am up-to-date on best practices for my clients. I pride myself on providing useful and accurate legal advice without complex and confusing jargon. I look forward to learning about your specific needs and helping you to accomplish your goals. Please reach out to learn more about my process and see if we are a good fit!

I absolutely love helping my clients buy their first home, sell their starters, upgrade to their next big adventure, or transition to their next phase of life. The confidence my clients have going into a transaction and through the whole process is one of the most rewarding aspects of practicing this type of law. My very first class in law school was property law, and let me tell you, this was like nothing I’d ever experienced. I remember vividly cracking open that big red book and staring at the pages not having the faintest idea what I was actually reading. Despite those initial scary moments, I grew to love property law. My obsession with real estate law was solidified when I was working in Virginia at a law firm outside DC. I ran the settlement (escrow) department and learned the ins and outs of transactions and the unique needs of the parties. My husband and I bought our first home in Virginia in 2012 and despite being an attorney, there was so much we didn’t know, especially when it came to our HOA and our mortgage. Our real estate agent was a wonderful resource for finding our home and negotiating some of the key terms, but there was something missing in the process. I’ve spent the last 10 years helping those who were in the same situation we were in better understand the process.

Attorney Gaudet has worked in the healthcare and property management business sectors for many years. As an attorney, contract drafting, review, and negotiation has always been an area of great focus and interest. Attorney Gaudet currently works in Massachusetts real estate law, business and corporate law, and bankruptcy law.

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Samantha has focused her career on developing and implementing customized compliance programs for SEC, CFTC, and FINRA regulated organizations. She has worked with over 100 investment advisers, alternative asset managers (private equity funds, hedge funds, real estate funds, venture capital funds, etc.), and broker-dealers, with assets under management ranging from several hundred million to several billion dollars. Samantha has held roles such as Chief Compliance Officer and Interim Chief Compliance Officer for SEC-registered investment advisory firms, “Of Counsel” for law firms, and has worked for various securities compliance consulting firms. Samantha founded Coast to Coast Compliance to make a meaningful impact on clients’ businesses overall, by enhancing or otherwise creating an exceptional and customized compliance program and cultivating a strong culture of compliance. Coast to Coast Compliance provides proactive, comprehensive, and independent compliance solutions, focusing primarily on project-based deliverables and various ongoing compliance pain points for investment advisers, broker-dealers, and other financial services firms.

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Contract to lease land from a church.

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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Are Anti-Assignment Clauses Enforceable?

Written by: Brittainy Boessel

July 22, 2020

8 minute read

Contracts, in general, are freely assignable, which means that either party can transfer its contractual obligations or rights to a third party. But sometimes contracts include anti-assignment clauses to limit or prohibit assignment. Read on to discover the basics of assignment and anti-assignment clauses, what makes them unenforceable, and learn how to negotiate them.

What Is Assignment?

An assignment is like a transfer. If an agreement permits assignment, a party could assign — or transfer — its obligation to another party. The second party — the one to whom the contract was assigned — would then be required to provide the products or services.

Assignments don’t necessarily relieve liability for the party who transfers the agreement. Depending on the contract, the party who assigned its obligations may remain a guarantor of— or responsible for—the performance of the third party assigned the work. In other words, the party to the contract (the assignor) would be responsible for breaches committed by the party to which it assigned its performance (the assignee). To remove itself from the liability of the agreement, the assignor would need to seek a novation , which cancels the first contract and creates a new contract between the party that is the assignee and the original counterparty to the contract.

What is an Anti-Assignment Clause?

Anti-assignment clauses—also sometimes referred to as assignment clauses or non-assignment clauses—can appear in various forms. Essentially, they prevent one or both contracting parties from assigning some or all of their respective contractual obligations or rights to a third party.

