deed of assignment of lease stamp duty

How Do You Assign or Transfer a Commercial Lease?

By Jessica Dinh Lawyer

Updated on December 15, 2023 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

• 1. Seek Your Landlord’s Consent 

2. Deed of Assignment

3. transferring a retail lease, key takeaways.

If you lease a commercial property to operate your business, there may be situations where you need to transfer the lease. There are usually two situations when a tenant will transfer (also known as an assignment ) a commercial lease to another party (the assignee) before the end of a lease term. Namely, where the tenant is:

• selling their business, and the purchaser agrees to accept the existing lease rather than enter into a new lease with the landlord; or
• is proposing to exit the lease and has found a party who will take on the existing lease.

This article explains how the transfer of a commercial lease works. It also explains the critical terms of the deed of assignment from the perspective of the landlord, tenant and assignee.

1. Seek Your Landlord’s Consent 

As soon as you propose an assignment as a tenant, you should:

• review the existing lease to identify if the lease can be assigned;
• identify the requirements of landlord’s consent upon assignment; and
• correspond with the landlord or agent as to consent and approval of the proposed assignee under the lease. 

When seeking your landlord’s consent for the assignment, the proposed new tenant must usually provide their financial and business references to the landlord.

Can a Landlord Refuse to Assign a Retail Lease? 

If the lease is a retail lease, the landlord will not be able to withhold consent to an assignment unreasonably. The retail legislation (different in each state) provides the grounds on which the landlord can withhold their consent. These generally include the:

• assignee proposes to change the permitted use;
• assignee has financial resources or retailing skills that are inferior to the assignor, and
• assignor has not complied with the relevant steps, per the retail legislation in that particular state, including providing a disclosure statement.

Ensure that you check the retail legislation in that particular state when carrying out an assignment.

After obtaining the landlord’s consent, a deed of consent to assignment is prepared (deed of consent).

A deed of consent is a legal document that outlines that the:

• landlord confirms their consent to the transfer of lease;
• tenant agrees to transfer their entire interest in the lease to the assignee from a specific date (the assignment date); and
• assignee, or new tenant, agrees to assume the rights and obligations of the lease as if they were the original tenant (such as repairs, security and payment of rent and outgoings) from the assignment date. This will continue until the end of the lease term and during any option or renewal terms.

The Landlord

Generally, the landlord’s key concern is that the transfer does not affect their rights under the lease. The landlord can address this concern by ensuring that the original tenant (assignor) has complied with all of their obligations under the lease until the assignment date. The landlord will have the right to take action against the tenant after the assignment date for any existing breach of the lease. 

Additionally, the landlord will want to make sure that the assignee can comply with the lease obligations. This will often involve an assessment of the assignee as a tenant. The landlord will thoroughly examine the information before confirming their consent to the transfer. This might include: 

• financial statements; 
• business history; and 
• professional references. 

Finally, there is usually an agreement about who is liable for the costs of the deed of assignment. The landlord’s lawyer usually prepares the agreement. However, the outgoing tenant or the incoming tenant pays these costs, not the landlord.

The deed of assignment usually requires the assignee to give the relevant security and guarantees.

The Outgoing Tenant

As the outgoing tenant, your key concern is to be released from your obligations under the lease from the assignment date. The deed of assignment can address this concern by specifying that:

• the tenant is released from any claims or liabilities under the lease from the assignment date (provided that there is not an existing breach of the lease); and
• if the tenant has provided any security, it is to be returned or refunded.

It is important for you to remember that you are bound to the terms of the lease until the transfer of the commercial lease is formalised through the deed of assignment. Accordingly, you should continue to comply with your obligations under the lease until the assignment date.

On that note, a landlord might not agree to release you entirely from your obligations if the retail legislation in your state does not prevent this. This means that if the new tenant defaults, you could be responsible for fulfilling the lease obligations. In that case, you would need guarantees or an indemnity from the new tenant.

If the transfer of deed has to be registered, typically with retail leases, you (the assignor) usually organise the registration of the transfer, whose costs are divided with the new tenant  (the assignee).

The Assignee

The new tenant’s, or the assignee’s, key concern is for the landlord to accept the transfer of the commercial lease from the assignment date. The deed of assignment can address this concern by providing that:

• the landlord accepts the assignee as tenant from the assignment date;
• the landlord will observe their obligations specified in the lease in favour of the assignee; and
• if required in the relevant state, the parties sign a transfer of lease form and register the transfer at the land titles office.

