ASSUMPTION and ASSIGNMENT of LEASE
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Contact our law firm for commercial lease contracts at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com
Given the dynamics of commercial business, commercial tenants often encounter the need to exit a lease agreement before its stipulated term expires, typically due to business sales, corporate restructuring, or the need to relocate. This necessity gives rise to the critical legal mechanisms of assignment and assumption of a commercial lease. A lease assignment is the process where the existing tenant, known as the Assignor, transfers their entire remaining leasehold interest, including all rights and obligations, to a new, third-party tenant, the Assignee. This is distinct from a sublease, where the original tenant retains a contractual relationship with the landlord and merely allows a subtenant to use the premises for a shorter duration.
An assignment represents a complete transfer of the tenant's legal interest in the leased property for the remainder of the lease term. When a lease is assigned, the Assignee effectively "steps into the shoes" of the original tenant. Simultaneously, the Assignee executes an assumption, which is a formal, written agreement to take on and be bound by all the terms, conditions, covenants, and obligations of the original lease agreement. This creates a direct legal relationship, known as "privity of estate," between the landlord and the Assignee. The formal execution of an "Assignment and Assumption of Lease" document is crucial to clearly delineate the transfer of responsibilities from the Assignor to the Assignee.
A fundamental aspect of nearly all commercial lease assignments is the requirement for the landlord's prior written consent. Commercial leases almost universally include a restrictive clause that prohibits assignment without this approval. To protect the tenant from an unreasonable refusal, many leases, and often local legislation, stipulate that the landlord's consent cannot be "unreasonably withheld." This requirement is a balance: it preserves the landlord’s right to control the occupancy and caliber of the tenant occupying their asset, while preventing them from opportunistically leveraging the tenant’s need to assign. The proposed Assignee's financial stability, business reputation, and intended use of the premises are typically considered reasonable factors for the landlord's evaluation.
A critical legal consideration that often surprises Assignors is their potential for continuing liability under the lease, even after a complete assignment. While the Assignee assumes primary responsibility for all future obligations, the original tenant (Assignor) typically remains secondarily liable to the landlord for the performance of the lease terms, including rent payments, if the new tenant defaults. This is based on the principle of "privity of contract," which is the contractual link between the original landlord and the original tenant. To be fully released from this contingent liability, the Assignor must negotiate a full contractual release from the landlord, often referred to as a novation, which is rarely granted and should be a primary goal of the Assignor during the assignment negotiation.
Beyond consent and liability, several other legal and commercial factors warrant meticulous attention. Due diligence is paramount for the Assignee, who must thoroughly review the original lease, any amendments, and the condition of the premises to fully understand the financial burden and operational limitations they are assuming. For all parties, the assignment documentation must clearly address the transfer of the security deposit, the payment of the landlord's legal and administrative fees related to the consent process, and any potential right of the landlord to "recapture" (terminate) the lease instead of consenting to the assignment. A well-executed assignment and assumption agreement, often coupled with the landlord's formal consent, is essential to mitigate future litigation risk and ensure a smooth transition of the tenancy.
For knowledgeable and experienced legal representation in negotiating, drafting and reviewing business contracts pertaining to commercial leasing arrangements and other legal matters related to commercial leases, contact our law firm by email at Chris@NeufeldLegal.com or by telephone at 403-400-4092 / 905-616-8864.
