sublease and assignment

What is Assignment of Lease and How It Differs from Subletting

The assignment of lease (and rent) is a foggy topic that is often confused with subletting. Let's clear the air once and all right now. Learn the differences between a lease assignment and sublease so you can make the right choice.

What is Assignment of Lease? - The Important Basics

Let's begin by introducing the 3 players in a lease assignment - The landlord, the original tenant (assignor) and the new tenant (assignee). The original tenant has an unexpired lease agreement with the landlord and he wants out. Since the original tenant can't just break the agreement and walk off, what he does is to get a new tenant to swap places... and take over all his rights and obligations for the remainder of the lease period. So if the original tenant signs a 1 year commercial lease and the business goes bust after 8 months, the new tenant will be assigned a 4-month commercial lease (with the same terms and conditions as the original agreement). Now here's the big catch: Even though the original tenant has handed over all his duties and obligations to the new tenant, he is not off the hook... unless the landlord agrees to release him from all liabilities. If the new tenant stirs up trouble, our dear original tenant will find himself in hot soup as well. Of course, whether the original tenant is allowed to pull this assignment trick out of his hat is a whole new matter. Knowing for sure is actually simpler than most people think: First, examine your local landlord tenant laws for any lease assignment rules. Most of the time, landlords are given the right to allow or disallow assignments but once in a while, the local law let tenants have the final say instead. If there's no mention of lease assignments in your law text, then your rental lease agreement shall dictate the terms.

Difference Between Lease Assignment and Subletting

When it comes to subletting vs assignment of lease, there's often a massive mix-up. Sometimes even real estate professional get it wrong by assuming them to be one and same thing. However if you dig deeper, you will find that the differences are not just numerous, but important as well. Let's begin by dragging the landlord into the picture. An assignment of lease launches the new tenant into a direct relationship with the landlord - The landlord collects rent straight from the new tenant and deals with the new tenant directly on all lease issues. So in this case, the original tenant gets to take back seat and doesn't have to manage the new tenant actively. On the other hand, there's no direct relationship between the landlord and new tenant (subtenant) in a sublease. Instead the original tenant plays mother goose and is responsible for collecting rent from the subtenant and making sure that he's following the lease rules. When you compare the two, a sublease is a lot more hands-on for the original tenant. No matter which path you take, you will still want a good new tenant who pays the rent on time and follows the lease rules to the agreement. For the golden rules on screening tenants and running credit checks, Click here for our guide to running tenant credit checks. When you have a lease assignment, the terms and conditions of the lease remains largely unchanged - It's almost like taking the original lease agreement and swapping the tenant's name with another. With a sublease, there's more breathing space - The original tenant can decide how much rent to charge, how long the subtenant is going to stay or even collect security deposit... as long as it stays within the boundaries drawn by the original lease agreement between the landlord and original tenant.

Should You Choose Assignment of Lease or Sublease?

You are the Landlord - A lease assignment is recommended in most cases. You will have more control over your new tenant (instead of leaving matters in the original tenant's hands and hoping that he would do a good job)... plus you still have the original tenant to cover your back in case anything goes wrong. You are the Original Tenant - Now this is a tricky one. If you want to someone to take over the entire lease and property for its remaining duration (e.g. your business goes belly-up and you no longer need the office), then help yourself to a lease assignment. If the landlord's consent is required for assignment (and he doesn't give the nod), you can always try offering him a lease assignment fee as a deal sweetener. However, if you are looking for someone to share the place (and rent)... or perhaps you need someone to cover the rent while you are overseas for a few short months, then a sublease would be ideal. You are the New Tenant - An assignment of lease works better for you most of the time. You won't be at the mercy of the original tenant (for example if he screws up and the landlord terminates the original lease agreement, your sublease might also go up in flames). But if you only want to rent part of the property... or don't want to tie yourself down for the remaining lease duration, then you are better off sticking to a sublease. Now that we have covered the topic of assignment vs sublease, go ahead and take your pick - Click here for an assignment of lease form or Click here for a sublet agreement instead.

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Legally reviewed by: King Law July 30, 2024

In today’s real estate market, rent payments may be extremely difficult to make. Sometimes we have to take part-time jobs in another city, leave the college apartment for the summer, or any circumstance where we have to pay double rent and need help with the finances. This is where most people think about a sublease. Subleasing involves the tenant of the property leasing their property or a portion of their property for a specific amount of time. Usually, this means the tenant is planning on returning to the property. A difference between a sublease and an assignment is in an assignment, the tenant is assigning the rest of the lease to the new tenant for the entire duration of the lease. When thinking about a sublease or an assignment it is important to think about the liability. 

In general, the goal of a sublease is for the renter to make payments, so you do not have to. This saves tenants money and gives the new renter a place to stay for a short period. But, there are some risks. The landlord-tenant responsibility does not change in a sublease. If the new renter does not make the rent payments, the original tenant is the one liable. In a sublease, the tenant is always liable under the privity of contract and privity of estate. Now this does not mean the tenant cannot seek payment from the renter and the renter can do whatever they want. The tenant can seek action against the person renting, but the tenant is the one liable to the landlord not the renter in a sublease. It is important to remember when planning a subleasing agreement that if you are the tenant, you are still liable to the landlord. The assignment is different.

