Solicitor Ed Williams, in our Commercial Property & Planning team, explains what a Licence to Assign a Lease in Commercial Property is.
A Licence to Assign is a formal written agreement in which a landlord grants the tenant (the assignor) permission to assign their lease to a new tenant (the assignee). The licence is entered into alongside the lease and records the landlord’s formal consent to the assignment.
Most commercial leases contain provisions that restrict tenants from assigning their lease without the landlord’s prior written consent. In some cases, a lease may even contain an absolute prohibition on assignment, however, the landlord may still choose to waive this restriction and grant consent at their discretion.
A Licence to Assign is typically required when a tenant no longer requires the lease and/or there are commercial or strategic reasons for transferring the lease to another party.
Key Terms to Consider
When considering a Licence to Assign, several key issues require careful consideration:
- Whether an Assignment is Appropriate: the landlord might consider whether negotiating a surrender of the existing lease and grant of a new lease might be more appropriate than an assignment of the existing lease.
- Financial Standing of the Assignee: The landlord should always satisfy themselves that the incoming tenant can meet the obligations under the lease.
- Arrears and Other Outstanding Matters: The licence should address any rent arrears, or other sums due under the lease.
- Authorised Guarantee Agreement (AGA) and Rent Deposit Deed: The landlord may require the outgoing tenant to enter into an AGA, guaranteeing the assignee’s performance under the lease. The landlord may request a rent deposit deed from the assignee, as it is usual to return the existing tenants deposit after completion of the assignment.
Once the landlord has agreed in principle to the assignment (subject to licence), their solicitor will prepare the Licence to Assign (and accompanying documentation as appropriate), which will then be negotiated and agreed between the landlord, the assignor, and the assignee.
The assignor and assignee will also need to complete the actual transfer of the lease, either by a Deed of Assignment or, if the lease is registered, by a TR1 form. Following completion, the assignee will likely be required to serve formal notice of the assignment on the landlord. If the lease is registered, the relevant HM Land Registry application should also be made by the assignee.
Conclusion
A well-drafted Licence to Assign provides clarity and certainty for all parties involved. It ensures that the landlord’s interests are protected and both the outgoing and incoming tenants understand their respective rights and obligations. Given the complexities involved, we always recommend that a party seeks specialist legal advice before entering into a Licence to Assign.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
