When buying a business that has a commercial lease as part of its business, addressing the transfer of the commercial lease is required. Often, this is done via an assignment of lease. A commercial lease assignment occurs when the existing tenant (the seller of the business) assigns their leasehold interest to the new tenant (the buyer of the business). This process allows the buyer to step into the seller's shoes and continue operating from the leased premises. It is a critical component of most business sales, as the location of the business is often integral to its operation and success.

The transfer process requires the landlord’s approval and compliance with any conditions set out in the lease agreement. Failing to transfer the lease correctly could result in delays, disputes, or even jeopardise the entire business sale.

In certain situations, the landlord and the new tenant may sign a new lease instead of a lease transfer, in this situation, our lawyers assist with document preparation, lease review and lease negotiation.

Key Considerations During a Commercial Lease Assignment

Landlord consent - in most commercial leases, the landlord’s consent is required before the lease can be assigned. Landlords will often review the financial standing, business experience, and suitability of the buyer before granting approval. The process of obtaining landlord’s consent should begin early to avoid delays.

Assignment rights and obligations in the lease -the lease will often contain assignment provisions, which outlines the conditions for transferring the lease. Some leases may impose restrictions, such as requiring the outgoing tenant to guarantee the buyer’s obligations (a process called a deed of guarantee). Our leasing lawyer can assist with reviewing your assignment clause and provide you with legal advice on how to proceed.

Thorough review of the lease - buyers should conduct thorough due diligence on the lease terms, including rent obligations, upcoming reviews, outgoings, and any other liabilities. Buyers should also confirm whether the lease includes renewal options or exclusivity clauses that could impact their business. Our leasing lawyer can assist with providing lease review or targeted legal advice for lease transfers.

Make Good Obligations - buyers may be required to comply with make good clauses, which involve restoring the premises to its original condition before the lease was transferred. This can include repairs, repainting, or removal of fit outs.

Costs of lease transfer - the lease transfer process may involve legal fees, landlord administration fees, and other costs. Ensure these are negotiated and agreed upon during the sale process.

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Whether you’re buying or selling a business, West Perth Legal offers comprehensive business sale and purchase legal support. We’ll help you navigate the process of commercial lease transfer with confidence and ensure your business transaction is a success.