In an assignment, the renter is now liable to the landlord. The renter in an assignment is now the new tenant and is liable under the privity of the estate because they are the tenant in possession of the property since they assumed the remainder of the lease. The original tenant is not returning in this circumstance. The original tenant is still liable, however. The original tenant will still be liable under the privity of the contract. In this circumstance, both the tenant and new tenant are held liable by the landlord, which is why an assignment is different than a sublease. 

When thinking about getting help with your payments or finding a short-term place to live, it is important to think about the liability of a sublease or assignment. King Law Offices is a full-service law firm with an outstanding team of professionals who work diligently, creatively, and compassionately on behalf of our clients each day. If you have a current conflict with your title or your deed, contact King Law at 888-748-KING for a consultation. We have offices located across western North Carolina and upstate South Carolina. We are here to serve you and to guide you as we navigate this journey together.

Legally reviewed by: King Law Carolina Attorneys July 30, 2024

This blog post has been reviewed and verified by legal experts at King Law. Our team is dedicated to providing premium legal services with compassion, innovation, trust, and advocacy. Serving Western North Carolina and Upstate South Carolina, we offer flexible meeting options and strive to exceed client expectations with high-quality legal representation and exceptional client relationships.

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What is the Difference Between an Assignment and a Sublease?

by Pam Pester | Sep 17, 2019

Commercial real estate clients frequently ask how an assignment of a lease differs from a sublease.  The difference is primarily a legal one, although each achieves a similar practical result.

Assignment .  An assignment of a real estate lease is a complete transfer of the right to be the tenant under the lease.  The third-party assignee becomes the “tenant” under the lease, taking over all of the leased premises, and is substituted for the old tenant. The new commerial real estate tenant pays the rent required under the lease directly to the landlord and is treated as the tenant under the lease for all purposes.  However, the catch is that the assignor tenant, unless released from liability by the landlord, remains liable for the obligations under the lease if the new tenant defaults. The old tenant can be sued by the landlord for back rent and other obligations imposed by the lease if the new tenant fails to pay or perform as required by the lease.  Given that a commercial real estate tenant who assigns a lease remains liable for the default of the new tenant, tenants should try to negotiate an automatic release provision.  Unfortunately, many landlords are unwilling to make this concession. An alternative strategy is to ask the landlord for a release if the proposed new tenant is of similar financial strength and creditworthiness.

Sublease. A sublease is a new lease agreement between the real estate tenant as sublessor and a third party as sublessee for all or a portion of the leased premises. The original commercial real estate lease between the tenant and the landlord remains in place, unaffected by the sublease. This means that the tenant remains liable for monthly rent under the original lease, while collecting rent from the subtenant under the sublease, which may be more, less or the same as the rent due under the main lease.

A sublease can be for less than all of the leased premises, while an assignment that transfers the entire lease must be for all of the premises. A sublease is a more involved transaction, as it requires a full sublease document between the commercial tenant as sublessor and the sublessee.

Reasonable Consent .  The landlord must be reasonable in consenting to the proposed assignment or sublease. Under Florida law a landlord cannot be unreasonable or arbitrary in withholding consent to an assignment or sublease. Nonetheless, it is still better to state in the text of the lease that the landlord will be reasonable.

In drafting an assignment or sublease clause, the tenant’s goal is flexibility. Being able to assign or sublet excess space with minimal interference from the landlord and minimal liability in the event the new tenant defaults can be a tremendous benefit to the tenant as the business climate changes from year to year.

When you need assistance with your commercial  lease in Tampa, FL and surrounding areas contact Pam Pester, Owner and President of Mobiliti CRE.  Mobiliti CRE is an independently owned commercial real estate company specializing in exclusive tenant and buyer representation.

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Sublease: Definition, How It Works, Laws, and Example

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

What Is a Sublease?

A sublease is the re-renting of property by an existing tenant to a new third party for a portion of the tenant’s existing lease contract. The sublease agreement may also be called a sublet.

Subleasing may or may not be permitted in the terms of the original lease, and may be subject to additional restrictions by jurisdiction. Even if a sublease is permitted, the original tenant is still liable for the obligations stated in the lease agreement, such as the payment of rent each month.

Key Takeaways

• A sublease is the legal transfer of tenancy from an existing tenant to a third party for a specified period.
• The owner of the real estate must typically approve any subletting arrangement offered by the first tenant, subject to local laws and regulations.
• If a tenant decides to sublease, they remain responsible for rent payments and other contractual obligations.

How a Sublease Works

A lease is a contract between a property owner and a tenant that transfers the owner’s rights to the exclusive possession and use of the real estate property to the tenant for an agreed-upon period. The lease states the length of time the contract is to run and the amount of the tenant’s rent. In legal terms, the tenant’s legal right to possess the property is deemed tenancy. Subleasing occurs when the tenant transfers a part of their legal tenancy to a third party as a new tenant.

Subleasing can be established unless the original lease forbids it. However, in most cases, the owner must be notified and must approve any subletting arrangement created by the tenant. Control over the subletting process could be written into the original lease so that the owner has some control over who uses and/or occupies their property.

A tenant who sublets property must understand that subleasing does not release them from their obligations on the original contracted lease. The tenant is responsible for paying rent and for repairs or damage to the property. That means that if a new subtenant does not pay rent for three months, the original tenant that subleased the property is liable to the landlord for the overdue rent amount and any late fees . In turn, the subtenant is liable to the original tenant for the unpaid rent.

