If you are thinking of selling your business and assigning your premises lease, or moving your business to new premises, you may need to assign your lease (assuming that the lease does not prohibit assignment).
Normally, you will need your landlord’s consent to the assignment. Before consenting to the assignment, your landlord must be satisfied that the new tenant is able make rental payments and run a successful business. Accordingly, the new tenant will need to provide information which clearly details work/industry experience and financial statements showing assets and liabilities.
When a lease is assigned, you, as the original tenant, are still contracted to the landlord and remain liable for the lease obligations to the date that the term of the lease expires. This rule applies to guarantors as well. Unless the lease document states otherwise, your liability as tenant and guarantor continues until the term ends.
What can you do to ensure you are ‘off the hook?’
- For your liability under the existing lease to come to an end, you will need to negotiate with your landlord to release you from any ongoing liability (and the guarantor, if applicable) after the assignment date.
- If the landlord will not release you, then you should try to negotiate a cap on liability, particularly if the remaining term of the lease is lengthy.
- Don’t ignore the information that you are providing to the landlord to prove the new tenant’s financial suitability. This information should be as important to you as it is to the Landlord. If the new tenant and guarantor does not have suitable experience or financial backing, assess the probability that the landlord may call on you to pay the rent at some stage in the future when the new tenant stops paying. Do credit checks on the new tenant and guarantor.
- If your landlord does not release you from ongoing liability, you should, as a minimum, ensure that the new tenant indemnifies you for any breaches of the lease.
The best negotiations are the ones you have before signing documents! Leases can be complex contracts and it pays to do your homework before signing them, especially on matters that have or could have a financial impact in the future.