Commercial Lease Assignments vs. Termination

by | November 19, 2008

Commercial leases are typically written to allow for assignment or subletting with the consent of the landlord. Landlords, though, often elect to terminate a lease and draft a new lease with the new business tenant rather than accept the assignment. This is often much better for the business trying to get out of the lease, too. An assignment does not relieve the initial tenant of its obligations under the lease. It assigns or transfers the responsibility to a new tenant but does not remove the original tenant from the lease. It also typically does not remove any personal guarantees signed by the original tenant. So in the case of an assignment, the original tenant remains on the hook if the assignee fails to pay or otherwise defaults. The landlord then has the right to go after anyone and everyone on the lease to get payment. So why would the landlord want to start over with a new lease if they have more people to puruse under the assignment? The landlord may be able to get a higher rate on the rent by renegotiating from scratch. There may also be significant differences in the lease provisions if the business use has changed — a restaurant will have different requirements than a retail store or office space so the lease as originally negotiated may not suffice. Finally, it’s often simpler to manage the parties with fewer of them. They also want the owners of the business in the space to be driven to succeed which is their primary reasoning for requiring the personal guaranty. A landlord recently commented: “I want the business owner to lay awake at night trying to figure out how to make the business work — the personal guaranty does that.”