Subleasing and State Laws

The laws of many states and local municipalities affect a tenant’s right to sublease. These laws may allow an individual to sublease under certain conditions even if their contract with the landlord forbids it. For example, in New York City, a tenant who lives in a building with four or more units has the right to sublease, as long as the landlord consents—or if they deny the sublet on unreasonable grounds, Any lease provision restricting a tenant’s right to sublease is void as a matter of public policy.

In San Francisco, a tenant can replace a roommate with another, even when prohibited by a written lease, as long as the replacement meets the landlord's application screening standards. For example, a landlord might demand a certain credit score where a tenant is concerned. Subleases can apply to both residential and commercial properties.

When subleasing, it's standard for only the original tenant's name to be on the lease—even if the sublessee pays the landlord directly.

Example of a Sublease

Because a lease is generally for a predefined term, situations can arise that make it difficult or impossible for the original tenant to complete the lease term. For example, if a tenant is renting an apartment in Chicago with a 12-month lease and, during month four, that tenant receives a job offer in Boston, the tenant may decide to sublease the apartment to another tenant for the remaining eight months. The sublease means that the original tenant can accept the job and move and does not have to pay expensive fees to get out of the lease or pay rent on two apartments.

The landlord also benefits because they receive all 12 rent payments and are saved the expense and effort of finding a replacement tenant. The sublease arrangement also means that the original tenant retains an interest in the apartment. Thus, if the original tenant decides to move back to Chicago, they may be able to renew their lease on their old apartment.

Office of the New York State Attorney General. " Residential Tenants’ Rights Guide ," Pages 26-27. Accessed Oct. 7, 2021.

City and County of San Francisco Rent Board. " Topic No. 151: Subletting and Replacement of Roommates ." Accessed Oct. 7, 2021.

• Apartment List. " What is Subletting? Guide to Sublet Apartments ." Accessed Oct. 7, 2021.

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Assignment, Subleasing, And Why It's Important To Negotiate The Right To Do Both

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In the market for commercial space? Chances are you’re focusing your efforts on sourcing a property that suits your current business requirements.

However, in today’s ever-changing economy/business climate, companies often need to upsize or downsize at short notice.

As a tenant, where does that leave you when locked into a long-term commercial lease?

Keep it flexible

It’s hard to anticipate whether you’ll be faced with breaking a lease before it happens. So, it’s important to keep your contract flexible by negotiating a subleasing and assignment clause into your agreement. This means you’ll be able to transfer all or part of your space to another tenant down the track if the situation calls for it.

What’s the difference between an assignment and a sublease?

Lease assignments and subleases are often viewed in a similar light. This is because both bank on a third party taking over a commercial lease. But, there are some important differences to consider:

Lease assignment

A lease assignment is when an entire property/space, including the existing tenant’s rights and interest in the commercial lease, is transferred over to a new party.

When it comes to leasing assignments, the new tenant takes on the rights and responsibilities of the assigning tenant. That means the original tenant is not liable anymore if the new tenant breaches the lease.

Lease assignment is best undertaken when:

• The whole lease can be disposed of
• The current lease has favourable terms that would be accepted by another tenant

Major hurdles when it comes to lease assignment:

• Requires upfront capital incentive
• Requires landlord consent

A sublease, on the other hand, is a separate contract between the original tenant and a subtenant. Unlike an assignment, a sublease only turns over part of a property. That means that the original tenant shares the rights and responsibilities to the premises.

A sublease may be preferable for tenants who wish to lease out part of their property to another company for the remainder of the lease term. It may also suit if a tenant needs to rent out the entire property for a period within their fixed-term lease.

In this case, the sublessee treats the sublessor as their landlord. In turn, the sublessor assumes liability on behalf of the sublessee.

Subleasing is best undertaken when:

• You're looking for a partial or temporary cost saving initiative
• Your landlord does not consent to or permit assignment
• Your current lease has. onerous clauses that another tenant wouldn’t agree to

Major hurdles when it comes to subleasing:

• Inherent security risks
• You’ll likely recuperate less than 50%-70% of the rent

You can learn more about some of the benefits of commercial subleasing here and what commercial sublessors should expect from subleasing here .

The importance of a lease assignment and sublease clause

The right to assign or sublet a premises comes down to the language used in the commercial leasing agreement.

If there is no prohibiting or limiting clause, a tenant does not need the landlord’s permission to do so. However, if the contract contains such provisions, the existing tenant needs to get the landlord’s consent. This can prove quite costly for the tenant, who may have to continue to pay rent even if they no longer occupy the premises.

Other options for breaking a commercial lease

The odds usually aren’t stacked in the tenant’s favour when it comes to breaking a commercial lease . However, if you used a tenant representation specialist before signing your contract, you should have received the right advice to protect yourself.

Break clause

Well negotiated leases may have a ‘break clause’, however, most landlords are reluctant to include one of these. A break clause basically lays out the circumstances and the manner in which a tenant can break a commercial lease early.

As with any contract, it’s up to the two parties to negotiate terms. One option may be to allow early termination of a lease if a new tenant with similar financial security takes over. This is similar to an assignment. However, the new tenant would take over the full liability of the remaining lease.

