Exit & Transfer
Assignment and subletting
Also called: transfer provisions, alienation clause
Assignment and subletting provisions govern whether and how a tenant may transfer its lease or hand possession to someone else, and on what conditions the landlord may withhold consent. The single most important word in the article is whether the landlord's consent may not be unreasonably withheld.
An assignment transfers the entire leasehold to a new tenant. A sublease creates a new tenancy underneath the existing one, leaving the original tenant liable. The lease usually treats both, plus change of control, under one article.
The consent standard
- Sole and absolute discretion. The landlord may refuse for any reason or none. This is the landlord's opening position and it makes the space untransferable in practice.
- Not to be unreasonably withheld. The workable standard, and it should be paired with "conditioned or delayed" and a stated response deadline with a deemed consent consequence if the landlord goes silent.
- Objective criteria. The strongest version lists what the landlord may consider: creditworthiness, use compatibility, experience. Anything outside the list is unreasonable by definition.
Permitted transfers
Every tenant should carve out transfers that require no consent at all: to an affiliate under common control, to a successor by merger or consolidation, to an entity acquiring substantially all assets, and, for a growing company, to a successor in connection with an equity financing. Without the last one, a routine venture round can constitute a change of control and a lease default.
Profit sharing
Landlord forms typically claim 50 to 100 percent of any rent a tenant receives above its own rent. Tenants should net out the costs of the transfer first: brokerage commissions, legal fees, improvement costs for the transferee, and any free rent granted. A 50 percent share of net profit after those deductions is a common landing spot, and permitted transfers should be excluded from profit sharing entirely.
Continuing liability
Most leases keep the original tenant liable after assignment. Where possible, negotiate a release on assignment to an assignee meeting a stated net worth test, or at minimum a cap so the tenant is not liable for obligations arising under amendments it never agreed to. That last point is important and frequently overlooked: without it, the landlord and assignee can amend the lease to increase the rent, and the original tenant guarantees the increase.
Recapture sits inside this article
See recapture. A consent standard that is perfectly reasonable is worth much less if the landlord can simply take the space back instead.
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A recapture clause lets a landlord take back leased space and terminate the lease as to that space when a tenant requests consent to assign or sublet, or when the tenant goes dark.
A good guy guaranty is a limited personal guaranty under which the guarantor is liable for rent only until the tenant vacates the premises, surrenders them in the required condition, and pays everything owed through that date.
A personal guaranty makes an individual or a parent company liable for a tenant entity's lease obligations, so the landlord can pursue the guarantor directly if the tenant defaults.
A go dark clause governs whether a retail tenant may close its store while continuing to pay rent through the end of the term.
This page is general information, not legal advice. Review lease language with qualified counsel.