The right to sell your lease on
Almost every lease grants the tenant the right to sell on – the technical term is ‘assign’ – the lease. The usual arrangement is that the Landlord’s permission is required for any assignment, but with the condition that the landlord cannot withhold his permission unreasonably. The landlord may attempt to impose restrictions - circumstances in which it is reasonable for the landlord to withhold permission – e.g. if you are in material breach of any term of the lease. An unreasonable ground for withholding permission would be because the assignee is not a public company quoted on the stock exchange
A landlord will also attempt to insert a list of conditions which he is entitled to impose when you assign. It would be reasonable for him to require the assignee to put up a rent deposit, if it is a new company. It would be unreasonable for him to require several directors to give personal guarantees for the assignee, if it is a large business.
Many leases also allow the tenant to underlet. Again, similar considerations apply. The landlord cannot withhold his consent unreasonably. He will wish to impose conditions. One particular condition to watch out for when taking a new lease is if he wants it stipulated that the rent in an underlease must be at least as much as the rent in your lease. The reason why the landlord cares about this is that if you go bust and your lease comes to an end, the landlord is struck with the undertenant and the lower rent. But if market rents fall, that will make it impossible for you to underlet, so you should insist that the requirement should only be that you sublet at the market rent at the time. Nearly every lease prohibits tenants from underletting part of the premises, unless the tenant occupies several separate floors or units which can sensibly be separated.
The lease usually stipulates that the tenant cannot share possession of the premises with anyone else, unless it is with another company in the same group of companies, and on the basis that no relationship of landlord and tenant is created. This is to prevent informal underlettings or assignments.
When you assign the lease, the landlord is usually entitled to require you to give a written guarantee that the assignee will pay the rent and perform his obligations. So you do not get completely free of the obligations in the lease by assigning it. However, once your assignee himself assigns the lease on, you are released from liability. In the meantime, you will be relying on your assignee. So it is always important to assign to someone with some financial substance, and not to accept a new company without guarantees.
Break instead
Meaning
A ‘break clause’ is a provision in the lease entitling a party to bring the lease to an early end. If only the tenant has the right to break, it's a 'tenant's break clause.' If only the landlord has the right to break, it's a 'landlord's break clause.' If both sides have the right to break, it's a 'mutual break clause'.A break clause normally has to be exercised by several months’ prior notice in writing, to give the other party time to make new arrangements.
Types
There can be different types of break clause. Some specify a particular date, such as ‘the end of the third year of the term’, at which the break can be operated. If the date passes, then the lease continues and the right to break is lost. In other cases, the right to break may be ongoing. E.g. a right to break ‘at the end of the third year or at anytime thereafter’.
Pre-conditions
If you accept a tenant’s break clause, you should try to make sure that the right to exercise the break option is dependant on the tenant being up to date with his payments and having kept the premises in good repair.