Pay out the commercial lease term

Not a desirable option for most tenants, however, there may be situations where it is the only choice. For example, if you were closing your business before the expiry of your lease term and there was no way to arrange an assignment or sublease, paying out the remainder of your term may be the only course of action.

Most people would consider this a worst-case scenario. This, again, highlights the importance of seeking the help of a tenant representation specialist prior to signing any commercial lease .

Commercial tenants should try to mitigate their risks upfront. Before signing a lease, or even at the heads of agreement stage , we suggest negotiating a clause which requires a landlord to act reasonably in the case of lease assignment or sublease.

Work with a commercial tenant advocate

Negotiating commercial lease terms can be tricky (even daunting at times). This is because most businesses only have to do it once every 5-10 years. Being able to negotiate provisions that would not otherwise be included may also prove challenging because landlords prefer not to limit their options.

Luckily, an experienced tenant representative will guide you through the lease negotiation process so your needs are met every step of the way. So, the next time you face a lease negotiation, let Tenant CS balance the playing field.

Considering breaking your lease? Whether you're exploring options like subleasing, assigning, or surrendering, a detailed property strategy is crucial.

Consulting with a tenant representation specialist is your best move, especially if there's less than a year remaining on your lease. At Tenant CS, we exclusively represent tenants, not landlords. Whether you need assistance with subleasing, exiting your lease, finding and negotiating a new lease, or undertaking a mid-lease rent review, appointing us can potentially save you hundreds of thousands of dollars over your lease term while protecting your interests.

Book a call with us today to discover how we can help you effectively negotiate your next lease or exit your current lease early !

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Assignment vs Subletting - What is the difference?

Assignment vs subletting – what are the differences.

Assigning a residential lease agreement and subletting are two distinct ways of transferring tenancy rights in a rental property, each involving different legal and practical implications. Here’s a breakdown of their differences:

Assignment of a Residential Lease Agreement:

Definition:

Transfer of Responsibility: Assigning a lease involves transfer of the original tenant’s entire interest in the lease to a new tenant. The original tenant ceases to have any rights or obligations related to the property.

Consent from Landlord: Typically requires the landlord's explicit permission or consent. The landlord is often involved in vetting and approving the new tenant.

Replacement Tenant: The original tenant may find a replacement (assignee) who takes over the lease entirely. The landlord may also market for a new tenant and vet any potential replacement tenants.

Legal Responsibility:

Liability: The assignor (original tenant) is usually released from all liabilities and obligations once the lease is assigned to the new tenant.  This may key off of the new tenant taking possession of the rental unit.

Direct Relationship with Landlord: The new tenant (assignee) becomes directly responsible to the landlord for rent payments, property maintenance, and adherence to lease terms by effectively “stepping into the shoes” of the departing tenant.

Implications:

End of Original Tenancy: For the assignor, once the lease is assigned, their association with the property generally ends. They may not have recourse if the assignee defaults on payments or breaches the lease.

Subletting of a Residential Lease Agreement:

Partial Transfer: Subletting occurs when the original tenant rents out all or part of the property to a subtenant while retaining some rights and responsibilities under the original lease.

Consent from Landlord: Usually requires the landlord's permission, as outlined in the lease agreement. Some leases explicitly prohibit subletting.

Ongoing Relationship with Landlord: The original tenant (sublessor) maintains responsibility to the landlord for lease obligations.

Obligations: The sublessor remains responsible for rent payments and adherence to lease terms, acting as an intermediary between the landlord and subtenant.

Relationship with Subtenant: The sublessee has a legal relationship with the sublessor rather than the landlord. The sublessee must adhere to terms agreed upon in the sublease.

Ongoing Responsibility: The original tenant (sublessor) remains liable to the landlord for the property and its condition. They're responsible for any damages or lease violations caused by the sublessee.

Continued Tenancy: The original tenant maintains an ongoing relationship with the property and the landlord.

How Much Would Your Home Rent For?

Key Differences: 

• Transfer of Responsibility:  Assigning a lease completely transfers the tenant's interest to a new tenant, while subletting involves the original tenant retaining some rights and responsibilities.
• Direct Relationship : In assignment, the new tenant has a direct relationship with the landlord, whereas in subletting, the original tenant maintains this relationship. 
• Liability and Obligations:  Assigning a lease typically releases the original tenant from obligations, while subletting keeps them responsible for the property.

Both assignment and subletting can offer flexibility to tenants but come with distinct legal and practical implications that tenants and landlords should carefully consider before proceeding. Understanding these differences helps individuals choose the appropriate option based on their circumstances and lease agreement terms.

In most cases, assignment is the best course as it avoids the main pitfall of subletting, namely that the subletting tenant has no direct relationship or responsibility to the landlord/owner of the rental unit.  For that reason, professional property managers normally recommend termination of the original lease and negotiation of a new lease with the replacement tenant.  The outgoing tenant will normally absorb some of the costs associated with securing a replacement and the property manager makes sure the turnover is handled property.  Having experience when these issues arise is important to protect the landlord’s interests.  If you need management of an investment property, call one of our managers today to learn why so many landlords believe TREG is the RIGHT CHOICE for property management.

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What is the Difference Between Sub-letting and Assigning a Lease?

If a tenant wants to leave their premises before the vacation date specified in their lease agreement, they can assign (i.e. transfer) or sub-let the shopfront.

