Most commercial real estate practitioners in Scotland will be familiar with the assignation of a whole lease. When a tenant wishes to transfer its interest in a lease, the lease can be assigned to a new tenant; the new tenant assumes the rights and obligations of the outgoing tenant under the Lease. Subject to any requirement for the landlord to consent to the transfer, the lease continues in force with the incoming tenant.
Far less common, however, is the assignation of part of a lease. It is a route that has been regarded with caution, but it may provide a practical solution and allow part of leased property to be transferred. As leasing arrangements become complex and occupier requirements more varied, this is a topic which commercial property lawyers may encounter more frequently than expected.
What is a partial assignation?
A partial assignation occurs where a tenant transfers its interest in part only of the subjects comprised within a lease, while retaining the remainder of the lease interest.
Unlike assignation of the whole lease, where the whole tenant's interest passes to a new tenant, a partial assignation effectively divides the lease interests between the existing tenant and the incoming assignee i.e., the part being assigned; and the remainder retained by the original tenant.
This is different from a sublease. In a sublease, the original tenant remains the tenant under the head lease and bound to the landlord for paying the sums due under the head lease and performing all the lease obligations. The tenant is merely granting a secondary lease (“sub-lease”) to another party (“sub-tenant”) and permitting the sub-tenant occupation of the property in the tenant’s place. The sub-lease is generally on the same terms as the head lease, and the tenant remains on the hook for any breaches.
Why are partial assignations uncommon?
Many commercial leases prohibit partial assignation completely. Where the lease permits assignation with landlord's consent, the provision often contemplates the transfer of the whole lease rather than part of it. A partial assignation can be complicated – a partial assignation is not merely a standard assignation with a plan attached!
There are drafting difficulties with partial assignations which can include:
- Rent apportionment.
- Service charge liabilities require to be divided.
- Repairing obligations need to be allocated.
- Insurance arrangements may need adjustment.
- Rights of access and use should be considered.
- Land registration issues can arise where the lease is registered.
Without clear drafting, disputes can arise between the original tenant and the assignee. In response to these challenges, parties often agree that a renunciation/new lease, minute of variation or sublease may provide simpler and more practical routes.
When might a partial assignation be useful?
Despite the challenges, there are circumstances where a partial assignation may be an appropriate solution. Examples can include: -
- Industrial estates; a tenant occupying several units under a single lease may wish to dispose of only one unit while retaining occupation of the others; similarly, a tenant occupying two floors of an office building may decide to relinquish one of the floors; and
- Group reorganisations; within corporate groups, part of an estate lease may be transferred to a different group company as part of a restructuring exercise.
Is partial assignation permitted?
The starting point is always the lease itself. The assignation provisions should be reviewed carefully to establish:
- whether assignation is permitted;
- whether landlord's consent is required;
- whether partial assignation is expressly prohibited; and
- whether any conditions must be satisfied before consent is granted.
Landlord engagement at an early stage is important. Landlords need to understand:
- who will be responsible for rent payments;
- how obligations will be divided;
- whether apportionment creates greater management burdens; and
- whether the covenant of the incoming assignee is satisfactory.
Registration issues
Where the tenant's interest is registered in the Land Register, specific registration considerations may arise. Plans must clearly identify the area being assigned, and any variation to the lease will require careful handling to ensure the interests are accurately reflected in the Land Register.
Considering a partial assignation?
If you are considering assigning all or part of a commercial lease, it is important to understand the legal, practical and registration issues before deciding on the best approach. Contact a member of our Commercial Real Estate team for advice on the options available and the most appropriate structure for your circumstances.