The assignee should ensure that they have reviewed the contents of the commercial lease (including the disclosure statement if it is a retail lease). Then, they must review the lease before signing the deed of assignment. This is because the assignee will need to comply with the obligations of the tenant from the assignment date. These obligations may include the provision of security and a personal guarantee.

A personal guarantee is taken on by an individual to guarantee the obligations of another individual or entity. For example, the assignee providing may provide a personal guarantee where a particular party becomes a guarantor. If you cannot meet your obligations (such as to pay the lease), then the guarantor will have to meet that obligation themselves.

Before finalising the deed of assignment, it is important that the landlord, assignor and assignee agree on who bears the costs of preparing, negotiating and registering the deed of assignment. Generally, you, as the assignee, will bear the costs. However, you may choose to add a cap or exclude negotiation costs. 

If the lease you are transferring is a retail lease, the tenant will typically need to give the assignee a disclosure statement. This statement also includes details of any changes to the disclosure statement that the landlord provided when the lease was first entered into.

The disclosure statement outlines the vital information that the assignee needs to know, including the:

• current annual rent under the lease;
• current estimated outgoings payable under the lease;
• term of the lease and any options to renew; and
• details of the premises. 

Generally, the tenant may request an updated disclosure statement from the landlord before the transfer of the commercial lease. The landlord has an obligation to provide the updated disclosure statement, usually within 14 days from the date of the request.

The disclosure statement requirements differ between the states and territories. For example, in:

• New South Wales, the assignee must receive the disclosure statement at least seven days before the date of the transfer; and
• Victoria and Queensland, the assignee must receive the disclosure statement at least seven days before the assignor requests the landlord’s consent.

The consequences of failing to provide a disclosure statement also differ between the states and territories. For example, the assignee may:

• withhold payment of rent;
• seek compensation from the landlord; or
• terminate the lease within a specific timeframe.

It is essential for all parties to be aware of the requirements and consequences of the disclosure statement provisions in their particular state or territory.

Additionally, transferring a lease may also lead to stamp duty implications . Stamp duty is a tax imposed on the purchase of assets and transactions of property. Therefore, if you are transferring a lease, you will commonly have to pay stamp duty. It is important that you are aware of the circumstances where you, as a tenant, will be required to pay stamp duty.

A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.

Whether you are a landlord, tenant or assignee, it is crucial that you understand your rights and obligations when transferring a commercial lease. Further, the transfer of a retail lease leads to additional requirements and consequences related to the disclosure statement. Finally, you need to be aware of the steps you should take to ensure a smooth assignment.

If you need assistance with drafting or reviewing the terms of a deed of assignment, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page .

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Assignment of Lease Explained

• December 1, 2023

Understanding the complexities surrounding the assignment of a lease is crucial for both tenants and landlords. Within the UK, various situations might compel a tenant to transfer their lease to another party. In this guide we will delve into the essentials, helping you understand every facet of a lease assignment.

What is an Assignment of Lease?

In the world of property management and real estate, the concept of an “assignment of lease” is fundamental. It involves a tenant, known as the assignor, transferring their entire legal interest in a property to another individual or entity, called the assignee. This process is common in both residential and commercial contexts and plays a significant role in maintaining the fluidity of property interests, especially in a dynamic market.

When a tenant signs a lease, they agree to specific commitments, including paying rent and maintaining the property, which are enforceable for a set period. However, various circumstances may prompt a tenant to vacate the property before the lease term expires. Herein lies the importance of the assignment of lease.

Through lease assignment, the original tenant can exit the property and pass on the responsibility to a third party, who then assumes the role of the tenant with all its incumbent responsibilities. It’s important to note that while the new tenant steps into the shoes of the original tenant, the lease terms remain unchanged.

For instance, if an individual rents a flat and later decides to move out before the lease’s expiration due to reasons such as relocating for a job or changing living situations, they may opt for an assignment of the lease. This strategy allows another person to take over the living space and adhere to the responsibilities under the original lease, ensuring that the flat does not remain unoccupied and the landlord continues to receive rent payments. This seamless transition can be especially beneficial in residential areas with high demand for housing, as it minimises financial instability for the landlord and provides immediate accommodation for those in need of a home.