By assigning or sub-letting the lease to a third party, tenants can leave the property without breaking the terms of their lease or paying two sets of rent. Assignment and subletting appear similar as they both rely on a third party taking over premises. But there are some key differences between the two.

We set these out below to help tenants decide which is better suited to their needs.

When is a Sub-let Used Instead of an Assignment?

A sub-let is when an existing tenant leases out all or part of their premises to a third party. However, the original tenant is still liable under the lease. You can read more about subleasing in our article, ‘ I’m Sub-letting a Property. What Do I Need to Know? ‘

An assignment, on the other hand, is when a tenant transfers their lease to someone else. The tenant is then no longer responsible under the original lease from the assignment date. Tenants more commonly assign the property when selling the business and sublease when the business has additional space they want to lease out. Importantly, a tenant requires the consent of the landlord to assign or sublet the property.

Should I Sub-let or Assign My Lease?

The answer depends on the circumstances of the parties’ transaction. For instance, a tenant may choose to sub-let if they are simply looking to rent out additional space to recoup costs or increase profit margins but want to remain as a tenant.

If, however, a tenant wants to end the lease early and vacate their business’ premises entirely, an assignment is likely a preferable option. An assignment transfers the obligations under the original lease to the new tenant (the assignee), placing them in the shoes of the old tenant. Both parties usually enter into a transfer of lease and deed of consent to assign the lease with the landlord and each other.

Sub-letting also creates a new series of obligations for head-tenants who act, essentially, as landlords. The head-tenant will require the sub-tenant to indemnify the tenant and landlord for their use of the property. Parties will effect this by entering into a formal sub-let with the landlord’s consent.

Key Takeaways

Assigning a lease and sub-letting are two options for tenants wanting to leave the premises before their lease ends.

Sub-letting involves a tenant leasing out all or part of their premises to a third party. Under a sub-letting agreement, the rights and obligations created under the initial lease remain in force.

An assignment involves transferring the lease from one party to another. After the assignment date, a tenant’s rights and obligations no longer exist. Tenants looking to vacate their premises entirely should, where possible, assign their lease as it gives rise to fewer liabilities and duties.

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Apr 07, 2021

The differences between assignment and sublease.

By Don Catalano

An assignment is the transfer of the commercial tenant’s entire responsibilities in a lease. When a corporate tenant assigns its lease, the assignee takes over the tenant’s responsibilities under the lease and communicates directly with the landlord.

When a tenant decides to assign a lease, all his rights and responsibilities in the original lease agreement are released to the third-party assignee. Hence, the original tenant (the "assignor") will have to leave the unit and allow the new tenant to take over all of the leased building.

It is important to check the clauses in the original lease agreement before committing an assignment arrangement. In some leases, the original tenant will remain responsible for the terms of the lease, especially if the new tenant defaults on the lease agreement or causes damage to the property. You may want to check your lease agreement for the option to pursue a permanent assignment so you won't be responsible for expenses or damages.

When a corporate tenant subleases an office , the tenant is transferring all or a portion of the premises for less than the entire term of the lease. Subletting is when a corporate tenant gives another tenant the right to occupy a portion of the entire rental unit for a specific period.

Corporate tenants often sublease when market rents have fallen and parties needing space typically sublease to get space already built-out at a much lower rate than they could as a direct tenant.

Do Both Options Need a Landlord’s Consent?

Both subletting and assigning a commercial lease require the permission of the landlord or a representing agent; this is often expressly indicated in the lease agreement itself. Although most state laws prohibit landlords from withholding consent unreasonably. If the landlord objects to the sublet or assignment, then they must do so on reasonable grounds.

In the case of assignment, a vetting procedure which usually includes credit checks may be completed before formalizing the arrangement with the associated documentation.

Is Subletting or Assignment Right For My Company?

Whether to sublet your commercial property or assign a commercial lease depends entirely on your business situation. By subletting unused space, tenants can recover vital running costs and even improve the viability of their own business. Also, the original tenant remains the tenant and is responsible for all clauses in the original lease.

Assigning your commercial lease to a third party is a good option if you want to terminate your tenancy before the end of your agreement and vacate the premises completely. This is often a good idea if you are planning to sell or relocate your business . With an assignment, you will be absolved of all responsibilities as the original tenant from the date of assignment.

Here are a few other articles to check out:

8 working from home tips you should know, 4 site selection tips when looking for office space, 5 tips when moving your office from big cities to the suburbs, subscribe for more great cre tips hbspt.cta._relativeurls=true;hbspt.cta.load(121314, 'cd3ad71f-75e1-4533-9c5a-8e82767e7aba', {"usenewloader":"true","region":"na1"});.

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Subleasing and Assignment Provisions in Commercial Leases

• June 17, 2020

Before the COVID-19 pandemic, many business owners paid little attention to subleasing and assignment provisions when negotiating commercial leases . It was common to focus on rent, maintenance, taxes, and insurance, which affect a tenant’s bottom line, and options to renew the lease if the business thrives. Recently, however, one of the top concerns of commercial tenants is flexibility in case they no longer need to use a portion, or all, of the leased space. In this context, subleasing and assignment provisions are key deal terms.

The Difference Between Subleasing and Assignment

A sublease does not alter the relationship between the landlord and the tenant, who remains liable for all of the tenant’s obligations under the lease. However, the tenant enters into a subordinate lease (the sublease) with a subtenant regarding a portion, or all, of the leased space. After a sublease is signed, the landlord interacts with the tenant, and the tenant interacts with the subtenant.

