Almost inevitably, a landlord will be faced with a request from a tenant for permission to assign the tenant’s lease or sublet the premises, likely due to a change to the tenant’s business that forces the tenant to reduce costs. A key to balancing the landlord’s interests to control the use of its property and tenant mix with the tenant’s need for reasonable exit strategies is an assignment clause which requires landlord consent, not to be unreasonably withheld, and defining reasonableness. Defining reasonableness in the lease allows the parties to control its interpretation if the lease is later litigated.
So how should a lease define reasonableness? Reasonableness should be defined by including certain conditions that the tenant and its assignee must meet to obtain the landlord’s consent. These conditions apply to the tenant, its assignee and the leased premises. These conditions may include:
Conditions imposed on Tenant:
- Tenant must not be in default of its lease obligations.
- Tenant remains liable for performance of the tenant obligations under the lease.
- Tenant pays landlord’s costs in connection with providing consent, including reimbursing landlord for its legal fees.
- The landlord keeps, or in some cases agrees to share, any profits realized by the tenant as a result of the assignment or sublease.
- Tenant must provide the assignment document to the landlord prior to execution which should be subject to landlord’s review and approval.
Conditions imposed on the Assignee may include:
- Assignee must assume the tenant obligations under the lease.
- The assignee must be creditworthy and provide landlord with financial statements reflecting a balance sheet at least as favorable as the tenant’s at the time the lease was signed.
- Any subsequent assignments or alterations require landlord’s consent.
Conditions regulating the premises may include:
- The use of the premises may not change.
- The lease may not be assigned to an existing tenant of the building.
In the end, an assignment or sublease, reasonably considered, should protect the landlord’s interests, the building’s tenant mix and ensure the premises remains revenue producing while, at the same time, allowing a tenant to execute reasonable exit strategies as its business changes.