Assigning or Subletting a Commercial Lease

Conor Meyers — Co-Founder & Business AttorneyHas built and run businesses; advises owners on contracts, transactions, and risk. About Conor →

Handing over the space is easy. Handing over the liability is the hard part.

Businesses outgrow space, shrink, relocate, or get sold, and the lease rarely accommodates any of it without permission. Assigning a commercial lease and subletting are the two routes out, and they differ in a way that matters enormously: what happens to your liability afterward.

We handle these matters for growth-stage companies in Idaho and California. This is general information — not legal or tax advice on a specific situation.

Consent is permission. Release is the thing worth having.

Assignment versus subletting

An assignment transfers the tenant’s entire interest for the remainder of the term. The assignee deals directly with the landlord and pays rent to them. A sublease transfers part of the space, part of the term, or both, and the subtenant pays the original tenant, who continues paying the landlord.

Subletting commercial space rules follow from that structure. The original tenant becomes a landlord to the subtenant while remaining a tenant to the landlord, which means collecting rent, enforcing the sublease, and carrying the risk if the subtenant fails.

Sublet and you are a landlord and a tenant simultaneously.

Liability after transfer

Liability after assigning a lease is the point most tenants misunderstand. Consent to an assignment does not by itself release the assigning tenant. Absent an express release, the original tenant remains liable if the assignee defaults.

In a sublease the original tenant obviously remains liable, since it never left the lease. Either way, the outgoing party should negotiate for release, and where the landlord will not release fully, for a cap or a release after a period of satisfactory performance by the replacement.

Without an express release, you are still the tenant.

Assignment clause negotiation

Assignment clause negotiation is best done at lease signing, when the landlord wants the space filled. Provisions worth pressing for include consent not to be unreasonably withheld with defined criteria, a deemed-consent period if the landlord does not respond, and permitted transfers to affiliates or in connection with a sale of the business without consent.

That last one matters commercially. A tenant who may sell the business in five years wants a lease that does not hand the landlord a veto over the transaction.

Negotiate the exit route while the landlord still wants you in.

Recapture and profit sharing

Two provisions frequently accompany consent rights. A recapture right lets the landlord terminate rather than consent, taking the space back — valuable to a landlord in a rising market and potentially fatal to a tenant’s plans.

Profit-sharing provisions require the tenant to share any excess of sublease rent over lease rent with the landlord, sometimes entirely. Where a tenant has a below-market lease, that provision removes most of the economic benefit of subletting.

Profit-sharing can remove the entire reason to sublet.

Practical steps for a transfer

Read the lease first and identify what consent requires, what information the landlord may demand, and how long they have to respond. Approach the landlord with a complete package rather than a preliminary enquiry.

Document the transfer properly. An assignment needs an assignment and assumption agreement; a sublease needs its own document that is consistent with, and subordinate to, the master lease. A sublease that grants the subtenant rights the master lease does not permit creates a default waiting to happen.

A sublease inconsistent with the master lease is a default in waiting.

Transfers in a business sale

Lease assignment during a business sale deserves early attention because the landlord’s consent becomes a closing condition and the landlord knows it.

Identify the requirement during sell-side preparation, approach the landlord once the buyer can be credibly presented, and negotiate release of the seller as part of the consent rather than as an afterthought. Recorded interests follow Title 55, SBA guidance addresses premises in a business purchase, and lender consent requirements follow FDIC practice where the property is financed.

In a sale, the landlord’s consent is a closing condition. Plan for it.

A simple plan to get a legal partner in your corner

Owners who bring in attorney for a commercial property purchase early almost always pay less than those who call one afterward.

The engagement at a glance

A three-step path from first call to ongoing protection.

Frequently asked questions