An assignment alters the relationship between the landlord and the tenant by assigning the tenant’s rights and obligations from the first tenant (the assignor) to the second tenant (the assignee). The assignee steps into the shoes of the assignor, and has a direct contractual relationship with the landlord. After an assignment of the lease, the landlord interacts directly with the assignee.

Important Deal Points Regarding Subleasing and Assignment

Leases may include many provisions regarding subleasing and assignment. Some of the most common issues include the following:

• In what circumstances is landlord consent required? Leases typically require the landlord’s consent for any sublease or assignment. However, some leases have different provisions for special circumstances, such as subleasing or assignment to a related entity, or assignment of the lease in connection with the sale of the tenant’s business.
• What is the standard for landlord consent? Provisions that require the landlord’s consent may be followed by a standard such as “in the landlord’s sole discretion,” or “which may not be unreasonably withheld.” Obviously, the second standard is more favorable to the tenant. However, as a practical matter, if a dispute arises regarding whether a landlord’s denial was reasonable or unreasonable, arbitration or litigation would be expensive, the outcome would be uncertain, and the prospective subtenant or assignee may be unwilling to wait to see how the dispute is resolved.
• What information must be provided regarding the proposed subtenant or assignee? Many leases require confidential financial information regarding the proposed subtenant or assignee. The proposed subtenant or assignee may be more comfortable providing information if the lease contains confidentiality and non-disclosure requirements to restrict the landlord’s use of the information. An argument can be made that less information should be required regarding a proposed subtenant than a proposed assignee, because the landlord will not enter into a direct contractual relationship with the subtenant and the tenant will remain liable under the lease.
• What are the landlord’s alternatives? A tenant might assume that if the tenant requests consent to a sublease or assignment, the landlord’s alternatives will be limited to granting or withholding consent. However, many leases give the landlord a third alternative, to cancel the lease if the tenant requests a sublease or an assignment. This is known as a right of recapture.
• When is the landlord’s response due? Some leases do not set a deadline for the landlord’s response to a request for consent to a sublease or assignment. A delayed response would prevent the tenant from moving forward until the response is received. A delayed response also may result in a lost opportunity, if the proposed subtenant or assignee is under time constraints.
• What is the effect if the landlord fails to provide a timely response? A lease may provide that if the landlord fails to respond to a request for consent within a specified period of time, then consent is deemed granted, or a lease may provide that in such circumstances, consent is deemed denied. The first alternative is more favorable for a tenant, but the prospective subtenant or assignee might not be willing to rely on a “deemed consent” provision and may require actual consent before moving forward.
• What are the landlord’s remedies if a sublease or assignment is made without requesting consent? Generally, if a tenant subleases or assigns a lease without obtaining required consent from the landlord, then the tenant is in default and the landlord can exercise all remedies under the lease. The lease also may provide that a sublease or assignment without the landlord’s consent is invalid and unenforceable.
• Will the assignor be released from liability for the tenant’s obligations after an assignment? It may seem like common sense that if a lease is assigned with the landlord’s consent, then the original tenant (assignor) will no longer be responsible for the tenant’s obligations under the lease. However, a lease may provide that the assignor will remain liable under the lease after an assignment. Similarly, the landlord’s written consent may state that both the assignor and the assignee will be responsible for the tenant’s obligations after the lease is assigned. In order to be released, the assignor should obtain a written agreement from the landlord stating that after an assignment, the assignor will no longer be responsible for the tenant’s obligations under the lease.
• Will a guarantor be released from liability for the tenant’s obligations after an assignment? Many landlords require a personal guaranty from an individual, or a corporate guaranty from a related entity, to ensure payment of the tenant’s obligations under a commercial lease. Guarantees typically provide that they will remain in effect even if the lease is assigned. However, the tenant may be able to negotiate for the termination of the guarantee in the event that the lease is assigned.  In some cases, the landlord may require a substitute guarantor.
• What is the effect of subleasing on the obligations of the tenant and the guarantor? A sublease does not affect the tenant’s obligations to the landlord under the lease, or the guarantor’s obligations to the landlord under the guaranty.

If a business owner is considering entering into a new lease, it is important to carefully review the subleasing and assignment provisions and negotiate any necessary changes before signing the lease. If a tenant desires to sublease or assign an existing lease, it is important to review the applicable requirements and restrictions before taking any action. An experienced real estate attorney can assist the tenant by spotting issues, explaining alternatives, and negotiating with the landlord to help the tenant accomplish its business objectives.

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Assignment vs. Subletting: What’s the Difference?

According to the Bureau of Labor Statistics, 20% of small businesses fail in their first year, 30% fail in their second year, 50% fail after five years, and 70% of small business owners fail in their 10th year in business. Yikes! Despite these grim statistics, commercial leases are generally a minimum of 5 years and contain severe, default penalties. In some cases, landlords will require the tenant to personally guarantee the lease, effectively using the tenant’s personal assets, i.e. home, as collateral to secure the lease.

Most tenants understand the implications of defaulting on their lease and enter into the agreement, eyes-open, and with every intention of abiding by the terms and conditions. The road to hell (and default) are paved with good intentions. Economic downturns, lost contracts/clients, sequestration, etc. can disrupt even the best laid plans; leaving tenants struggling or unable to meet their monetary obligations under their lease. In such cases, tenants’ most powerful tool/strategy to avoid default is to sublease or assign their lease.