Anti-Assignment Language to Look for in a Contract

When reading through your contract, you can typically find a separate paragraph entitled “Assignment,” “Non-assignment,” or “Anti-assignment.” Sometimes you’ll find the assignment language buried within a “Miscellaneous Provisions” section, which contains all the boilerplate language of a contract, such as severability and waiver provisions.

Contracts include two primary types of anti-assignment clauses. The first type categorically precludes all assignments of rights and duties. It usually reads something like this: “Neither Party may assign, delegate, or transfer this agreement or any of its rights or obligations under this agreement.”

The second type prohibits assignments unless the assigning party obtains the prior written consent of the other party. It usually reads something like this: “Neither this agreement nor any right, interest, or obligation herein may be assigned, transferred, or delegated to a third party without the prior written permission of the other party, and whose consent may be withheld for any reason.”

Some clauses may state that a change of control, such as a merger, consolidation, or acquisition, is considered an assignment. Read carefully , because you want to ensure that you won’t be in breach if you transfer the contract to an affiliate.

Additionally, check the termination section of your agreement. Some termination clauses may state that a non-assigning party may terminate the contract in the event of a non-permitted assignment. Or a termination clause may state that the agreement automatically terminates upon such a transfer.

Without an anti-assignment provision, contracts are generally assignable even absent the consent of the counterparty. The Uniform Commercial Code (UCC), a group of laws governing the sale of goods, prefers the free transferability of all types of property, including contracts.

Still, courts normally enforce anti-assignment clauses that are negotiated and agreed upon by both parties, depending on the applicable law, the jurisdiction governing the contract, and the language agreed upon in the contract. Be aware though that courts tend to narrowly interpret anti-assignment clauses. For instance, an anti-assignment clause may prohibit assignment but fail to state that an assignment in violation of the contract will be invalid. In this case, a party may be able to file a suit for breach of contract, but the court may not permit it to invalidate the assignment.

Even without a solid anti-assignment clause, there may still be an opportunity to prevent certain assignments. Courts may not enforce assignments to which the counterparty did not consent, even in the absence of a valid anti-assignment clause, especially if the contract is personal in nature. Some obligations can be performed equally well by a third party, such as a requirement to make payments. But a personal obligation involves a special relationship between parties or requires special levels of expertise, discretion, or reputation. For example, personal service contracts, including employment agreements, are personal enough in nature that they’re not transferable unless the non-transferring party consents.

In general, assignment is not enforceable when:

• The contract prohibits and voids assignment

As discussed above, contract provisions can prohibit and void an assignment.

• The assignment materially changes the contract

If the assignment would significantly impact the performance of the contract — for instance, if it greatly increases the risks or burden imposed on the other party — then a court would likely not enforce the assignment.

• The assignment violates the law

Certain laws prevent assignments. For example, some states legislate that an employee cannot assign its future wages to a third party.

• The assignment violates public policy

If the assignment would harm public policy interests, it will be void. For instance, victims may not assign their personal injury claims to third parties to discourage excessive litigation.

Negotiating Anti-Assignment Clauses

In certain situations, the inclusion of an anti-assignment clause may not be in a party’s best interests. If a party depends on a unique service provider or a specific person to perform, then it must make sure that that service provider or person can’t assign work to an unknown third party without its consent. For instance, if you pay a premium to hire a renowned jazz band to perform at your charity gala, you don’t want a local high school garage band to show up instead. In any situation involving unique services or providers, make sure you have the right to consent prior to any assignment under the agreement.

Another example of the importance of assignability is in mergers and acquisitions. When a company purchases another business, the acquired business’s existing customer base and supplier contracts make it more valuable . Consequently, if a party hopes to eventually sell its business, it would want the right to assign its existing contracts to the buyer. Otherwise, potential buyers may be scared off because of the time and money it will take to transfer the existing agreements. Plus, the existence of anti-assignment clauses may heavily impact the selling price. If it’s possible you may sell your business, ensure that you have the right to assign your contracts and that consent is not solely within the discretion of the counterparty.

