Assignment and Underletting: Understanding the Alienation Clauses

A commercial lease can be a long commitment, and businesses change. You might outgrow the space, downsize, relocate, or sell up entirely. When that happens, the question is whether you can pass the lease on to someone else– covered by assignment, underletting, and alienation clauses. It’s a dry word for an important set of rights. If you ever need to get out of a lease before the term ends, this is the machinery you’ll be relying on.

Assignment, Underletting, Alienation Clauses: Two Different Things

Assignment, underletting, and alienation clauses cover a few different ways of dealing with a lease, but two come up most:

• Assignment: transferring the whole lease to a new tenant, who steps into your shoes for the rest of the term. You’re out; they’re in.
• Underletting (subletting): granting a new, shorter lease out of your own to an under-tenant, while you stay on the hook to your own landlord. You become a landlord yourself, in effect, sitting in the middle.

There’s also sharing or parting with occupation, and charging the lease (using it as security). Most leases deal with all of these, usually by restricting or prohibiting them unless certain conditions are met.

The Consent Mechanism

Outright bans on assignment are unusual for whole premises; outright freedom is rare too. The common middle ground is that you can assign or underlet, but only with the landlord’s consent. And here the law helps the tenant: where a lease says consent is needed, there’s generally an implied requirement that the landlord cannot unreasonably withhold it.

On top of that, the landlord is under a statutory duty to deal with a consent application within a reasonable time, to give consent unless it’s reasonable not to, and to give written reasons if they refuse. A landlord who simply sits on a request, or refuses without good reason, can be acting unlawfully, and can be liable for the loss that causes.

The Conditions Landlords Attach

A landlord agreeing to an assignment will usually want some reassurance about the incoming tenant. Leases often set out conditions that are deemed reasonable, such as:

• Evidence that the new tenant is financially sound enough to meet the rent and obligations.
• A rent deposit or guarantor from the incoming tenant.
• An authorised guarantee agreement (AGA) from the outgoing tenant.

That last one matters. Under an AGA, you guarantee the performance of the tenant you assign to. Even after you’ve handed the lease on, you can remain liable if your immediate successor defaults. It’s a normal feature of modern commercial leases, but it means assignment doesn’t always give you the clean break you might expect. Read how far the AGA goes before you assume you’re free of the lease.

Assignment, Underletting, Alienation Clauses: Why It’s Worth Checking Early

Plenty of tenants only look at the alienation clauses when they suddenly need to move, which is the worst time to discover the lease makes it hard. If flexibility matters to you, the terms on which you can assign or underlet are something to negotiate at the start, alongside the break clause. A lease you can get out of cleanly is worth a lot more than one that traps you.

Frequently Asked Questions