Key Components of Lease Assignment

• Assignor and Assignee: The existing tenant (assignor) and the new tenant (assignee) are the primary parties in this agreement. Their willingness to transfer and assume the lease’s obligations, respectively, drives the assignment process.
• Landlord’s Role: While not a direct party to the assignment, the landlord plays a pivotal role. Most lease agreements stipulate that landlords must provide consent before any assignment takes place. This clause protects the landlord’s interests, ensuring the new tenant is reliable and meets the required standards.
• Legal Documentation: The process requires several legal documents, including the initial lease agreement and a deed of assignment. The latter must clearly articulate that all rights and responsibilities have been transferred to the new tenant. This precision prevents future disputes regarding the terms of the lease.
• Liabilities: The assignment of lease doesn’t inherently absolve the original tenant of responsibilities. Depending on the agreement’s terms, the assignor might remain liable if the assignee fails to fulfil the lease obligations. This potential continued liability underscores the importance of thorough assignee vetting.

The Legal Ground

The legality surrounding the assignment of a lease is rooted in UK property law. It necessitates compliance with various statutory requirements and often involves complex legal procedures. Consequently, parties usually engage solicitors to ensure that the assignment aligns with legal protocols, protecting the interests of all involved parties.

The assignment of a lease is a nuanced process, influenced by factors unique to each situation. Whether prompted by personal, business, or financial changes, lease assignments facilitate flexibility in property occupancy and use. Understanding this concept is crucial for tenants seeking an early exit from a lease, individuals looking for established lease properties, and landlords wishing to maintain continuous tenancy and income streams.

Understanding the Deed of Assignment of Tenancy

A “deed of assignment tenancy” is a legal document that evidences the transfer of lease obligations from the current tenant to another. It is an essential part of the lease assignment process, binding the new tenant to the terms stated in the original lease.

Landlord’s Checks Before Permitting Assignment of a Lease

The assignment of a lease, while beneficial in maintaining continuous occupancy and consistent rent payments, necessitates thorough due diligence on the part of the landlord. Before consenting to an assignment, it’s imperative for landlords to conduct comprehensive checks, mirroring the depth of evaluation done during the initial tenant screening process. These checks are crucial in mitigating potential risks and safeguarding the landlord’s investment.

Detailed Assessment of the Prospective Assignee

Landlords should ascertain the financial stability and reliability of the assignee. This assessment often involves:

• Credit Checks: This allows landlords to have a clearer understanding of the prospective assignee’s credit history, highlighting their ability to keep up with regular rent payments and financial commitments.
• Employment Verification: Landlords typically require proof of ongoing, stable employment. This verification helps ensure that the new tenant has a consistent income stream capable of covering the rent and other associated costs.
• References: Previous landlords or property managers can provide insights into the assignee’s behaviour, paying habits, and overall reliability. Personal references might also be necessary to form a more comprehensive view of the prospective tenant.

Review of the Assignee’s Intent

Understanding the prospective tenant’s reasons for seeking the property and their long-term intentions can provide reassurance. For instance, landlords should feel more comfortable knowing that the assignee plans to reside in the property for an extended period and doesn’t intend to sublet without permission or engage in unlawful activities.

Examination of Financial Documentation

Landlords may request documentation such as bank statements or savings accounts to further verify the assignee’s ability to afford the property. This scrutiny is particularly pertinent in higher-rent areas or for properties with higher maintenance costs.

Ensuring Contractual Compliance

It’s important for the landlord to confirm that the assignee understands and agrees to the terms set out in the original lease. The assignee must comply with all existing conditions, and any deviation needs to be negotiated with and approved by the landlord.

Legal Considerations

Given the legal complexities surrounding lease assignments, landlords often seek legal advice during this process. Lawyers can help ensure that the assignment adheres to local property laws, the original lease’s terms, and that the landlord’s interests are thoroughly protected throughout the transition.

By conducting these comprehensive checks, a landlord exercises due diligence, significantly reducing the likelihood of issues arising from the assignment of the lease. This meticulous approach helps maintain the property’s revenue stream, upholds community standards, and ensures the continued preservation and value of the property investment. It’s a proactive measure, providing the landlord with peace of mind that they are handing over their property to a reliable and responsible assignee.

