You (or your company) are a tenant of commercial or retail premises. You are thinking of assigning your lease.
What are the main issues?
If you assign your lease, you transfer your rights under the lease to a new tenant. You cannot assign part of your lease. An assignment must deal with the whole of your premises.
A proposed assignment requires the consent of your landlord. Normally, the landlord cannot unreasonably withhold consent to an assignment, provided that the proposed new tenant is of sound financial standing and is willing to provide personal guarantees and/or a bank guarantee at least equivalent to any guarantees that you may have provided to your landlord.
With an assignment, the landlord will normally require you and the new tenant to enter into a deed with the landlord under which the new tenant agrees to take over your obligations under the lease, and you acknowledge that despite the assignment, you are not released from obligations under the lease.
Normally, if you assign a lease, the new tenant takes over your obligations under the lease from the date of the assignment, but you are not released from your obligations under the lease unless you are able to persuade your landlord to release you. Although releases are not normally provided, there is no reason why you should not request a release.
Although you remain liable after an assignment, landlords will normally release any personal guarantees or bank guarantees that may have been provided by you, provided that the new tenant offers equivalent replacement guarantees.
Transfer of shares instead of assignment
If your company is the tenant under your lease, there may be circumstances in which it suits you to sell the company rather than assign the lease. Some leases contain provisions which require the landlord’s consent for a transfer of all or a majority of shares in the tenant company, as if the transfer was an assignment of the lease. If your lease does not contain these provisions, the consent of the landlord will not be required. However, if personal guarantees have been provided, the landlord’s consent will be required if it is intended to replace those guarantees.
Retail Lease Act
If your lease is of retail premises covered by the Retail Leases Act, that Act sets out the procedure to be followed in relation to assignments and limits the circumstances in which your landlord can withhold consent to an assignment.
With an assignment, the landlord will expect its legal expenses in connection with the assignment to be reimbursed. You may be able to negotiate for the subtenant to pay all or some of the landlord’s legal expenses and your legal expenses.
5301.33 Cancellation, release, and assignment of leases.
Except in counties where deeds or other separate instruments are required as provided in this section, a lease, whether or not renewable forever, that is recorded in any county recorder's office, may be canceled or partially released by the lessor and lessee, or assigned by either of them, by writing the cancellation, partial release, or assignment on the original lease, or upon the margin of the record of the original lease, and by signing it. That cancellation, partial release, or assignment need not be acknowledged, but if written on the margin of the record, the signing shall be attested to by the county recorder. The assignment by the lessee, whether it is upon the lease, or upon the margin of the record of the lease, or by separate instrument, shall transfer all interest held by the lessee under the lease in the premises described in the lease, unless otherwise stated in the lease or in the assignment. For copying the cancellation, partial release, or assignment upon the margin of the record, if written upon the original instrument, or for attesting it, if written upon the margin of the record, the county recorder shall charge the fee provided by section 317.32 of the Revised Code for recording the assignment and satisfaction of mortgages.
A lease, whether or not renewable forever, that is recorded in any county recorder's office, also may be canceled, partially released, or assigned by deed or by other separate instrument acknowledged as provided in section 5301.01 of the Revised Code. Unless in the form of a deed, a separate instrument of cancellation, partial release, or assignment shall be recorded in the official records provided for by section 317.08 of the Revised Code. The county recorder shall charge the fee for that recording as provided in section 317.32 of the Revised Code for recording deeds.
If a lease has been canceled, partially released, or assigned by deed or by other separate instrument and that deed or other separate instrument recites the county recorder's file number of the original lease or the volume and page of the record in which the original lease is recorded, the county recorder shall note on the margin of the record of the original lease the county recorder's file number of the deed or other separate instrument or the volume and page of the record in which the same is recorded.
"Lessor" and "lessee" as used in this section include an assignee of the interest of either. "Lease" as used in this section includes a memorandum of lease provided for by section 5301.251 of the Revised Code. This section does not permit the assignment of any lease if the assignment is prohibited by the terms of the lease.
In a county in which the county recorder has determined to use the microfilm process as provided by section 9.01 of the Revised Code, the county recorder may require that all cancellations, partial releases, and assignments of leases be by deed or other separate instrument. The original instrument bearing the proper endorsement may be used as such separate instrument.
Amended by 130th General Assembly File No. 41, HB 72, §1, eff. 1/30/2014.
Effective Date: 02-01-2002.