Since COVID-19 reached New Zealand, the number of assignments we have transacted has significantly increased.
Landlord’s and tenants have been approaching us seeking understanding and solutions regarding their leases and the obligations.
What is an Assignment?
An Assignment is the transfer of an existing eease; including all terms and conditions which have already been agreed upon between a landlord and tenant. This most commonly occurs when a business is sold or needs to relocate to smaller/larger premises. In the current economic environment, we are working with an increasing number of tenants looking to close their business, relocate, expand or downsize.
Before you start considering an assignment we recommend you speak with your current landlord to advise of your current situation and communicate your plans. As always, we recommend you seek legal advice. Here are six things’ to consider with a lease assignment.
Review Your Lease
Make sure you have a copy of your current lease agreement to understand the renewal dates, lease expiry and your obligations.
For an Assignment to proceed it is conditional upon the landlord’s approval (10 working days), this includes if a change in business use is required for the incoming tenant, which is why we recommend having advanced communication with the landlord about your situation.
There are several costs which need to be considered; firstly your own Legal fees but you will also be liable for the landlord’s legal fees, agency fees if you are engaging a commercial real estate agent to help you find a replacement tenant, and lastly your cost to relocate.
If your business has made changes to the property which might include painting, fit-out, damaged walls, then these may need to be repaired, removed, or reinstated. It is important to have a clear understanding between all parties involved what is expected and that it is documented.
It is important to be aware that even though you may have assigned the lease, you still remain liable from the Assignment date to the end of the lease, we would recommend you seek legal advice as to your options to limit your liability under the lease.
As an alternative to assigning your lease, you could suggest to the landlord that they enter into a new lease with the new tenant. Of course, the terms of this new lease would have to be favourable to the landlord for them to agree.