Answer:
If you are looking to exit your lease before the date set out in the lease agreement, it is important to understand the options available. Understanding the difference between subletting and assigning the lease is important because it can have an ongoing impact on your obligations to the landlord. This article will outline the differences between subletting and assigning your lease.
Why Would I Need to Assign or Sublet?
There are a number of reasons you may want to assign or sublet your lease. This includes because you are:
- selling your business;
- needing to move to a new premises;
- winding down your business; or
- looking for extra revenue through a sublease.
What is an Assignment?
An assignment of lease usually occurs when you want to assign your interest in the lease to another party – the assignee.
When you assign your lease, you are transferring your entire proprietary interest to the assignee. Once the lease is properly assigned, the assignee will assume your obligations under the lease, and you should be released from these obligations.
What is Subletting?
Subletting occurs when you transfer part of your interest in the property to another party. This party is known as the ‘sub-tenant’. Here, you can sublease part of the property, like a room or section of the tenancy. This means you do not have to give up the entire property. Alternatively, you can sublet the entire premises for a fixed period of time within the lease period.
Usually, the sub-tenant will pay you rent under a sublease agreement and treat you as their landlord. As the head-tenant, you will assume liability on behalf of the subtenant for any damage or loss that may occur.
It is important to understand that a sublease does not release you from your obligations under the lease. You still retain your lease with the landlord, irrespective of any issues that may arise with the sublease.
How Do I Assign or Sublet?
The process for assigning or subletting your lease should be set out in your lease agreement. Unless otherwise stated, you will need the written consent of the landlord before you can assign or sublet your lease.
In the case of an assignment, the landlord usually has the right to approve the new assignee. The landlord is likely to request information such as:
- financial statements;
- a CV or business history; and
- identity documents of the proposed assignee.
This way, they can determine whether or not they think they will be suitable to maintain the lease.
In both cases, it is a good idea to have either a:
- deed of consent and assignment; or
- deed of consent to sublease and a sublease drafted.
Ensuring that the terms of the sublease or assignment are in writing can be key in ensuring your lease is properly assigned or subleased.
Which Option is Best for Me?
Your reason for needing to assign or sublet will determine what the best option for you is. Assignment is best when you want to completely release yourself from your obligations under the lease. Conversely, subleases are more suitable when you still want to retain your interest in the property or are unable to assign.
Subleasing can be an effective way of managing some changes in business needs and may be the best option for you if you want to temporarily vacate your premises or are looking to downsize. Subleasing can also be a good option for businesses seeking to earn extra revenue, or for growing businesses leasing premises larger than what they currently need.
Assigning and Subletting Retail Premises
If your premises are considered retail premises, the relevant retail leases legislation in your state likely governs the conditions of your assignment or sublease. This is likely to include laws:
- stipulating what is required to gain the landlord’s consent;
- preventing landlord’s from unreasonably withholding consent; and
- outlining what happens if the landlord fails to respond to a request for consent.
Key Takeaways
It is important to understand the difference between assigning and subletting a lease, so you can choose the best option for your business.
The key differences are that:
- assignments transfer your entire interest in the property and usually releases you from your obligations;
- subleases do not release you from your obligations and allow you to transfer part of your interest in the property and retain your entire interest;
- in both cases, your lease will set out when and how you can assign or sublet.
If you need assistance with assigning or subletting your lease, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
