GP landlords - key actions and considerations for consents to lease assignments

GPs are often landlords of other tenants within a surgery building, for instance tenants of pharmacy or dental premises.

Most commercial leases provide that a tenant cannot assign (transfer) their interest in the lease to a third party without the prior consent of their landlord. During the term of a commercial lease, GP landlords may therefore receive an application from a tenant requesting consent to a lease assignment. This means that the existing tenant is asking to transfer their rights and obligations under the lease to another party.

Responding to the tenant without inadvertently granting consent

A tenant should make a formal application in writing for consent to assign the lease. Landlords should be careful not to inadvertently grant consent, or even share any intention or likelihood of consent until you are certain that is how you would like to proceed. Confirming agreement in principle to the assignment (even if subject to conditions) will bind you to giving consent if those conditions are met and so you will not be able to later change your mind or request further conditions.

Seek legal advice

It is very important to seek legal advice if you receive an application from a tenant to assign their lease. Your solicitor can support you in responding to the tenant without granting consent and can assist in working through the key landlord considerations set out below.
In most cases, the tenant will be responsible for any fees incurred by the landlord in connection with the tenant's application for consent to the proposed lease assignment.

Duty to act without unreasonable delay

Most commercial leases will provide that landlords cannot unreasonably delay consent to a lease assignment. Failure to act quickly could allow the tenant to argue that you have unreasonably delayed consent, and the tenant may be able to proceed with the assignment on that basis, without further reference to you.

It is generally accepted that landlords must respond to a request for consent to an assignment within a matter of days or weeks (rather than months), although a reasonable timeframe for a response will vary depending on the circumstances of each particular application for consent.

Duty to not unreasonably withhold consent

Most commercial leases will provide that landlords cannot unreasonably withhold consent to a lease assignment. Whether there are reasonable grounds to refuse to grant consent will depend on the particular facts and circumstances of each application for consent.

Some commercial leases contain provisions setting out circumstances in which the landlord may refuse consent to a lease assignment (for instance where there are rent arrears or subsisting breaches of the tenant covenants under the lease). Your legal representatives can assist you in reviewing your lease to determine if there are any circumstances in which you can reasonably refuse consent to the lease assignment.

Reviewing financial information

A tenant's application for consent to a lease assignment should be accompanied by sufficient information to enable the landlord to reach a decision on whether to grant consent.

It is generally expected that tenants will provide financial information for the new tenant, enabling a landlord to assess the proposed new tenant's ability to perform the tenant covenants and pay the rents due under the lease. Such information often consists of 3 years audited accounts, financial statements and references from other landlords or banks.

Landlords can request financial information for the new tenant if this is not provided at the outset and can usually request such further information as is reasonably required to enable the landlord to reach a decision on the request for consent. This will depend on the terms of the lease and your legal advisors can assist you in reviewing the lease and determining what information is required from the tenant.
Your financial advisors should be able to provide assistance in reviewing a proposed tenant's financial information and can support you in assessing their suitability as tenant.

Imposing conditions on the grant of consent

Investigations into the financial stability of the incoming tenant could indicate a risk that they will be unable to fulfil the lease obligations. Often assignments are proposed where the incoming tenant will be of lower overall financial value than the existing tenant.
In these circumstances, there are additional security measures which may be reasonably requested of the existing tenant or the incoming tenant. These include:

Authorised Guarantee Agreement (AGA): this is an agreement (usually required by the lease terms) whereby the current tenant will guarantee the incoming tenant's performance of the tenant obligations under the lease for the remainder of the lease term or until the next assignment of the lease, whichever is earlier.
Rent deposit: a rent deposit involves the incoming tenant providing the landlord with a sum of money up front to act as security, and provide a financial buffer, in case of a potential default or non-payment of rent. The rent deposit is usually returned to the tenant at the end of tenancy, but there are circumstances in which the landlord may use the deposit to cover the costs, for example where the property has been left in disrepair.
Personal Guarantee: when assigning to a company, a company director or major shareholder of the incoming tenant may give a personal guarantee to support the incoming tenant's performance of the lease obligations.
Corporate Guarantee: if the incoming tenant is part of a larger corporate structure, the landlord can request a guarantee from the parent company (who is likely to be financially stronger) to fulfil the lease obligations in the event of a default by the incoming tenant.

A personal or a corporate guarantee will guarantee the incoming tenant's performance of their obligations under the lease for the remainder of the lease term or until the next assignment of the lease, whichever is earlier.

In some circumstances, a commercial lease may set out specific conditions which a landlord is entitled to impose on the grant of consent to a lease assignment.

Your legal advisors can support you in reviewing your lease to determine what conditions may be imposed on the grant of consent and which of the above forms of security may be appropriate. This needs to be determined on a case-by-case basis as the assessment is based on the commercial and financial information provided by the incoming tenant and the particular terms of each lease.