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Should a commercial landlord permit lease assignment?

On Behalf of | Jan 23, 2024 | Commercial Real Estate |

Individuals and businesses who own commercial real estate have to put careful thought into the terms of their leases. A commercial lease usually lasts for substantially longer than a residential lease. The landlord may have a few opportunities to adjust or renegotiate their lease until it is time to renew the agreement with their tenant.

Therefore, landlords must be proactive in their efforts to protect themselves against defaults, property damage and other risks. The right lease inclusions can make all the difference for a commercial landlord concerned about optimizing the return on leasing out their property. For example, clauses related to lease assignment could be a key consideration for the protection of a commercial landlord.

What does lease assignment entail?

If a landlord permits lease assignment, that means they allow a tenant to negotiate with another party that may take over their lease. Lease assignment can be convenient for tenants struggling to keep their businesses open or in need of substantially different amenities.

Growing businesses might need more space, while struggling businesses might choose to close certain locations to limit operating expenses. Either scenario might prompt a lease assignment negotiation. Current commercial tenants can avoid future lease obligations by arranging to have a different business assume the lease at the property.

This arrangement can be beneficial for a landlord because they do not miss rental payments or need to market the property to new prospective tenants. However, there can be numerous challenges that arise due to lease assignment, not the least of which is having a tenant in the space that the landlord did not personally investigate.

Is lease assignment beneficial or harmful?

Depending on the scope of a landlord’s operations, the duration of the lease and numerous other factors, lease assignments can either be very helpful or potentially harmful. Every landlord has unique concerns to consider when deciding whether to include a clause prohibiting or specifically permitting lease assignment by their tenants.

In some cases, including high-turnover facilities, lease assignment clauses could allow a landlord to keep a unit occupied without spending time and money marketing the space. Other times, landlords may want to maintain direct control over future tenants and collect the rent due from a tenant who attempts to vacate the premises before their lease actually ends.

Discussing concerns and organizational needs in depth with an attorney can help landlords better determine whether allowing or forbidding lease assignments might be the best approach when signing a new commercial lease.