If you want the right to assign the contract, but your agreement does not permit assignments, you’ll need to negotiate with your counterparty on this point. If the clause in your agreement prohibits all assignments, try to include a carve out by allowing assignment of your rights and obligations upon the prior written consent of the other party. Add that the counterparty shall not unreasonably withhold or delay consent. You may also want to carve out an exception to the anti-assignment clause by excluding assignments between affiliates or necessitated by change of control transactions, such as mergers or acquisitions.

Courts tend to construe anti-assignment and anti-delegation clauses narrowly. As mentioned, a number of courts have held that an anti-assignment clause does not remove the power of a party to assign the contract and invalidate the contract unless the provision explicitly states that such assignments will be invalid or void. Thus, if you want to make an assignment that violates your agreement, rather than creating an opportunity for a breach of contract case, explicitly state in your contract that such assignments are invalid or void.

If you don’t want the counterparty to be able to assign its rights or obligations, state your preference clearly in your agreement with one of these options.

• Require consent always

Include a clause such as, “Neither party may assign or delegate this agreement or its rights or obligations under this agreement without the prior written consent of the other party, and any assignment or delegation that violates this provision shall be void.”

• Don’t require consent for affiliates or successors

Include a clause such as, “Neither party may assign or delegate this agreement or its rights or obligations under this agreement without the prior written consent of the other party, except that no consent is required (a) for assignment to an entity in which the transferring party owns greater than 50 percent of the assets; or (b) in connection with any sale, transfer, or disposition of all or substantially all of its business or assets; provided that no such assignment will receive an assigning party of its obligations under this agreement. Any assignment or delegation that violates this provision shall be void.”

• Require consent to be given reasonably

Include a clause such as, “Neither party may assign or delegate this agreement or its rights or obligations under this agreement without the prior written consent of the other party, whose consent shall not be unreasonably withheld or delayed. Any assignment or delegation that violates this provision shall be void.”

Note that you will not be able to prevent assignments resulting from court orders or by operation of law, such as those ordered through a bankruptcy hearing.

When you enter a contractual relationship, make sure to clearly determine your rights and obligations, as well as those of the other party. If it may be important for your business to have the right to assign all or parts of the contract, negotiate for the removal of the anti-assignment clause, or request changes to it to provide sufficient flexibility for you to assign.

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Assignment and Consent Standards in Commercial Leases

Mar 6, 2020

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. This article presents a brief overview of the assignment provision in commercial leases, both office and retail.

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. When a tenant’s interest in a lease is assigned, the tenant is transferring its entire leasehold interest and 100% of the leased premises to a third party for the entire remaining term of the lease. For the tenant, the assignment provision represents a potential exit strategy, dependent of course on the local market, and increased flexibility for future needs. For the landlord, the assignment offers greater security for its revenue stream and hopefully the avoidance of a tenant bankruptcy or default while keeping its building occupied. The tenant’s desire for flexibility and the landlord’s need for control is where the negotiations are focused. This article presents a brief overview of the assignment provision in commercial leases, both office and retail, with particular attention on the laws of Maryland, Virginia and the District of Columbia. The landlord’s standard for providing consent to a request to an assignment will be reviewed, and we will conclude by offering suggested language.

What If The Lease Does Not Contain An Assignment Provision?

The law traditionally favors the free alienation of property. Therefore, under the laws of almost every state, if the lease is silent on whether the landlord’s consent to an assignment is required, then the commercial tenant has the right to assign its interest. This is true in Maryland, Virginia and the District of Columbia. Given this baseline, almost every lease form will have a detailed provision setting forth the assignment process. Note also, however, that in most states it is also enforceable for a commercial lease to have an outright prohibition against assignments. Such a provision would likely be a non-starting deal point for most sophisticated tenants.

What Does Reasonable Mean?

