Commercial Conveyancing: Assignment of Leases
You bought the stationary, the desks, the chairs, got a personalised mouse mat and a state-of-the-art water cooler, and now all you need is somewhere to put it. If you plan on leasing a property for commercial use, then you should seriously consider your conveyancing options to avoid potential pitfalls.
Conveyancing is a legal term used to express the formal documentation handling required when renting, buying, or selling a property, and the (wo)man who does just that, is the conveyancer. This includes taking care of one of the most crucial documents in your business due to the long-term financial commitment attached to it, and the complications they can cause, i.e. the lease. Getting an assignment of lease right is crucial to ensure the correct party are aware and are responsible for its conditions, including rent; if the lease is wrong, you could be in the wrong – even if you moved out.
When Will I Need A Conveyancer?
You will need to get in touch with a commercial conveyancing expert in any of the following situations:
- Buy a business that has a current lease
- Sell a business that has a current lease
- Add a new owner to the business
- Have an owner leave the business
- Transferring/Assigning a Lease
The transfer of a commercial lease is most common when one business takes over from another one due to poor performance or retirement. Technically, the party leaving the lease is known as an assignor whilst the upcoming tenant is termed the assignee. Some of the most important considerations when buying a lease is the time remaining on it – buying a lease with a short period remaining is a risk and could need to be incorporated into negotiations if a renewal option is not available. Another key factor may be if rent is conditional upon income or profit margins which may unsettle businesses, or even protect them in some rarer cases.
So, how will a conveyancer serve you? First, they will receive notification that their representing party wishes to assign or buy a lease and the landlord will be contacted for consent. Usual practice obligates the assignee to pay the majority, if not all, of the landlord’s fees. Before the assignment is consented to, the assignee must also provide evidence that they are capable of paying for the lease; this is usually supported using trade and bank references. Once these series of steps have been finalised, three documents will be drafted: Licence to Assign, Authorised Guarantee Agreement, and a Rent Deposit Deed. The assignor and assignee’s conveyancers will ensure that these documents are in their parties’ expectations and interest, and can negotiate when they see fit.
What To Look Out For
Typical obstacles or points of negotiation that you may encounter within an assignment of lease are:
- It is possible that the landlord does not have permission to grant the lease and a superior landlord may need to be contacted. Even
- in this scenario, the superior landlord may even have to speak to their mortgage lender if they do not own the property outright.
- The tenant will need to ensure that the building they are renting/buying has planning permission for their business purposes. If not, they will need to enquire if planning permission is possible.
- Landlords may request guarantors, or a deposit of up to a year’s worth of rent. The higher end of this request is more common with newer businesses.
- Building insurance as well as service charges may need to be negotiated. It is vital to understand the full costs of the lease.
- If a review of rent is included, the details will need to be ironed out at the moment of assignment to protect everyone involved.
- Sometimes, and sometimes compulsory, VAT will be added to the charges and business owners will need to consider the
- implications of this on their financial planning.
- Another important question is: do parties wish to include a renewal option?
Naturally, each assignment may be considerably different to the next. As all leases vary and can throw up some complicated conditions, it is paramount that an experienced professional takes care of these aspects of the lease assignment on your behalf.