Most, if not all, commercial leases contain Assignment and Sublease provisions and while the specific language and conditions can vary there are general, shared principles. Subletting and assigning are similar in that they both involve a transfer of the tenant’s right or interest in the lease that allow another (3 rd ) party to occupy the leased premises. Under the terms of most lease agreements the original tenant will remain responsible for the terms of the lease in the case of either a sublease or an assignment. This means that the landlord can proceed against the tenant in the case of a default by the subtenant or assignee; including but not limited to, rental payments, damage to the leased premises, etc. As a result, it is in both the tenant and landlord’s interest to carefully vet the proposed subtenant or assignee.

If subleases and assignments are similar in that they essentially allow the tenant to “rent out” their space to a 3 rd party, what’s the difference ?

Under a sublease, the tenant is either (sub)leasing a portion of the leased premises for the remainder of the lease term, all of the leased premises for a portion of the lease term, or a portion of the leased premises for a portion of the lease term. Subleases do not necessarily indicate financial hardship on behalf of the tenant or a likelihood of default. In fact, in some cases, companies may choose to lease more space than needed upon the lease commencement date in order to reserve the space for future growth. This is more common with large companies, i.e. Google, that can afford the lease payments but may seek to reduce expenses by subleasing the unused space. Another situation in which a tenant may request to sublease their space is in the case of a downsizing, consolidation, etc. where the they no longer need their entire space but do not want to move and can offset their rental obligations by renting the unused portion to another party.

Under a lease assignment, the tenant transfers all of its rights and responsibilities under the lease to the assignee along with its right to occupy the entire leased premises for the remainder of the lease term. A lease assignment is a much more serious request on behalf of the tenant than a request to sublease the space. While not always the case, a request to assign the lease may indicate that the tenant is unable or unwilling to continue to make lease payments and is likely to default on its lease then or at some point in the future. As stated earlier, most leases require the original tenant to remain liable for the lease (payments, responsibilities, etc.); however, with lease assignments the landlord may release the tenant and enter into a direct relationship with the assignee. The landlord’s decision will be based on a number of factors, most notably the financial strength of the assignee and the difference between the contract rent and market rents. Assignments are not necessarily indicative of financial trouble and can simply be the result of tenants relocating or consolidating; resulting in them no longer needing the leased premises.

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Assignment vs. Sublease: Difference and Comparison

Difference Between Assignment and Sublease

Assignment vs. Sublease Comparison Chart

Connection to landlord, typical permissions, assignment vs. sublease definitions, ◉ assignment.

Assignment vs. Sublease Frequently Asked Questions

Who typically initiates an assignment, can a sublease extend beyond the original lease's term, is it easier to reverse an assignment or a sublease, can a subleased space be further subleased, who does the landlord hold accountable in a sublease scenario, is rent typically the same in a sublease, can an assignment be partial, what happens to the original lease during an assignment, are there risks to subleasing, do all leases allow for assignments and subleases.

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What’s the difference between a sublet and an assignment?

With both a sublet and a lease assignment, the departing tenant remains responsible for the rent unless a landlord explicitly releases you. 

When Ismail Mustafa, a tenant in Dumbo, wanted to break his lease recently, the landlord gave him three options: He could arrange a sublet, transfer the lease to someone else, or end the lease by paying two months of rent upfront.

There’s obviously a financial cost to paying two months rent as a penalty for breaking your lease but it is also the most clear-cut break with your landlord. If you're considering the same options as Mustafa, it's important to know the difference between transferring your lease to someone else (also known as an assignment) and subletting. Neither are without risk.

"The bottom line is—none of the options is perfect—each has advantages and disadvantages," says  attorney Steven Kirkpatrick, a partner at the law firm  Romer Debbas.

It's worth pointing out that a fourth option might be  offered to you: To move out and pay rent until the landlord finds a tenant. This is highly "problematic," says  Catherine Grad, a tenant attorney with her own practice.  "You no longer have control over the process and you are still on the hook for the rent and you’ve given the power to someone who’s incentive is less than yours." 

Subletting vs. assignment

When you sublet your place it's typically because you intend to return to the apartment. A sublet will usually end a week—but it could be just a day—before the actual end of your original lease.

Subletting for the entire length of the lease is an assignment. An assignment allows you to hand off the rental to a new tenant for the rest of the lease term. This is what Mustafa ended up doing.  What's important is that either way—with both a sublet and an assignment—you are giving up your rights to the rental  but in both scenarios you are often still liable if there is damage to the apartment or the next tenant fails to pay. The risks are "tremendous," Grad says. 

When you assign a lease, the person you are assigning to would pay the landlord directly and deal with the landlord for repairs. 

If you are subletting you stand in the shoes of the landlord. The subtenant pays you the rent and you then pay the landlord. "If there are problems in the apartment, it is your duty to get it fixed," Grad says. This is the case, even if you are not authorized to make the repairs.  So while a sublet and an assignment are technically different, in terms of the risk for the departing tenant, Grad  says,  "it is the same." 

"The fact that you assign your rights does not eliminate your obligation to pay," Kirkpatrick  says.