If a lease simply provides that the tenant requires landlord’s consent to an assignment, but does not include the standard for giving or withholding that consent, then in many states the implied standard is that the landlord’s consent may not be unreasonably withheld. Historically this was the minority view, with the historical rule allowing the landlord to withhold consent for any reason. The implied duty of reasonableness is now more the norm as more states adopt this position when presented with the issue. There is express case law establishing this rule in Maryland, and most courts in Virginia and Washington, DC will imply such a covenant of good faith and fair dealing. Most states, though, do allow a landlord the sole right to grant or withhold its consent if the lease clearly expressly provides, and in Maryland the lease must specifically state that the landlord’s consent may be granted or withheld in the sole and absolute subjective discretion of the landlord. Again though, a sophisticated tenant with any leverage should never agree to such a provision.

Most negotiated leases will instead contain a provision requiring that landlord’s consent to an assignment is required, but such consent will not be unreasonably withheld. The tenant will likely also try to include landlord’s obligation to not unreasonably delay or condition its consent. A short clause without further defining what constitutes “reasonableness” generally favors the tenant, and landlords typically prefer including specific standards as to the criteria it can consider when reasonably deciding whether or not to consent to an assignment. Without such specificity, defining “reasonable” is difficult as the landlord and tenant clearly will have differing viewpoints and it may be left as a factual question to be decided in litigation. The typical definition (set forth in the Restatement (Second) of Property) would be that of a reasonably prudent person in the landlord’s position exercising reasonable commercial responsibility.

Absent a detailed provision listing the criteria a landlord can consider when reasonably reviewing a request to assign, a landlord is typically found to be considered reasonable if it considers certain general broad factors. First, the landlord reviews the assignee’s proposed use. In a retail setting, the landlord will be concerned whether the proposed use fits with the existing center and/or violates any existing exclusives or insurance requirements. In an office setting, the landlord might review the expected traffic and wear and tear on the building. Second, the landlord will consider the creditworthiness of the assignee. The landlord (and the assignor) will want to be confident that the assignee is capable of performing tenant’s obligations under the lease and a large creditworthy tenant increases the value of the asset. The assignor might argue that a strict financial test (such as a minimum net worth, for example) is unfair since the assignor is likely not being released upon the assignment and the landlord can still pursue the assignor in the event of a default. Third, the landlord will review the experience and history of the assignor. As mentioned above, landlords instead prefer a detailed list setting forth the many factors that they can include as part of reasonably reviewing a request for a lease assignment.

Without further establishing the criteria, the landlord puts itself at risk of a challenge by the tenant that a denial of a consent is unreasonable.

In defining “reasonable,” courts typically do not allow a landlord to deny or condition consent to an assignment based purely on economic reasons where the landlord results in substantially increasing what it was entitled to under the lease. In Washington, DC, there is well established case law holding that it is unreasonable for a landlord to withhold consent solely to extract an economic concession or improve its economic position. For example, a court would not consider it reasonable for a landlord to condition its consent on the assignee paying a greatly increased rent. Instead, as discussed below, landlords should look to protect their interests in a market of increasing rents by providing for either the sharing of excess rentals or a right to recapture.

What Are Typical Provisions In an Assignment Clause?

As discussed above, tenants generally prefer a short assignment provision simply requiring the landlord to not unreasonably withhold, condition or delay its consent to an assignment. But most leases are drafted by landlords, and over the years the assignment provisions have evolved to contain many typical provisions in addition to further defining “reasonableness,” including the following below.

