If you need to exit your lease before the agreed-upon date, it is crucial to know your options. Understanding the distinction between subletting and assigning your lease is vital, as it affects your obligations to the landlord. This article will explain the differences between subletting and lease assignment, helping you make an informed decision.
Why Would I Need to Assign or Sublet?
You may want to assign or sublet your lease for several reasons, including if 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 is a legal process through which a tenant transfers their rights and obligations under a lease agreement to another party, known as the assignee. This typically involves the transfer of the entire leased premises, such as a shop or office space, from the original tenant to the assignee.
When you assign your lease, you effectively transfer your entire proprietary interest in the property to the assignee. This means that the assignee steps into your shoes and assumes all the rights and responsibilities that you had as the original tenant. They are required to:
- pay the rent;
- adhere to lease terms; and
- comply with any other obligations outlined in the lease agreement.
You must follow the lease agreement’s terms and applicable laws to ensure a proper assignment. This often requires landlord consent and completing the necessary paperwork. The process can involve:
- obtaining consent from the landlord;
- complying with any assignment provisions outlined in the lease; and
- completing any necessary paperwork to formalise the assignment.
Overall, a lease assignment allows tenants to transfer their leasehold interests, providing flexibility in managing leased properties and businesses.
Continue reading this article below the formWhat is Subletting?
Subletting occurs when a tenant leases part or all of their rented property to another party, called the subtenant. This allows the original tenant, or head tenant, to retain some control and earn income from the sublease.
Subletting can involve renting out a room or section of the property, allowing the head tenant to use the remaining space. Alternatively, the head tenant might sublet the entire property for a fixed period, giving the subtenant full control during that time.
Under a sublease agreement, the subtenant usually pays rent to the head tenant, who acts as their landlord. However, the head tenant remains responsible for all lease obligations to the original landlord. The head tenant is still liable if the subtenant fails to pay rent or damages the property.
The head tenant’s lease with the landlord continues to be in effect, and they must adhere to its terms despite the sublease. Subletting offers potential income and cost-sharing benefits but also comes with responsibilities and risks. Head tenants should carefully review their lease and legal requirements before subletting.
A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.
How Do I Assign or Sublet?
The process for assigning or subletting your lease should be in your lease agreement. Unless otherwise stated, you will require the landlord’s written consent 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 such as asset and liabilities statement;
- a CV or business history;
- identity documents of the proposed assignee; and
- Business, personal and financial references.
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.
Which Option is Best for Me?
Your reason for needing to assign or sublet will determine what the best option for you is. Assignment may be best when you want to leave your obligations under the lease altogether. Conversely, subleases are more suitable when you still need to use parts of the premises but wish to offset the rent or cannot assign.
Subleasing can effectively manage some changes in business needs. It may be the best option for you if you want to vacate your premises temporarily or are looking to downsize. Subleasing can also be a good alternative for businesses seeking to earn extra revenue. Additionally, it can be valuable for growing businesses leasing premises larger than they currently need.
Assigning and Subletting Retail Premises
If your premises are considered retail premises, your state’s relevant retail lease legislation likely governs the conditions of your assignment or sublease. This is likely to include laws:
- determining what is required of you as the assignor/sublessor;
- stipulating what is necessary to gain the landlord’s consent;
- preventing landlords from unreasonably withholding consent; and
- outlining what happens if the landlord fails to respond to a request for consent.
Key Takeaways
Understanding the difference between assigning and subletting a lease is important so you can choose the best option for your business. The key distinction between these options are that:
- assignments transfer your entire interest in the property and usually release 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; and
- in both cases, your lease will set out when and how you can assign or sublet.
If you require assistance with your lease, our experienced leasing lawyers can help as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 1300 544 755 or visit our membership page.
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