Signing a commercial lease is a major financial commitment. The business leader agrees to pay rent for an extended period of time. In many cases, commercial leases last multiple years and cost thousands of dollars per month.
If the business that rented the space fails or proves insolvent and must restructure, retaining the space may no longer be a viable option. Business leaders may find themselves panicking about the possibility of having ongoing lease obligations while the business does not operate. In some cases, the lease may allow for early termination in special circumstances. Other times, it may be possible to arrange for a lease assignment to minimize the business’s obligations to the landlord.
What is commercial lease assignment?
At its most basic, commercial lease assignment involves an outside party assuming the lease of a current tenant. Such arrangements are theoretically beneficial for everyone involved.
The landlord doesn’t have to lose money marketing the vacant unit or waiting to find a new tenant. The struggling or failing business can eliminate a major ongoing financial obligation, and the new tenant acquires a recently-occupied space that is likely in reasonable condition.
Some commercial leases allow for the assignment of the lease to another organization. Other leases explicitly forbid lease assignments. Tenants may need to review the lease documents that they signed to determine if assignment is an option.
Limitations on assignment are common. Even if landlords might permit lease assignment, they may have certain base requirements that the tenant must fulfill. They may require certain documentation from the new tenant. They may limit the assignment to businesses operating in the same industry or in a similar one.
Tenants trying to minimize the financial complications of restructuring or closing a business may need help protecting themselves in a lease assignment scenario. Reviewing lease documents, communicating proactively with a landlord and having support throughout assignment negotiations can make a major difference.
Knowing how to address challenges related to commercial leases can be beneficial for those renting space for their businesses. Assigning a lease when vacating a specific unit can be a reasonable option for a business tenant with a long-term lease. Those hoping to assign a lease may need help following the right steps and support while communicating with their landlords.