Selling a Business – Do You Need Your Landlord’s Consent?

January 14, 2025

Selling a Business – Do You Need Your Landlord’s Consent?

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By Elin Davies

If you are selling or transferring your business to a buyer, it’s important not to forget about your premises.

If you’re operating under a business lease, you may need to assign it to the new buyer—and that typically means securing your landlord’s consent first. The assignment process can be complicated and legal advice should be taken before any assignment takes place.

In this article, property expert Elin outlines the key steps for obtaining landlord consent when assigning a business lease.

1. Review the Lease Agreement

You should review your lease carefully and understand what the terms say about assignment. The terms will state whether the landlord’s consent is required, and under what circumstances the landlord can withhold consent. You will then need to check any notice periods for notifying the landlord and any information and/or documentation the landlord will need.

Generally, leases have strict requirements on assignment and generally the landlord will consider (a) the creditworthiness of any new tenant (the buyer); (b) the proposed use of the property and if it will comply with the existing use terms in the lease; (c) if approval of a third party is required; and (d) if a separate deed to establish a direct relationship between the landlord and the new tenant is required.

2. Gathering information

Once you know what the assignment terms are in the lease, you should gather as much information as possible on the new tenant. This could include their identity, any documentation demonstrating their business purpose and financial documents such as financial statements, proof of solvency, business/trade references and business plan, in anticipation that the landlord will request them.

3. Notify the Landlord

Once you have gathered the relevant documentation, subject to what the lease says, you can then inform the landlord of your intention to assign the lease. The landlord may request information and documentation about the new tenant, but be sure to obtain their consent before sharing any personal information or put them in direct contact with the landlord.

A request for consent should be submitted, preferably in writing, to ensure it is documented. The request should generally include details on the reason for the assignment and the name of the proposed assignee. It should also set out what the lease terms say on assignment and produce any additional, relevant documentation and information that could assist the landlord in giving consent and comply with any lease requirements.

4. Landlord’s Consent

On receipt of a request from a tenant, provided the lease does not restrict assignments absolutely, the landlord must respond within a reasonable timeframe or within the time specified in the lease. Typically, consent cannot be unreasonably withheld, and if the landlord objects, they must provide written reasons.

Possible reasons for withholding consent could include (a) if you owe the landlord rent or sums of money due under the lease (b) if you are in breach of any lease covenants, or (c) if, in the landlord’s reasonable opinion, the potential assignee does not have sufficient financial standing to take over the lease terms and comply with its obligations.

If consent if refused, steps can potentially be taken to address the landlord’s concerns and reasons, and a way forward agreed before the lease can be assigned.

5. Receive the Landlord’s Consent

You should not proceed with the assignment until you have the landlord’s consent. If you assign the lease without obtaining the required consent (where that consent is required in the lease), not only will the assignment be invalid, leaving you to remain as tenant to comply with the tenant’s obligations (i.e. paying rent, repair, insure etc), the assignment will be in breach of the lease which could ultimately result with the landlord’s ability to forfeit.

Once the landlord has considered the information and has sought advice (if required), the landlord may provide their consent in writing, subject to any additional conditions or terms. This is often done in a licence, which all parties agree and sign.

Summary

It is crucial for you to review the lease thoroughly before taking any steps in assigning it. By understanding the outlined steps, a business can streamline the process of selling a business and assigning the lease successfully, ensuring compliance with the lease terms and avoiding potential pitfalls.

If you need assistance with the assignment of your business lease, please do not hesitate in getting in touch with one of our property experts who would be happy to help using our contact form, or contact Elin Davies directly on edavies@darwingray.com or 01248 661202.