The Major Difference Between a Sublease and Assignment Provision
An assignment clause in your commercial lease can protect your company from obligation to a landlord if, for example, you need to vacate prior to your lease end or your company changes hands. With an assignment of your leased space, the terms of the original lease are carried over to a new tenant. This differs from a sub-lease situation wherein you remain affiliated with the space once the sub-lessee takes over.
An assignment clause is not always an easy sell when negotiating terms with a landlord, however. It is in the landlord’s best interest to maintain enforceable control over his or her building as much as possible. An assignment clause poses risk to the building owner. He or she may add stringent restrictions for assignee approval or not allow an assignment clause at all.
If an assignment is permitted, it is likely that there will be extended due diligence periods in place. These provide the landlord time to examine the assignee’s financials and determine whether he or she comfortable with the potential new tenant.
It is wise to anticipate any future changes that may reflect the need for an assignment. Negotiations for an assignment clause may be more acceptable if specific scenarios are laid out for the landlord rather than a general clause “just in case”. This is known as a ‘carve-out”. Essentially, a ‘carve-out” defines potential future circumstances under which specific provisions are negotiated into the lease.
When negotiating a new lease, it will serve you well to account for anticipated changes in your company’s future. Planning and well thought out negotiations now could save you serious repercussions down the road.
Ryan J. Hartsell , SIOR, MRE, Principal, and Managing Partner of Oxford Partners LLC, focuses on reducing the cost and risk associated with leasing and purchasing office and industrial property. He is recognized by his clients for his attentiveness, market knowledge, and negotiation prowess. He holds a master’s degree in commercial real estate and a bachelor’s degree in finance. As a third generation Houstonian and Principal of Oxford Partners, he has a unique appreciation for the business owners’ challenges by way of his own personal experience, which translates into better representation and empathy for his clients.