Costs Involved in Lease Assignment

The process of lease assignment, while a practical solution for tenants looking to transfer their lease obligations, does entail various costs that both the assignor (original tenant) and assignee (new tenant) need to consider. These expenses contribute to a seamless transfer process, ensuring all legalities are properly managed, and all parties are adequately protected. Understanding these costs is essential as it prevents unexpected surprises and allows for a more transparent transaction.

Costs for the Assignor

• Advertising Costs: If the landlord does not immediately have a new tenant, the original tenant may need to advertise the property. This could involve online listings, printed materials, or hiring an estate agent to expedite the process, all of which incur costs.
• Tenant Screening Costs: The assignor might opt to conduct preliminary screenings of potential assignees, which include credit checks, reference checks, and other background investigations to ensure they’re presenting a reliable tenant to the landlord.
• Legal Fees: The legal intricacies of transferring a lease require the involvement of legal professionals. The assignor typically bears the cost for legal consultations, drafting the deed of assignment, and any related legal documentation.
• Landlord’s Administrative Fees: Some landlords charge an administrative fee for processing a lease assignment, covering the time and resources they expend to conduct their checks and modify their records.
• Potential Liability Costs: If the assignee fails to meet the lease obligations, and depending on the terms of the assignment, the original tenant may remain partially liable. This contingent liability could lead to future costs.

Costs for the Assignee

• Security Deposit: It’s standard practice for the new tenant to provide a security deposit before moving in. In some cases, the assignee reimburses the original tenant for the initial deposit, depending on its condition and any agreement between the parties.
• Advance Rent: The assignee may need to pay the first month’s rent in advance, similar to standard leasing arrangements.
• Legal Fees: Assignees also incur legal fees. They need legal counsel to review the terms of the lease, ensure the assignment is conducted correctly, and understand their new responsibilities and liabilities.
• Stamp Duty: Depending on the property’s value and the lease’s remaining duration, the assignee might need to pay Stamp Duty Land Tax (SDLT) on the premium or the rent of the lease.

Shared Costs

In some instances, both parties negotiate and equally share specific costs, such as those for legal consultations, to ensure fairness and mutual satisfaction in proceeding with the transaction.

Both assignors and assignees must factor in these expenses to accurately assess whether a lease assignment is a financially viable option. It is advisable to consult with real estate professionals and legal advisors to understand all potential charges fully. Having a clear, upfront understanding of these costs allows both parties to make informed decisions, ensuring a smooth, transparent, and fair transition process.

Does Assignment Create a New Tenancy?

No, an assignment does not create a new tenancy. It merely transfers the existing tenant’s rights and obligations to the new tenant, who then steps into the shoes of the original tenant under the same lease terms.

The Necessity of Legal Assistance

It is highly advisable to engage a solicitor during the assignment of a lease. A solicitor can provide necessary legal advice, prepare the deed of assignment of lease, and ensure compliance with various property and contract laws.

Deed of Assignment vs Tenancy Agreement

While they might sound similar, a deed of assignment is not the same as a tenancy agreement. The former refers to the document transferring existing lease rights to a new tenant, while the latter is a contract outlining the terms between a landlord and tenant for new occupancy.

Parties Involved in Signing the Deed of Assignment

The deed of assignment of lease is typically signed by the outgoing tenant, the incoming tenant, and sometimes, the landlord, especially when their consent is a prerequisite for the lease transfer.

Landlord’s Consent to Lease Assignment

A landlord can refuse to consent to assign a lease, but this refusal must be reasonable. Scenarios for justifiable refusal might include the prospective tenant’s inability to meet financial commitments or proposed use of the property that violates lease terms.

Lease Assignment vs Subletting

• Lease assignment involves the complete transfer of the tenant’s rights to another party.
• Subletting occurs when the tenant temporarily hands over the property rights to another party but retains some rights or eventually plans to return.

Financial Responsibilities in Lease Assignment

Typically, the outgoing tenant or the incoming tenant covers the costs related to the assignment of lease, such as legal fees, administrative charges, and any leasehold improvements. The specific arrangements may vary based on mutual agreements.

Assigning a Lease Without a Deed: Is It Possible?

No, a lease assignment must be evidenced by a deed to be legally binding. The deed of assignment tenancy is crucial as it protects the interests of all parties involved and provides legal clarity.

The Meaning of ‘Assignment’ in Rent Context

In the context of renting, ‘assignment’ refers to transferring the existing tenant’s lease obligations and rights to another party. The assignee assumes responsibility for rent payments and adherence to the lease terms.