The only situation in which you wouldn't be responsible for the apartment in any way is if you were released by the landlord from your original lease in writing. In practical terms, Grad says, "y ou will never get that with a sublease but might get it for an assignment. The landlord has no incentive to give that to you. Why not have two people on the hook—both you and assignee?" she asks.

A payment or additional security might be the incentive a landlord needs to release you. Security deposits are capped at one months rent making this type of payment "problematic," says Kirkpatrick but he adds there might be ways to structure it as a quid pro quo to release you of liability.  

Negotiations around lease breaks

A landlord cannot unreasonably deny your request to sublet or assign a lease in a residential situation.  If your landlord isn’t responding to your request to assign the lease, that silence becomes default consent within 30 days of you alerting them or of them receiving any additional information about the arrangement. If a landlord's refusal to assign is unreasonable, that terminates your lease.

If the refusal is unreasonable for a sublet, you aren't released from the lease but you are able to sublet the apartment and can fight it out in court. 

Grad says seeking to sublet or to assign your lease often leads to discussions about lease termination. Landlords know they cannot unreasonably deny your request but they also entered an agreement with you and want you to pay up. Yes, the  landlord has a duty to mitigate—which means they must do all they can to find a replacement tenant if you want to break your lease—but as Grad points out, this benefit isn't a given. 

"You have to fight for it—that's the nature of legal rights. It  doesn’t mean you have a right to break your lease, it just gives you a defense when you get sued for all the rent," she says. 

Insurance considerations

Without release from your own lease you will want to set up a separate agreement with the incoming tenant. Kirkpatrick advises having an indemnification agreement although points out that for practical purposes if the person stops paying the rent, there are no guarantees they will still be able to pay you. "If it were me, I’d want a guarantor," Kirkpatrick says. 

To protect yourself, run a credit report on a prospective subtenant or assignee. Phil Horigan, founder of  Leasebreak,  a website where you can find renters to take over an unwanted lease tells Brick, "in most cases I have heard where a tenant has gotten burned by a sublet, the tenant did not run credit."

You also need to make sure the subtenant or assignee has apartment insurance and that you too have apartment insurance, Grad says. If your landlord has not released you from the lease you remain liable if the tenant, for example, floods the apartment below or there's a fire in the place. 

You also want your tenant to know you are not covering their contents or liability. Jeffrey Schneider, president of Gotham Brokerage (a Brick Underground sponsor) says, "there are various ways to cover this, depending on whether you are an owner or former tenant."

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Emily Myers is a real estate writer and podcast host. As the former host of the Brick Underground podcast,  she earned four silver awards from the National Association of Real Estate Editors. Emily studied journalism at the University of the Arts, London, earned an MA Honors degree in English Literature from the University of Edinburgh and lived for a decade in California.

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• Sublease and Assignment

Do you know the difference between a sublease and an assignment?  We can help…

The right of possession may be transferred by the tenant to a third person either by sublease or assignment, provided the landlord gives  consent when required. The substance of the transfer, rather than its form, may well determine the parties’ liabilities to the landlord (see below). Thus, when the tenant retains some right of reentry onto the leased premises, the law deems the transfer a sublease. On the other  hand, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, the transfer is an assignment.

Landlord’s Consent Required

Texas Property Code § 91.005 provides that a tenant may not sublease or rent leased premises during the term of the lease without first obtaining the landlord’s consent. The statute has been held to apply to assignments as well as subleases.  Since the statutory prohibition of assignments or subletting is solely for the landlord’s benefit, only the landlord may bring an action for any wrong done as a result of a  sublease or  assignment made without consent. If the original tenant does assign or sublet the lease without the landlord’s consent, the landlord may refuse to accept rent and treat the lease as forfeited.

The statutory prohibition against assigning a lease without the landlord’s consent may be avoided only by a clear expression of such an intent. For example, a lease provision granting the lessee the right to assign the lease without the landlord’s consent when the tenant is mortgaging its interest will not operate as a relinquishment by the landlord of the right to consent to subsequent assignments.

A landlord traditionally has no duty to consent to the proposed assignment of a lease unless such a duty is expressly stated in the lease. However, the Texas Supreme Court’s 1997 decision to impose a duty to mitigate damages on landlords will limit the right to refuse consent in many cases. A lease to a named person and that person’s heirs has been held to amount to an express authorization of either an assignment or a sublease.

A lease may include a provision that the landlord may not unreasonably withhold consent to a sublease or assignment. In that case, the reasonableness of the landlord’s refusal to consent is determined by reference to the terms and conditions of the original lease. It is unreasonable for the landlord to condition consent on a change in the terms and conditions of the original lease based on what the landlord finds economically advantageous at the time of the attempted assignment or sublease.

The landlord’s acceptance of payments with knowledge of a sublease raises a material fact issue as to whether the landlord has waived the right to object to the sublease.

Liabilities of Parties Upon Sublease or Assignment

Even when the landlord consents to an assignment or sublease, the original tenant is not released from the obligations of the original lease. In an assignment situation, the assignee, as well as the original  tenant, is bound by the covenants of the original lease. For instance, when the landlord does not receive rent from the lessee’s  assignees, and the assignees appear to have abandoned the premises, the landlord has the  right to re-let the property. By so doing, the landlord will not abrogate the lease and may recover from the former lessee or the assignees  the amount of  the agreed rent for the entire contract period, less any sum realized from re-letting

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