If you are looking to exit your commercial lease and have found another party to take over, it is essential to transfer or assign your lease appropriately. When assigning your lease to a third party, you should consider:
- whether your existing lease allows you to assign your lease to another party;
- who needs to consent to the transfer of the lease; and
- your responsibilities until you transfer the lease.
This article explains the process of transferring your lease to a third party and the crucial questions to consider when doing so.
Am I Allowed to Assign My Lease?
When looking to assign your commercial lease to a prospective tenant, you need to determine whether or not your lease is capable of being assigned. Your lease document will include information about assigning your lease in a transfer and assignment clause. This clause typically specifies:
- whether or not you can assign your lease; and
- the process and steps to effectively assign your lease.
Unless your lease states otherwise, you will need to obtain consent from your landlord to assign your lease. Your landlord will also need to approve the prospective tenant who you plan on assigning the lease to. Your landlord must assess the suitability of the prospective tenant to ensure that they are a good fit and can pay the rent. To determine the suitability of a prospective tenant, your landlord may request:
- financial information, such as bank statements;
- business history or CV; and
- professional references.
If there is a mortgage over the premises, you may also need to obtain consent from the lender. However, it is the landlord’s obligation to seek the lender’s consent.
What Is a Deed of Consent and Assignment?
A deed of consent and assignment is a legal document outlining:
- the consent from the landlord and mortgagee allowing you to assign the lease;
- that you agree to transfer your entire interest in the lease to the new tenant; and
- that the new tenant agrees to assume all of the rights and obligations of the lease.
The deed of consent and assignment transfers all of your obligations under the lease to the new tenant. It is crucial to ensure that the deed of consent and the assignment validly transfers your responsibilities to the new tenant.
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What Terms Do I Need to Consider?
You must consider the terms related to the assignment process within your lease. These are usually under a transfer and assignment clause. If you fail to abide by the conditions in your lease, the assignment may not be valid. If you do not validly assign your lease, you may still be liable for the obligations under the lease, such as paying rent.
Do I Need to Pay Transfer Duty (Stamp Duty)?
Upon assigning your lease, you must pay transfer duty (previously known as stamp duty) in NSW. Transfer duty is tax over the purchase of assets and transactions of property. The amount of stamp duty depends on whether you are paying any money specifically for the transfer.
Even if you are not paying any money for the transfer, you must still pay the NSW Office of State Revenue a nominal $10. A transfer will not be accepted without the nominal stamp duty. Therefore, if you fail to pay stamp duty, this may delay the assignment of your lease.
Key Takeaways
When transferring your lease to a third party, it is crucial to follow the appropriate process outlined in your lease document. The process usually involves:
- determining whether or not you can assign or transfer your lease;
- working out which parties you need to obtain consent from to transfer your lease; and
- obtaining consent from the relevant parties to transfer your lease.
If you need assistance with validly assigning your lease, get in touch with LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
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