ALIENation – No, it’s not an out of the world concept!

Alienation is a generic term, which outlines how third parties may benefit from an interest created in property. Where there is no specific restriction in the lease, a tenant may dispose of their interests. (However, it is important to note that there are often provisions that deal with alienation within leases in a specific way.)  This article will give a brief overview on assignment, a form of alienation.

Assignment – Put simply, assignment is when a tenant fully transfers their lease to a new tenant. 

There may be several reasons why a tenant wishes to assign their lease. Perhaps the current premises is no longer suitable for the needs of a tenant’s business, or, maybe the tenant has found an alternative property with a lease with terms that are more aligned with their business requirements.

Assignment permits the tenant to dispose of the remainder of their leasehold interest, (contractual term), in the property to a prospective purchaser. The landlord will still have close control over this proposed transaction and this assignment will be documented and completed using a licence to assign. The licence to assign will note the current tenant who is transferring their interest as the “assignor” and the incoming tenant who is taking on the remainder of the lease as the “assignee”.

The landlord has close control over the assignment as the tenant usually cannot assign their lease without the landlords prior written consent. This does depend on the terms of the lease the tenant is seeking to assign. The consent of the landlord is often required as the landlord wants to ensure that the ingoing assignee is able to meet the obligations within the lease. By statute, the landlord is also required not to unreasonably withhold or delay giving that consent, however, this is subject to further statutory regulations.

The landlord may impose conditions on the assignment i.e. the outgoing tenant may be required to provide an authorised guarantee agreement (AGA.) This is an agreement often embedded within the licence to assign, whereby the outgoing tenant enters into an agreement guaranteeing that the assignee will observe and perform the covenants in the lease.

Once a lease has been assigned, the assignee effectively takes on the role of the tenant and all of the subsequent rights and obligations.

It is important to consult legal advice to assist you with the whole process, whether you are the landlord, tenant, or incoming tenant. Our Commercial Property team at LDJ are here to help so please do not hesitate to contact them!