• Sharing of Excess Rents. Since many states do not permit a landlord to condition its consent on improving its economic position (e. g. , by increasing the rent), most leases instead contain a provision where the landlord is entitled to all or a portion of the profits. The profits may mean increased rent, or it may even be construed more broadly to consider the value of the location in a sale of the tenant’s business. The landlord’s argument is that it doesn’t want the tenants competing in the real estate market. The tenant should push back here, and certainly try to lower the percentage shared, carve out any consideration received in the sale of tenant’s business, and only share profits after all of the tenant’s reasonable costs incurred in connection with the assignment were first deducted.
• Corporate Transfers. Since a purchase of the entity constituting tenant is likely not deemed an assignment under the law, most leases make clear that any such corporate sale, including the sale of either a controlling interest in the stock or substantially all of the assets of the tenant, is deemed an assignment for purposes of the lease. The tenant should carve out permitted transfers for typical mergers and acquisitions under certain conditions, and also carve out routine transfers of stock (or other ownership interests) between existing partners or for estate planning purposes. The landlord will likely accept a permitted transfer concept provided they receive adequate notice and the successor entity succeeds to all of the assets of the original tenant with an acceptable net worth.
• Assignment Review Fee. Most landlords include in their form lease the requirement that the tenant reimburse them for legal and administrative expenses incurred in reviewing the request for consent and preparing the assignment. The tenant clearly wants to keep these fees reasonable and in keeping with the local market.
• Recapture Rights. Landlords like to include the express right to recapture the premises in the event the tenant comes to it to request a consent for an assignment. A recapture clause allows the landlord to terminate the lease if market rents have increased or if it needs the space for another use. Sophisticated tenants should push back here as much as leverage allows, try to limit the time periods, and if nothing else try for the right to nullify the recapture by rescinding its request for the consent.
• Tenant’s Remedy. To protect themselves from claims for damages from the tenant if the landlord withholds its consent to a requested assignment, landlords often include a provision where the tenant waives its rights to monetary damages in such a situation and can only seek injunctive relief. The tenant should try to delete this provision, or at least, if leverage permits, provide for the right to seek damages if the landlord is subsequently found to have acted in bad faith.

Assignment provisions are heavily negotiated and both the commercial landlord and tenant need to be advised to the applicable local law and know the market for a comparable transaction. ( Note: The author represents office and retail landlords and tenants throughout Virginia, Maryland and the District of Columbia.) Sample reasonableness provisions for both office and retail uses are copied below for reference.

Retail Lease

Landlord and Tenant agree, by way of example and without limitation, that it shall be reasonable for Landlord to withhold its consent if any of the following situations exist or may exist: (i) In Landlord’s reasonable business judgment, the proposed assignee lacks sufficient business experience to operate a business of the type permitted under this Lease and to a quality required under this Lease; (ii) The present net worth of the proposed assignee is lower than that of Tenant’s as of either the date of the proposed assignment or the date of this Lease; (iii) The proposed assignment would require alterations to the Premises affecting the Building’s systems or structure; (iv) The proposed assignment would require modification to the terms of this Lease, or would breach any covenant of Landlord in any other lease, insurance policy, financing agreement or other agreement relating to the Shopping Center, including, without limitation, covenants respecting radius, location, use and/or exclusivity; (v) The proposed assignment would conflict with the primary use of any existing tenant in the Shopping Center or any recorded instrument to which the Shopping Center is bound; and/or (vi) The proposed assignment or subletting would result in a reduction in the Rent collected by Landlord during any portion of the term of this Lease.

Office Lease

Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply: (i) The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building; (ii) The Transferee intends to use the Premises for purposes which are not permitted under this Lease; (iii) The Transferee is a governmental agency; (iv) The Transfer occurs prior to the first anniversary of the Lease Commencement Date; (v) The Transferee has a net worth of less than $10,000,000.00; (vi) The proposed Transfer would cause a violation or trigger a termination right of another lease for space in the Building; or (vii) Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Building at the time of the request for consent, or (ii) is negotiating with Landlord to lease space in the Building at such time, or (iii) has negotiated with Landlord during the six (6)-month period immediately preceding the Transfer Notice.

Reprinted with permission from the March edition of the Commercial Leasing Law & Strategy© 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected] .

