Agreeing to a Lease Assignment
Tenants oftentimes wish to assign a lease to an assignee, who will step into the shoes of the original tenant and occupy the space involved in a lease. Many leases require that landlords consent to such assignments in order for them to be effective. Landlords need to conduct a thorough investigation of the assignee and complete other steps before agreeing to a lease assignment, and landlords should keep a few things in mind before agreeing to such an assignment.
Background Checks
As soon as possible after receiving information about the new tenant and agreeing to a lease assignment, landlords should conduct a thorough investigation of the tenant who will assume the lease. The type of background check will largely depend on the value of the lease and the sophistication of the parties, but this should usually include a thorough review of financial records, criminal backgrounds, and any other information that might be relevant to a party being a solid or unreliable tenant.
Landlords often require that assignees provide bank records, tax returns, and other financial documents that reflect the financial status of a prospective tenant. It is usually worth it to hire professionals to conduct a background check as well. Private investigators may have access to information that is not publicly available and may know if a party is less than truthful with a landlord conducting investigations. Assignees may be tenants to a lease for years, so it pays to conduct research before agreeing to a lease assignment in order to avoid trouble at a future time.
Length Left on Lease
Any important consideration when agreeing to assignment is the length of time left on the lease. If the lease will expire in a short amount of time, the landlord does not have too much risk if they consent to an assignment. This is because after the lease expires, they may be able to renegotiate the lease, recover the property, or exercise other options.
However, sometimes an assignor wishes to assign a lease that has many years left before it expires. This is especially prevalent in the commercial context in which leases are often for a decade or even longer. In such instances, landlords need to be especially careful to ensure that they conduct a proper investigation on a new tenant since that entity will be their tenant for years to come.
Renewal Rights
Similar to the length left on a lease, renewal rights might impact a landlord when agreeing to a lease assignment. Oftentimes, a lease provides that a tenant has the right to renew the lease for one or more additional terms for a set period of years. For instance, it is not uncommon in commercial leases for tenants to have the right to renew a lease for one or more terms of five years.
Since the assignee steps into the shoes of the original tenant, they might have the ability to renew the tenancy under the terms of the lease. If there are substantial renewal rights, a landlord may be stuck with an assignee for a long period of time. As a result, the renewal rights of parties might influence the type of investigation conducted on a potential assignee and whether the landlord should consent to an assignment.
Bargaining Chip
Oftentimes, agreeing to a lease assignment can be used in ongoing negotiations with landlords and tenants. It is not uncommon for disputes to arise between tenants and landlords involving a wide array of topics. For instance, landlords and tenants may have disputes over repairs to be made to property, unpaid rent, violation of the landlord’s rules, and other matters. It might be difficult to resolve these issues through the normal dispute-resolution process since litigation may take a long time to resolve and the relationship between landlord and tenant may deteriorate to a point when they cannot discuss matters. Landlords need to be careful not to appear to be acting unreasonably in failing to agree to an assignment, but if this concern is satisfied, agreeing to a lease assignment may be a powerful bargaining chip during ongoing negotiations.
Reasonableness
As alluded to above, when agreeing to a lease assignment, landlords usually need to act reasonably. Oftentimes, the duty to act reasonably arises under a lease and other times it arises under general principles of the law. In any event, landlords are typically not permitted to restrain the assignment of property interests unless they are acting reasonably.
Courts look to a number of factors when determining whether a landlord is acting reasonably. If a landlord looks at economic factors and determines that an assignee is not financially secure, not agreeing to an assignment may be reasonable. Moreover, if the assignee does not have experience with a particular business they hope to operate, this may also be a basis to refuse an assignment. However, landlords cannot act capriciously when refusing an assignment, and an experienced landlord-tenant lawyer should know whether a landlord is acting reasonably in consenting to or refusing an assignment.
The Rothman Law Firm is experienced with all manner of landlord-tenant issues including lease assignments. If you are looking for an experienced New York and New Jersey handle your lease assignment or other legal issue, please feel free to contact The Rothman Law Firm to request a free consultation.