A business that needs to leave its leased space before the lease ends may not have to walk away from its space or absorb the cost of the remaining term. Assignment and subletting are two approaches a commercial tenant may use to transfer or grant another party rights to occupy the premises – but neither automatically removes the original tenant from liability, and the legal consequences of each are significantly different. The better option depends on the lease terms, the landlord’s requirements and how much ongoing financial exposure the business is prepared to accept.
How assignment differs from subletting
An assignment transfers the tenant’s leasehold interest to an assignee who assumes lease obligations. The original tenant remains liable unless released by the landlord. In a sublease, the tenant retains lease obligations while renting to a subtenant, who lacks a direct landlord-tenant relationship under the original lease.
Who stays liable under each option
Assignment does not automatically discharge the original tenant’s lease obligations. The tenant remains liable if the assignee defaults, absent landlord release or contrary lease provisions or law. Commercial subleases similarly preserve the original tenant’s obligations to the landlord, including rent payment and lease compliance, as governed by lease terms and applicable law.
Why landlord consent matters
Many commercial leases require the landlord’s prior written consent before an assignment or sublease, although the specific requirements depend on the lease. Some leases require landlords to act reasonably when considering a proposed transfer, while others give the landlord broader discretion, subject to applicable law. Some also include recapture clauses – provisions that let the landlord take back the space instead of approving a transfer. Both can significantly limit available options.
What commercial tenants should do before transferring a lease
The lease determines what is possible before approaching the landlord. Tenants should work through three areas first:
- A recapture clause may allow the landlord to take back the premises instead of approving the proposed transfer, depending on the lease terms.
- Confirm whether a formal release is available as part of any assignment – and raise this early, before terms are negotiated.
- Assess whether the business can absorb ongoing liability if the assignee or subtenant stops paying – and factor that exposure into the financial comparison between the two options.
The lease should be reviewed first because its transfer provisions may limit the options available to the tenant. For assignment specifically, requesting a formal release at the outset – before terms are negotiated – gives the tenant the best chance of securing one. Waiting until after an agreement is in place typically reduces leverage considerably.