Why use a licence to assign
This is best shown by way of the following example.
A landlord owns commercial premises and their tenant is leasing the premises for 12 years. In year 6 of the lease, the tenant decides to close their business and no longer wants the commercial premises.
The tenant needs to transfer or assign their lease to another business for the rest of the term of years left on the lease, otherwise, they’ll have to pay the rent for another 6 years. The tenant needs permission to assign the lease and this is given by way of a Licence to assign signed by the landlord, the outgoing tenant and the incoming tenant.
You’ll then need a deed of assignment to actually implement the transfer of the lease.
Things to do before agreeing to transfer
Get details of the prospective new tenant. Ask for references, such as bank details, trade and get professional and character references.
Consider asking for additional security, such as a guarantee or a deposit under a Rent deposit deed. This is a sum of money held as added security for the payment of rent and performance of obligations under the lease.
The new tenant may also wish to alter the premises to suit their own business. A licence to alter and also a licence to change the use of the premises may also be required. A licence to change the use of the premises may be subject to planning permission.
In Scotland, where the assignment is accepted by the landlord, the outgoing tenant will no longer have any responsibilities under the lease. All liability, both past and future, will transfer to the incoming tenant. Generally, it would be unreasonable for a landlord in Scotland to request any guarantee if the incoming tenant can show they can pay the rent and meet the other obligations in the lease.
Final checklist for a licence to assign
Check the lease to ensure that there isn’t an absolute prohibition on assignment. Also, check to ensure that all covenants in the lease have been complied with. You should consider the following:
- do you need additional security, such as a rent deposit, guarantor or bank guarantee?
- is the assignment conditional on anything?
- is a change of use proposed and will a licence to change use be required?
- do you need an assignment of goodwill?
- do you need a licence to alter?
