Selling your business and assigning the lease?

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Just because you have successfully assigned your lease to a new tenant with landlord consent, you are not automatically relieved of responsibility for breaches of the lease by the new tenant. You may still be liable on the lease!

Standing alone, an assignment of lease document does not extinguish the rights of the landlord to come against the old tenant for breaches of lease in the future by the new tenant.

If the new tenant and guarantor default on lease obligations, the old tenant and guarantor remain liable to the landlord until the lease is renewed or terminated. In the situation where the new tenant negotiates a variation of lease, you may still be liable, but not for any additional burden which is created by the variation.

If you are an outgoing tenant, you would be well advised to agree in writing with the landlord that you are released from all future lease obligations. There are several ways this can be achieved. For example, the landlord could agree to surrender the existing lease with you and enter a new lease with the new tenant, or the landlord could agree to extinguish your obligations as part of the Deed of Assignment of Lease to the new tenant. Whatever the approach, a written document clearly stating the termination of your obligations is essential.

Remember: without an agreed, written extinguishment or surrender, you will remain contractually liable to the landlord on the lease even though you do not occupy the premises and are no longer the tenant.

If you’d like further information about assigning your lease when selling your business, please contact our business law team.

Our thanks to Barbara Beck for writing this article