It is important for GPs to be aware of their obligations and the potential risks when responding to these applications.
When a tenant transfers their rights and obligations under their lease to another party, this is known as assigning a lease. When a lease is assigned, the lease will remain in place on the same terms but the tenant under the lease will change. In most cases, the landlord's consent is required to validly assign the lease and you may be unsure how to proceed.
It is very important to seek legal advice if you receive an application from a tenant to assign their lease. 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.
A tenant will need to make a formal application in writing for consent to assign the lease. You 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 by the existing tenant and the incoming tenant (as applicable) and so you will not be able to later change your mind or request further conditions. Your solicitor can support you in responding without granting consent.
It is crucial to contact your solicitor as quickly as you can upon receiving a request to assign the lease. Although your consent is required, landlords cannot unreasonably withhold or delay consent. Failure to act quickly could allow the tenant to argue that you have unreasonably delayed consent, and they may be able to proceed with the assignment on that basis without further reference to you.
Your assessment of the application to assign should be based upon whether you reasonably expect the incoming tenant to be able to service the tenant's obligations under the lease (which will generally include matters such as the payment of rent and keeping the property in repair). Factors such as the proposed assignee's financial stability, reputation and experience could be useful to consider.
You should obtain accounts and other financial information for the incoming tenant so that you can undertake a review of their financial position with the support of your accountants or other financial advisors.
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 being proposed where the incoming tenant will be a new company or of lower overall financial value than the existing tenant. In these circumstances, there are additional security measures which can be reasonably requested of the existing tenant or 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.
We can advise on the which of the above forms of security may be appropriate on a case by case basis. This assessment is based on considerations of the commercial and financial information provided by the incoming tenant.
The actual wording of your lease will determine how the lease assignment can be handled. Our specialist advisors in our Healthcare sector are experienced in guiding landlords through the complexities when considering a tenant's application to assign their lease.