Commercial lease assignment
Discussion
I’m looking to buy a business that has a retail outlet which has 12 months left to run on the lease.
The business is currently run as a sole trader, and so the lease is in the business owner’s name personally.
I’m intending to run the business as a Ltd Co, and so ideally the lease would be in the name of the Ltd Co.
However, the Ltd Co has only just been setup specifically for this, and so has no history. The building landlord won’t issue a new tenancy under the Ltd Co, only to me personally. I offered 6 months up front and to pay the remaining six months monthly for the first six months of the lease, but still no (it’s a 12 month lease).
My understanding is that if I take the lease personally, I’d really need to then assign it to the Ltd Co so that it has the liability and there’s something for it to pay rent against, and that assignment would likely need the agreement of the landlord…?
However, under the terms of the existing lease, there is literally nothing mentioned about lease assignment, either to support or prohibit it.
In the absence of any specific clauses, am I right to assume that it would still need the landlord’s agreement if the current business owner were to assign the existing lease to my Ltd Co?
The business is currently run as a sole trader, and so the lease is in the business owner’s name personally.
I’m intending to run the business as a Ltd Co, and so ideally the lease would be in the name of the Ltd Co.
However, the Ltd Co has only just been setup specifically for this, and so has no history. The building landlord won’t issue a new tenancy under the Ltd Co, only to me personally. I offered 6 months up front and to pay the remaining six months monthly for the first six months of the lease, but still no (it’s a 12 month lease).
My understanding is that if I take the lease personally, I’d really need to then assign it to the Ltd Co so that it has the liability and there’s something for it to pay rent against, and that assignment would likely need the agreement of the landlord…?
However, under the terms of the existing lease, there is literally nothing mentioned about lease assignment, either to support or prohibit it.
In the absence of any specific clauses, am I right to assume that it would still need the landlord’s agreement if the current business owner were to assign the existing lease to my Ltd Co?
What I know about this could be written on the back of a fag packet but even that is enough to know that leases are potentially very valuable things to landlords or so they believe and that can be pretty toxic.
Whatever you do, do not sign up until you've had someone professional look at every part including delapidation clauses etc, to the landlord you're the Goose that lays the golden eggs and they don't let that go easily.
Whatever you do, do not sign up until you've had someone professional look at every part including delapidation clauses etc, to the landlord you're the Goose that lays the golden eggs and they don't let that go easily.
You could take the lease in your new company name, with you as personal guarantor - still not ideal because you're personally liable, but at least rent etc is billed to the company. The alternative, if the landlord accepts it and you have the cash available, is to offer a substantial deposit - at least 3 months' rent (plus any VAT) but probably more to make it palatable for the landlord.
And yes, you will almost certainly need landlord consent to assign the lease to your new company - that will be set out in the lease but it is so standard as to be pretty much a certainty.
And yes, you will almost certainly need landlord consent to assign the lease to your new company - that will be set out in the lease but it is so standard as to be pretty much a certainty.
Jobbo said:
You could take the lease in your new company name, with you as personal guarantor - still not ideal because you're personally liable, but at least rent etc is billed to the company. The alternative, if the landlord accepts it and you have the cash available, is to offer a substantial deposit - at least 3 months' rent (plus any VAT) but probably more to make it palatable for the landlord.
And yes, you will almost certainly need landlord consent to assign the lease to your new company - that will be set out in the lease but it is so standard as to be pretty much a certainty.
My first commercial leases were set-up as above. And Commercial landlords on the whole are horrible to deal with.And yes, you will almost certainly need landlord consent to assign the lease to your new company - that will be set out in the lease but it is so standard as to be pretty much a certainty.
Well, essentially Land law in England is mainly concerned with protecting land owners not individuals.
For assignments;
The tenant can seek permission from the landlord where there is an absolute covenant against assignment but cannot take action if the landlord refuses. In a qualified covenant the landlord can refuse permission only if the refusal is reasonable: s 19 of the Landlord and Tenant Act 1927. Section 1 of the Landlord and Tenant Act 1988 ensures that any request from the tenant to assignis dealt with quickly.
The landlord has a duty to give consent unless it is reasonable to refuse to do so. The reasons for refusal must be given and if consent is given but subject to conditions then those conditions must be given. The tenant does have the power to create a licence which is often a way around the problem of gaining consent. - Unlocking Land Law, Bray
For assignments;
The tenant can seek permission from the landlord where there is an absolute covenant against assignment but cannot take action if the landlord refuses. In a qualified covenant the landlord can refuse permission only if the refusal is reasonable: s 19 of the Landlord and Tenant Act 1927. Section 1 of the Landlord and Tenant Act 1988 ensures that any request from the tenant to assignis dealt with quickly.
The landlord has a duty to give consent unless it is reasonable to refuse to do so. The reasons for refusal must be given and if consent is given but subject to conditions then those conditions must be given. The tenant does have the power to create a licence which is often a way around the problem of gaining consent. - Unlocking Land Law, Bray
You could talk to the landlord about accepting a surrender of the existing lease granting you a new lease to the Ltd Co. with you as guarantor. Offer a longer term which will give the landlord an upside but also help secure your investment.
Whichever way you go you need to understand security of tenure, you want it so you have a statutory right to renew the lease.
Whichever way you go you need to understand security of tenure, you want it so you have a statutory right to renew the lease.
It’s not unheard of for a lease not to have provision for assignment (also check under ‘alienation’). You are taking over a contract so have to follow what’s already in there.
You need to check if the lease is not contracted out of the Landlord and Tenant Act and you have a right to renew- an old school mate bought a business with a shop lease. He later found out once he was settle in that he didn’t have security of tenure and was shafted by the landlord.
Is the landlord unwilling to look at a lease in the Ltd co name and you as guarantor? I would be pushing for that.
Don’t forget an advantage of having a short term certain left to run is that it gives you flexibility if you’re not happy there.
You need to check if the lease is not contracted out of the Landlord and Tenant Act and you have a right to renew- an old school mate bought a business with a shop lease. He later found out once he was settle in that he didn’t have security of tenure and was shafted by the landlord.
Is the landlord unwilling to look at a lease in the Ltd co name and you as guarantor? I would be pushing for that.
Don’t forget an advantage of having a short term certain left to run is that it gives you flexibility if you’re not happy there.
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