Advantages of Assigning a Lease

There are several benefits associated with the assignment of a lease, including:

• Flexibility for the tenant needing to vacate the property before lease termination.
• Minimal interruption in rent payments for the landlord.
• Opportunity for another tenant to occupy the premises without having to negotiate a new lease.

Stamp Duty and Lease Assignment

Stamp duty on assignment of lease may apply depending on the premium paid and the lease’s yearly rent. It’s important to consult a solicitor to understand any potential tax implications.

Post-Assignment Liabilities for Tenants

After the assignment of a lease, the original tenant is generally released from future liabilities. However, they may remain liable if the new tenant defaults, depending on specific lease terms or if guarantees were provided.

Essential Documents for Lease Assignment

In the process of a lease assignment, several critical documents must be prepared, reviewed, and signed to ensure a legally binding transfer of rights and responsibilities from the original tenant (assignor) to the new tenant (assignee). These documents are crucial in defining the terms of the assignment, protecting the interests of all parties involved, and complying with legal standards. Here are the essential documents required for a successful lease assignment:

1. The Original Lease Agreement

• Before any transfer, all parties must review the original lease. It’s vital to understand any clauses or terms that could impact the assignment, such as conditions requiring the landlord’s consent for any lease transfer.
• The original lease agreement serves as the foundation for the assignment, outlining the terms and obligations that the assignee will need to adhere to.

2. Deed of Assignment of Lease

• This legal document formally transfers the lease obligations from the assignor to the assignee. It must clearly state the terms under which the lease is assigned, including any continuing liabilities of the assignor, if applicable.
• It should be comprehensive, detailing the rights and responsibilities of all parties and any guarantees provided by the assignor.
• The deed is usually drafted by a solicitor to ensure that it complies with legal standards and adequately protects everyone’s interests.

3. Landlord’s Consent to Assignment

• Most leases require the landlord’s formal approval for any assignment to occur. This document is the landlord’s written agreement, permitting the transfer from the current tenant to the new one.
• It may come with conditions the assignee must satisfy, which should be clearly outlined in the consent form.

4. Assignee’s Letter of Acceptance

• This document is proof that the assignee understands and agrees to the terms set out in the original lease and the deed of assignment.
• The letter may restate key lease terms for clarity and will affirm the assignee’s commitment to abide by all the lease conditions and responsibilities.

5. Legal Advisories

• Though not a formal part of the lease assignment, documentation of legal advice received by both the assignor and assignee (and possibly the landlord) is crucial.
• These advisories ensure each party has been informed of their legal rights and obligations, potentially offering protection in the event of future disputes.

6. Inventory List

• If relevant, an inventory list detailing the condition of the property, especially for furnished rentals, would be necessary. This document helps manage expectations and responsibilities concerning the property’s state and contents at the time of the assignment.

7. Proof of Assignee’s Financial Stability

• While not always formally part of the assignment documentation, evidence of the assignee’s ability to meet financial commitments (like bank statements or employment confirmation) often needs to be submitted to the landlord during the assignment process.

The process of assigning a lease is a complex legal transaction that requires strict adherence to procedural standards. These essential documents ensure that the assignment progresses smoothly, with clear understanding and agreement from all parties involved. Both assignor and assignee should seek legal counsel to ensure their interests are protected, and all documents are in order, further underscoring the importance of each document’s role in this pivotal real estate process.

Energy Performance Certificate (EPC) Requirements

Yes, an EPC is generally required for a lease assignment, especially if the building is to be sold or rented out. This certificate ensures that the property meets the necessary energy efficiency standards.

Registering an Assignment of Lease

Registration of an assignment of lease is crucial. It validates the change of tenant under the lease, making it legally binding and enforceable. This process usually involves submitting the deed of assignment to the appropriate land registry.

Timeframe for Assigning a Lease

Assigning a lease can take anywhere from a few weeks to several months, depending on factors like obtaining the landlord’s consent, the new tenant’s credibility, and the speed of legal processes.

Embracing the Benefits of Lease Assignment

Whether you’re a tenant seeking flexibility or a landlord desiring continued occupancy, lease assignment offers solutions that can cater to your individual needs, promoting ease and continuity in the leasing process.

If you’re considering a lease assignment, it’s paramount to seek professional advice to navigate the complexities involved. The information contained in this article should be used for information purposes only and should not be relied upon in place of specific legal advice.

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