Importance of Assignment & Subletting provision in a Lease

In most commercial leases, there is a standard prohibition on assignments, subleases and transfers of stock or other ownership interest in the tenant. Without any modifications to this provision, a tenant would be constrained in its ability to find other space (whether to downsize or grow its business), to sell or transfer control of its business, or to undertake other corporation transactions because any of these transactions would be prohibited without obtaining the landlord’s consent. Therefore, from a tenant’s perspective, it is important to make sure that this provision is modified to permit assignments, subleases, licenses and other occupancy arrangements with the landlord’s prior consent, not to be to unreasonably withheld.

Further, tenants should also negotiate the right to transfer the lease in connection with certain corporate transactions without the landlord’s consent, such as (1) assignments or subleases to affiliates or subsidiaries of the tenant (or the parent of the tenant, as the case may be), (2) mergers, consolidations or reorganizations of the tenant and (3) the sale of all or substantially all of the tenant’s assets, stock or other ownership interest. Most often, landlords will permit these corporate transactions without their consent provided that certain conditions are met, which may include a net-worth test and prior notice of such transactions.