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As a tenant, you might find yourself in a situation where you need to get out of the lease. Here, you can choose to either:

  • assign the lease; or
  • sublet the premises.

Both assignment and subletting will require your landlord’s consent before you do so. While there are some similarities between both options, there are key differences between the subletting and assigning a lease. This article explains the crucial distinctions between assignment and subletting and outlines when each would be appropriate.  

What Is a Lease Assignment?

Assigning a lease is the process of transferring all your obligations as a tenant under a lease to a new tenant. The new tenant will then be responsible for:

  • paying rent;
  • paying outgoings; and
  • any repair and maintenance obligations.

The party that you assign the lease to will become the tenant under the lease.

However, it is important to understand that an assignment does not release you from your legal responsibilities under the lease. This means that you are still responsible to the landlord if the new tenant breaches the lease. 

For example, if the new tenant does not pay their rent, you will be legally responsible for paying it.

 There are some exceptions to this, including:

  • where your lease includes a clause releasing you from all your obligations under the lease on an assignment; or
  • if you are a retail tenant and the relevant state or territory-based laws outline that you will no longer be legally responsible on an assignment.

If you wish to be released from your legal responsibilities after you assign your lease, you will need to negotiate this with your landlord.

Assigning a lease will often require that you meet a set process and conditions, including: 

  • obtaining your landlord’s consent; and
  • proving that the new tenant will be able to meet their obligations under the lease.

When finalised, all parties should sign a deed of assignment which formalises the arrangement. 

What Is Subleasing?

Subletting your premises allows a new tenant to take over either: 

  • part of your premises; or 
  • all of your premises.

Depending on how much of your premises you have sublet, the third party will also take over some of your legal obligations under the lease. 

For example, if you run a teaching centre at your premises, you might sublet a classroom to a tutoring business. The tutoring business will then pay part of your rent and may be responsible for maintaining the classroom that you have sublet out.

If you sublet your premises, you are still legally responsible under the lease. This means that if your subtenant does not meet their obligations under the lease, you will be responsible for rectifying any breaches. 

For example, if your subtenant fails to pay their rent, you must still pay the full rent to the landlord. If you do not, you will be in breach of the lease. 

It is important to remember that if you sublet your premises, you effectively become the sublandlord under your sublease. Generally, a sublease will include and incorporate the terms of the original lease you signed with the landlord as well. In this case, you should take care to exclude certain obligations of your landlord, like to insure the building.

If you are subletting the premises to share the financial cost of the lease, you should pay attention to the timing of the subtenant’s obligations. This will ensure that the subtenant will pay you their portion of the rent before you are due to pay the landlord.

Like an assignment, subletting will require you to follow a certain procedure and meet certain conditions. You will also need to obtain the landlord’s consent before you proceed. To formalise the arrangement, both you and the subtenant must sign a sublease.

Is Assignment or Sublease More Appropriate?

Whether an assignment or a sublease is more appropriate for you will depend on your intention for your business.  

A sublease may be more appropriate if you:

  • intend to downsize your business;
  • wish to share part of the costs under your lease; or
  • have additional space in the premises that you have no use for.

On the other hand, if you intend to sell your business or end your lease early, an assignment will be more appropriate.

Key Takeaways

While both assigning and subletting your premises allows you to pass on part or all of your premises to another party, they are two distinct types of dealings. An assignment passes on the whole of the property to a third party and may allow you to be released from legal responsibility. In comparison, a sublet allows you to offload part of your lease obligations to another party, while you still remain legally responsible under the lease. If you have any questions about assigning or subletting a lease, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page. 

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