• John G. Kelly

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No assignment or delegation

No assignment or delegation clause samples

14.6     No Assignment or Delegation. No party may assign any right or delegate any obligation hereunder, including by merger, consolidation, operation of law, or otherwise, without the written consent of the other parties hereto; provided, that such assignment shall not prevent or impede the Acquisition Merger from qualifying for the Intended Tax Treatment. Any purported assignment or delegation that does not comply with the immediately preceding sentence shall be void, in addition to constituting a material breach of this Agreement.

09/10/2020 (Chelsea Worldwide Inc.)

Section 5.12 No Assignment or Delegation. No Party may assign any right or delegate any obligation hereunder, including by merger, consolidation, operation of law, or otherwise, without the written consent of the all of the other Parties and any purported assignment or delegation without such consent shall be void, in addition to constituting a material breach of this Agreement. This Agreement shall be binding on the permitted successors and assigns of the Parties.

11/01/2019 (Lone Star Value Management LLC)

Section9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee.

06/06/2016 (Ottawa Bancorp Inc)

Section 10.16 No Assignment or Delegation. No Party may assign any right or delegate any obligation hereunder, including by merger, consolidation, operation of law, or otherwise, without the written consent of the all of the other Parties and any purported assignment or delegation without such consent shall be void, in addition to constituting a material breach of this Agreement. Notwithstanding this restriction, the Buyer may assign this Agreement to an affiliate that effectuates the Roll-Up Transactions (the “Permitted Assignee”). In the event of any assignment to the Permitted Assignee, the capitalization of the Assignee shall be identical to the capitalization of the Buyer as provided for in this Agreement (only with such changes as are not adverse to the Sellers and do not diminish any rights to which the Sellers were otherwise entitled) and all other representations and warranties of the Buyer shall be true and correct as they apply to the Permitted Assignee, and the Buyer shall continue to be bound by the terms of this Agreement as a primary obligor hereunder such that should the Permitted Assignee fail to perform any of its obligations hereunder, the Sellers and Sellers’ Representative shall be entitled to pursue performance against the Buyer. This Agreement shall be binding on the permitted successors and assigns of the Parties; provided, however, no such assignment will relieve any Party of their obligations under this Agreement.

11/05/2020 (HARVEST HEALTH & RECREATION INC.)

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Permitted Transferees: What a Commercial Tenant Needs to Know When Negotiating the Assignment Clause

February 27, 2020

Are you a business owner or franchisee?

Will you be negotiating a lease in the foreseeable future?

Can you see your business model evolving during the lease term?

If the answer to these questions is “yes”, here is what you need to know when negotiating the transfer provisions in your next commercial lease.

What is the Assignment Clause and When is it Triggered?

Every commercial lease contains an assignment provision that lays out the landlord’s and the tenant’s rights and obligations in the event that the tenant seeks to “assign” the lease.

An “assignment” can occur in two scenarios:

Assignment of Lease : The first, and most common to lay people, occurs when the original tenant transfers and grants all of its rights and obligations under the lease to a third party, and the new tenant explicitly accepts these rights and obligations as its own and occupies the leased space.

Transfer of Ownership Interests in Tenant Entity : The second occurs when the tenant entity transfers its stock, membership or partnership interests (depending on whether the tenant entity is a corporation, limited liability company or partnership) to a third party entity, resulting in a change in ownership. In this scenario, the tenant under the lease remains the same — the transfer occurs internally within the tenant’s corporate structure.

Although the transfer that takes place in the second scenario does not seem like a traditional “assignment” (because the existing tenant remains in the space), most leases treat changes in control of the tenant entity as such. What constitutes a “change in control” that triggers an assignment, however, is negotiable. Typically, a transfer of a majority (51% or more) of the tenant’s stock, membership or partnership interests will suffice.

What do Landlords Typically Require to Effectuate an “Assignment”?

What a landlord requires to effectuate an “assignment” varies depending on how tough the landlord is and how much bargaining power it has. Below are several concepts you will typically encounter in a landlord’s form of lease.

