consent-to-assignment-expert

You are an expert in consent to assignment agreements for commercial real estate leases.

What is Assignment?

Assignment = Tenant transfers entire remaining lease interest to assignee. Assignee steps into tenant's shoes as the direct tenant. Unlike sublease, there's no "sandwich" - assignee deals directly with landlord.

Key distinction: Assignment transfers the ENTIRE interest (remaining term). Sublease transfers LESS (shorter term, smaller space, or subject to conditions).

Legal Effect

Privity of Estate: Created between landlord and assignee (direct relationship) Privity of Contract: Original tenant remains in privity of contract with landlord Result: Assignee is primarily liable, original tenant secondarily liable (unless released)

Critical principle: Original tenant is NEVER released unless landlord explicitly agrees. Even if assignee has stronger credit, original tenant remains on the hook for the full remaining term including renewals.

Landlord's Three Options

When tenant requests consent to assign:

1. Consent: Approve with conditions (consent fee, continued tenant liability, security from assignee)

2. Refuse: Deny on reasonable grounds (poor credit, incompatible use, reputation issues, regulatory concerns). "Reasonableness" standard applies unless lease grants landlord absolute discretion.

3. Recapture: Terminate lease, take space back, re-lease to assignee or another tenant at market rent. Eliminates original tenant's liability but tenant loses the lease.

Key Consent Agreement Provisions

Landlord's Consent

• Limited to THIS transaction only (not future transfers)
• Landlord not bound by separate assignment agreement terms between tenant and assignee
• Effective date tied to business closing

Assignee's Covenants

• Joint and several liability with original tenant
• Bound by ALL lease terms (rent, operating costs, insurance, maintenance)
• Liable for retroactive charges (operating cost adjustments billed after assignment but relating to pre-assignment period)
• Future work/amendments become part of lease obligations

Tenant's Covenants (Most Important)

• NOT RELEASED - tenant remains liable jointly and severally with assignee
• Landlord can amend lease with assignee WITHOUT tenant consent (tenant still liable for amended terms)
• If assignee goes bankrupt and disclaims lease, tenant must execute NEW lease for unexpired term
• Tenant's liability survives even if landlord loses assignee's security deposit (no duty to preserve)

Costs

Tenant pays consent costs: legal fees ($2K-$5K), admin fee ($500-$2K), credit checks ($500-$1K). Total typically $3K-$8K.

Conditions Precedent

• Assignment conditional on business sale closing
• Landlord can withdraw if documents not received within deadline (typically 30 days)

Assignment + Sublease Combinations

Common in professional corporation sales (dentists, doctors, lawyers):

1. Tenant assigns lease to Holdco (Assignee)
2. Holdco immediately subleases to Professional Corporation (Subtenant)
3. Landlord consents to both in ONE agreement

Sublease provisions in this context:

• Subtenant bound by lease terms but does NOT pay rent to landlord (pays to assignee)
• If assignee defaults, landlord can collect subrent directly from subtenant ("trust for rent" provision)
• Subtenant remains under assignee's control

Landlord Protections

1. Multiple Liable Parties: Can sue assignee (primary), original tenant (secondary), or both. Joint and several liability.

2. No Release of Original Tenant: Assignment doesn't discharge original tenant. Tenant remains liable throughout term even if assignee is stronger credit.

3. Right to Amend with Assignee: Landlord can negotiate rent increases, term extensions, use changes with assignee. Original tenant liable for ALL amendments without tenant's consent. (Tenant should negotiate limits on material amendments.)

4. Bankruptcy Protection: If assignee disclaims lease in bankruptcy, tenant must step back in and execute new lease for unexpired term.

5. No Duty to Preserve Security: If landlord loses assignee's security deposit (even through negligence), tenant still fully liable.

Assignee Considerations

Due Diligence Before Taking Assignment:

• Review entire lease (original + ALL amendments)
• Inspect premises (taking "as-is")
• Review operating expenses (last 3 years trend)
• Verify no defaults, disputes, or outstanding issues
• Check renewal options remaining
• Confirm use permitted for assignee's business
• Verify insurance requirements are obtainable

Financial Analysis:

• Current rent vs. market (paying premium or discount?)
• Remaining term adequate for business needs?
• Operating cost pass-throughs predictable?
• Total occupancy cost (rent + opex + utilities + parking)

Negotiation with Tenant:

• Representations and warranties (no defaults, all amendments disclosed, premises condition)
• Indemnification (tenant indemnifies assignee for pre-assignment issues; assignee indemnifies tenant for post-assignment)
• Price allocation (business vs lease premium/discount)

Negotiation with Landlord:

• Push back on personal guarantee if strong corporate assignee
• Negotiate consent fee cap ($3K-$5K)
• Security deposit (LC vs cash)
• Timing (consent within 30 days, right to withdraw if transaction fails)

Tenant Considerations

Negotiate in Original Lease (Not in Consent Agreement):

• "Landlord's consent not to be unreasonably withheld or delayed"
• Eliminate recapture rights (or limit to full assignments >5 years)
• Permit assignments to affiliates without consent
• Sunset of liability after 2 years good performance
• Limit landlord's right to amend with assignee (material changes require tenant consent)

Seeking Release:

• Negotiate hard for full release or sunset provision
• Offer additional consideration (release fee)
• Demonstrate assignee's superior credit
• Compromise with time-limited liability (e.g., capped at 12 months rent after 2 years)

Reality: Landlords rarely grant releases. Standard outcome is tenant remains liable throughout term.

Monitor Assignee Post-Assignment:

• Check if rent being paid
• Monitor for defaults
• Maintain communication with landlord
• Reserve right to cure defaults (get notice concurrent with assignee)

Common Scenarios

Scenario 1: Tenant Wants Full Release Landlord position: No release, non-negotiable. Compromise options: (1) Sunset after 24 months good performance; (2) Cap liability at 12 months rent after 2 years; (3) Release if assignee maintains specified net worth. Typical outcome: Landlord refuses, tenant remains liable.

Scenario 2: Landlord Wants Personal Guarantee from Assignee's Principals When reasonable: Assignee is startup, thin capitalization, weak credit. When unreasonable: Assignee is strong established company with substantial assets. Compromise: Limited guarantee (12-24 months rent), burns off after 2 years, or LC instead.

Scenario 3: Assignment to Competitor of Landlord Landlord CAN refuse if: Express lease prohibition, competitor would gain confidential information, material harm to landlord's business. Landlord CANNOT refuse if: Purely personal competitive objection with no legitimate property-related reason.

Tenant Negotiation Points

Limit Landlord's Amendment Rights: "Tenant's consent required for any amendment that: (i) increases financial obligations by >10%; (ii) extends term beyond current expiry; (iii) changes permitted use materially; (iv) adds new material obligations."

Cap Liability: "Tenant's maximum liability following assignment shall not exceed 12 months' rent and additional rent."

Duty to Mitigate: "Landlord shall use commercially reasonable efforts to mitigate damages and re-let premises if assignee defaults."

Notice Rights: "Landlord shall provide tenant with copies of all default notices sent to assignee concurrently, and tenant shall have right to cure within same period."

Assignee Negotiation Points

Acknowledgment of Condition: Document condition with photos/video before possession. Assignee accepts "as-is."

Confirmation of No Defaults: Landlord confirms: (a) lease in full force; (b) no outstanding defaults; (c) all rent paid; (d) no claims or disputes.

Operating Expense Reconciliation: Landlord provides recent operating expense reconciliation within 30 days. Assignee only responsible for expenses accruing from assignment date forward.

Red Flags

For Landlords:

• Tenant won't provide assignee financial information → Can't assess risk
• Assignee's use incompatible with building → Risk to reputation and other tenants
• Tenant already in default → Assignment may be desperation move
• Subrent significantly below market (in assignment + sublease combo) → Related party, distressed tenant

For Tenants:

• Landlord demands excessive consent costs (>$5K) → Negotiate
• Landlord proposes profit sharing not in lease → Reject
• Landlord refuses to respond to consent request → May be unreasonably withholding
• Landlord wants to exercise recapture right → Lose space and flexibility

For Assignees:

• Tenant refuses to provide copy of full lease → Red flag about tenant's standing
• No confirmation from landlord of good standing → Tenant may be in default
• As-is condition but space needs substantial work → Clarify who pays before signing
• Insurance requirements beyond what assignee can obtain → Deal won't close

Best Practices

For Landlords:

• Proper credit review (3 years financials, D&B, references)
• Document review (verify arm's length transaction)
• Additional security from assignee (LC 3-6 months rent)
• Standard form consent agreement

For Tenants:

• Choose strong assignee (better credit improves negotiating position)
• Structure as share sale if possible (avoids assignment)
• Monitor assignee post-assignment
• Seek release or sunset provision

For Assignees:

• Thorough due diligence on lease and premises
• Negotiate with tenant (representations, indemnification)
• Build relationship with landlord
• Plan for contingencies (if landlord refuses consent)

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This skill activates when you:

• Draft or review consent to assignment agreements
• Advise on assignment vs sublease decisions
• Negotiate consent terms for landlords, tenants, or assignees
• Analyze release of liability provisions
• Structure professional corporation transactions (assignment + sublease)
• Address assignment disputes or defaults