“Basic Guide to Assigning a Business Space for Rent” written by Mike Marko
Are your tenants requesting permission to assign their rented space to another tenant?
Often commercial companies will rent spaces that allow them to add sublet tenants to help cover rental fees for the property.
In other instances, tenants running commercial businesses that are having financial difficulties will ask you for a lease assignment when they have no choice but to turn over their rented space to someone else who can afford to pay for their rent.
At the very least, a lease assignment can stop your tenant from breaching the lease and violating your terms on financial matters.
To be prepared for instances like this, you’ll have to be specific in your negotiations with your tenant before allowing an assignment.
But what is a lease assignment, in the first place?
In this article, we will discuss what lease assignment is and how your tenants can assign their business space for rent to an assignee.
Assigning a Business Space for Rent
In leasing businesses, there are inevitable situations wherein some tenants find it hard to pay the rent. Other times, they just don’t have any more plans for staying in their rented space. To prevent lease breaks, they usually turn to lease assignments.
Lease assignment is a helpful strategy to prevent unoccupancy and keep positive cash flow. It is also simpler than finding new tenants, as they are the ones who will be looking for their own replacement in your business space for rent.
Today, let us talk about what an assignment is, and what can be done to ensure smooth and efficient assignment transactions for everyone involved.
What is a Commercial Lease Assignment?
A commercial lease assignment is the turning over of a tenant’s remaining interest of his business space for rent to a third-party renter (called an assignee). This is usually done when the tenant does not have the funds to keep up with the rent but is still bound by the lock-up period of the contract. Under this arrangement, all of his/her responsibilities and privileges are also transferred.
Why Assign a Lease for a Business Space for Rent?
A business space for rent can be advertised for assignment when tenants are planning to relocate or downsize their businesses. Another reason may be to compensate for their inability to pay for the rent without terminating the contract. In other instances, a lease assignment can help the primary tenant offset costs of keeping the rental space through the lease term.
Types of Assignment Clauses
An effective lease agreement is highly customized and personalized for each business space for rent. Not all agreements contain the same clauses. In terms of property assignment, here are the different clauses that landlords could include in their agreement:
No Assignment Clause
Majority of states—excluding Texas—entitle tenants to assign their rented space. Thus, most lease agreements do not contain assignment clauses. Normally when a tenant attempts to add a lease agreement the rental courts will not allow this addition.
Some lease agreements contain clauses that restrict or simply do not allow assignments. However, tenants may reopen the issue with the property manager and request advice or permission to do so. You should treat each tenants situation separately. Sometimes it is better to avoid a lease break by allowing a lease agreement to take over the responsibilities of paying the rents through the lease terms.
Landlord’s Reasonable Consent to an Assignment
The property manager has full control of his/her building, and should never allow any tenant to do anything without consent. In terms of space assignment, a careful and thorough evaluation must first be performed for transparency and efficiency purposes.
Exercise caution regarding this as the court can hold you liable if found that unreasonable evaluation was given.
Consider setting these standards before accepting an assignee:
- Require the assignee to go through all background and credit checks
- The assignee should be financially stable,
- The assignee should be able to comply with the landlord’s rules and policies for the rented property, and
- The assignee should have a positive credit history and a clean criminal record.
Steps to Assigning a Commercial Lease
Property managers and their tenants may just as well go through the same process in lease assignment as they would in subleasing. Depending on your location, though, the process may differ in some aspects.
1. Refer to the Commercial Lease Agreement
First and foremost, refer to the rental agreement for assignment details and/or policies. If an assignment is allowed, check whether or not your tenants would need to submit a written consent before proceeding. Make sure that all terms listed in the lease agreement are followed to protect you and your property from damages or lost rents that could occur by allowing a lease agreement.
2. Let the Tenant Find an Assignee
Your tenants are responsible for completing the terms of their lease agreement so it might be best to allow them to find an assignee. When an assignee is identified it is best to require them to go through background and credit screening processes to ensure that no troubles will be caused by them.
Assignees will be treated the same as all the tenants to the lease agreement. This means they will have the same rights and will need to abide by the same rules as the tenants.
3. Sign a Lease Assignment Agreement
After your tenant finds a potential assignee, and the assignee completes all requirements to qualify for rent. You will need to provide a Lease Assignment Agreement to detail the terms and conditions of the assignees rental of the property. The lease assignment agreement must then be reviewed and approved by you, the original lessor, and the new assignee to the lease. A Lease Assignment Agreement contains both the tenant’s new rules and policies, as well as the original agreement.
It is best to discuss the proposed agreement with all parties before signing it. This is to ensure that there will be issues with the presented conditions.
4. Liability and Release
Remember that you are still the property manager and owner of the establishment, and holding all parties to the lease agreement is still your responsibility as the property manager. Even though the lease agreement may assign responsibilities to tenants you will still ultimately be held responsible for making sure these are followed and completed. Depending on the terms of the lease agreement you may or may not hold tenants responsible for the supervision, as well as the contractual and financial liabilities, of your property.
5. Assignee Assumes Possession and Interest
After everything has been settled, the assignee will then be dubbed as the new tenant, shouldering all of his/her predecessor’s duties and responsibilities, as well as all rights and privileges. By drafting and signing of the new lea assignment agreement you can legally hold the assignee responsible to complete the lease and for any damages that could occur during the rental trms of the lease.
Final Reminders to all Renters
Before you relieve your original tenants of their responsibilities, remember that if any trouble arises between you and the assignee, they will be the only ones you can turn to.
Clarify to all involved parties on who will be held liable for all lease obligations. All parties now have a legal relationship, and professionalism should be strictly observed in these matters.
Final Thoughts on the Assignment Clauses in a Business Space for Rent
Today, we’ve discussed what a lease assignment is and how tenants can request permission to do so.
When a tenant can no longer pay for his/her rent, you can allow him to find an assignee via the assignment clause. The assignee will replace the original tenant in shouldering the leasing obligations of the business space for rent.
Assignees must go through a thorough screening process to ensure that they meet the standards set forth by the original tenants. Afterwards, a mutual agreement between all involved parties must be guaranteed for seamless and healthy relationships.
As for your original tenant, you may or may not hold them responsible for their rented space. But you must remember that they were the ones who introduced the assignees, as well as the assignment idea in the first place.
If you have further questions about the assignment clause on a business space for rent, feel free to leave them in the comments section below.
1. Rent Collection Preferences For Rent Commercial Space Businesses
2. Understanding The Use And Exclusivity Clauses In A Commercial Property For Lease
3. Increasing the Value of Commercial Real Estate for Lease
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