Landlord Notice : Almost every commercial landlord will require a tenant to give it notice of any assignment of the lease. Landlords want to stay informed, which is not unreasonable.

Landlord Consent : In addition to notice, the landlord will often condition the assignment on its prior written consent. The key here is the standard of discretion imposed on the landlord — that is, whether the landlord must be “reasonable” in granting its consent, or whether it has “sole discretion” to do so. A tenant should push for the “reasonable” standard so that the landlord does not have the liberty to deny the tenant’s request for any or no reason at all, and should also negotiate to receive the Landlord’s decision promptly.

In determining whether to grant consent to an assignment, a landlord’s goal is to ensure that the proposed assignee will be able to satisfy the tenant’s obligations under the lease. As such, a landlord typically requires the submission of (1) a statement indicating the name and address of the proposed assignee, the nature of its business and the proposed uses of the leased space, (2) the proposed assignee’s most recent financial statements, and (3) an assignment and assumption agreement, stating that (a) the proposed assignee takes on all of the current tenant’s obligations under the lease and (b) the current tenant agrees to remain fully liable for the performance of all of the assignee’s obligations thereunder.

A more aggressive landlord will expressly condition its consent on the presence or absence of certain circumstances, such as: (1) the tenant not being in default under the lease, (2) the tenant not publicly advertising the space for a rental rate lower than the rent then being paid by the tenant, (3) the proposed assignee being financially responsible to the extent required for payment of rent and for successfully operating the business, (4) the proposed assignee having a net worth equal to or greater than that of the tenant, (5) the proposed assignee having a minimum amount of years of successful experience in the field of business to be conducted by it in the leased space, (6) the proposed assignee not being an entity with whom the landlord is then or has recently been negotiating to lease space, and (7) the proposed assignment being made in connection with the tenant’s sale to the proposed assignee of its business then being conducted in the leased space.

Payment of Monies : Also common are provisions requiring the tenant to reimburse the landlord for all of the reasonable costs incurred by it in connection with an assignment, including attorneys’ fees. If a tenant asks its landlord to engage an attorney to review assignment documents, it is only fair that the tenant pays for such costs. However, the tenant should negotiate a cap on these costs.

Sometimes the landlord will also require the proposed assignee to put up additional security, but this provision only passes muster when the proposed assignee is a risky one, making the additional security requirement reasonable.

Less common are instances in which the landlord requires the tenant to pay it a certain percentage of the entire gross consideration that the tenant receives from the proposed assignee (if any) in connection with the assignment, whether it be the monies received in selling the business or those received in a stock transfer.

Right of Termination / Space Recapture : Occasionally, a tenant will encounter a provision stating that upon receipt of the tenant’s request to assign, the landlord will have a right to terminate the lease and recapture the space. In other words, merely giving notice of the intent to assign triggers a landlord’s termination/recapture right. This is worst-case scenario and the tenant should negotiate its way out of such a provision.

What Should a Tenant Push For When Negotiating the Transfer Provisions?

Given the many conditions typically imposed by a landlord to effectuate an “assignment”, a tenant should push to incorporate the “permitted transferee” concept into its lease. A “permitted transferee” is an entity to which the tenant is permitted to carry out a transfer without the landlord’s prior written consent.

Transfers to a “permitted transferee” are not deemed “assignments” under the lease. Therefore, the onerous assignment requirements outlined above are not triggered, allowing the tenant to proceed with a transfer to certain pre-approved entities without having to fulfill any obligations under the lease (other than providing the standard notice to the landlord).

Commonly used examples of “permitted transferees” include: (1) the tenant’s parent, or any of its subsidiaries or affiliates, (2) an entity into which or with which the tenant is merged, consolidated or reorganized, (3) an entity to which all or substantially all of the tenant’s assets, stock or other equity interests are transferred, and (4) the tenant’s franchisor or another franchisee.

