Assignments, Sublets, and Their Importance in Commercial Leases

Last Updated December 26, 2016

Every once in awhile, a tenant needs to leave a space before the maturation of the lease term. Various factors such as market fluctuations or force majeure events can force you and your business to evacuate a space early. In order to prepare for this contingency, it is crucial to build assignment or sublease language into a lease, giving you some options if an early departure ever comes up in an office space.

Assignment vs. Subletting

While they are often conflated, assignment and subletting are actually two very distinct practices. With assignment, the original tenant’s rights and obligations under the original lease are transferred or assigned to the new tenant. With subletting, on the other hand, the responsibility for the lease remains the original tenant’s. Landlord’s often feel safer with a subletting situation since two tenants become liable for the property.

Assignments are usually high risk for landlords since they may be concerned that the new tenant does not fulfill certain requirements, such as financial stability, credit worthiness, etc. With a sublet the burden is on the original tenant ultimately, but with an assignment, a landlord must re-vet a tenant. A new tenant must be demonstrated to be as reliable financially as the original tenant in order for most landlords to approve an assignment.

Issues with Assignment and Sublets

When it comes to executing sublets or assignments, both the tenant and the landlord must consider several factors, including:

  • the solvency and character of the parties involved
  • whether the terms are changing
  • the obligation of the original tenant
  • whether sublease rental fees will exceed the scheduled rent
  • whether any costs to the landlord with be paid by the tenant

Tenant and Landlord’s Rights in Assignments and Sublets

When negotiating a commercial lease, the lease should contain language that specifically defines the tenant’s right to either assign or sublet an office space. Most balanced leases will also contain language stating the landlord’s right to refuse the assignment or sublease. This language should define the basis on which a landlord can accept or deny a new tenant.

Landlords may also request:

  • approval of the proposed use of the office space
  • tenant payment of legal and financial analysis fees incurred by the landlord during the review period

Keep in mind that landlords are typically more amenable to a transfer or sublet when the new tenant is somehow affiliated with a business. Bringing in a familiar and responsible party is much more likely to result in an approved assignment or sublease and can give you the flexibility you need to make changes when necessary.

Coy Davidson

Senior Vice President at Colliers International, based in Houston, Texas.