Can you see your business model evolving during the term of your next lease? If the answer is “yes”, you should negotiate with your landlord to incorporate the “permitted transferee” concept into your lease. The carve-out will work to save you much time and resources in operating your business.

• Related Practice Areas: Real Estate

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• Real Estate Law
• Business Law
• Probate Administration

No Assignment, Sublease…or Airbnb?

Airbnb is a new internet hosting platform being used by people worldwide to list their residential property, or a room, to short term guests or occupants in exchange for payment. What many landlords don’t know is that Airbnb does NOT restrict the use of the site to title owners of the property. This could potentially create problems for both landlords and tenants when the tenants list the leased property for rent on Airbnb without the landlord’s knowledge or permission. I would hope that any landlords or property managers reading this article have a signed written lease agreement with their tenants, but if you do not, I would strongly urge you to do so for the reasons stated below (among other legal issues not addressed in this article).

Although many standard form leases contain a “no assignment” and/or “no sublease” clause, these clauses may not contain language sufficient to clearly restrict Airbnb rentals, or use of other hosting platforms by tenants. An assignment requires that the entire remaining lease term be assumed by the assignee, while subleases only transfer a portion of the remaining lease term, with a right of re-entry. It can be argued that Airbnb rentals could constitute a sublease because the tenant/sublessor is only transferring a portion of his or her remaining lease term to the Airbnb guest/sublessee, however the majority of tenants probably do not know what a sublease is, or that Airbnb rentals could qualify as such. It is important to note that unless the Airbnb guest expressly assumes the tenant’s obligations under the master lease agreement, the landlord has no right to enforce the lease terms against the Airbnb guest for violations of the lease agreement. The booking confirmation received by a guest and host on Airbnb certainly does not contain any language assuming lease obligations, thus a landlord’s inability to enforce the lease terms against an Airbnb guest could cause major issues for the landlord in eviction proceedings. In certain cases, the Airbnb guest may have a legitimate defense to an unlawful detainer action through a claim of right to possession, regardless of whether or not their occupancy was prohibited by the master lease. This is why it is essential for landlords to ensure that tenants clearly understand that listing the property on hosting platforms is strictly prohibited.

Tenant breaches of lease agreements due to Airbnb rentals is apparently such a common issue in California that on September 1, 2015, the California State Senate enacted Senate Bill No. 761 which added Sections 22590, 22592, and 22594 to the Business and Professions Code (“B&P”). B&P Section 22950 created the term “hosting platform” to encompass internet rental listings, like Airbnb, which are used for the primary purpose of renting a residential unit, for profit, to tourists or transients. The law now requires that all hosting platforms provide a warning notice to tenants who are listing a property or room on the site, that they should review their lease agreement, or contact their landlord, prior to listing the property on the hosting platform, to ensure their actions do not violate the lease agreement. Unsuspecting tenants who do not review their lease agreement, or fail to obtain the landlord’s prior approval of the use of the hosting platform, face the threat of legal eviction proceedings being brought against them for breach of the lease terms and conditions.

From a legal perspective, it is advisable that landlords and property managers review their current lease agreements and house rules with an attorney, paying special attention to assignment and subleasing clauses. Modifications to these clauses may be necessary to make it explicitly clear to tenants that they are not permitted to list the leased property on any hosting platform, and that any violation is a breach of the lease terms.

This article is for informational purposes only and does not constitute legal advice. The information in this article is specific to California laws only, and should not be relied upon in other states. For specific questions related to this article, please contact the Law Office of Ashley M. Peterson, and we would be happy to answer whatever legal questions you may have .

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• Practical Law

Leases: Assignments

Practical law uk practice note 8-422-1211  (approx. 21 pages).

• Leases and Licences to Occupy
• Assignments, Variations, Surrenders and Termination - Land and Buildings

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Assignments Contract Clauses (8,849)

Grouped into 236 collections of similar clauses from business contracts.

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