Assignment & Subletting

What tenants should watch for

Who may take the space without consent

Permitted Transferees. Reserve a defined class of Permitted Transferees that do not require consent: (a) affiliates (entities controlling, controlled by, or under common control with tenant); (b) successors by merger, consolidation, or sale of all or substantially all assets or equity; (c) subsidiaries; (d) conversion or reorganization by operation of law.

Change of Control. Define narrowly. A "Change of Control" should mean a transfer of more than fifty percent (50%) of the voting equity of tenant to a person not previously an equity holder, excluding (i) transfers of publicly traded securities; (ii) transfers in connection with an initial public offering; (iii) intra-affiliate transfers; (iv) estate-planning transfers; and (v) employee equity issuances under approved equity plans.

Successor Corporation mechanics. The landlord bar’s published compromise permits consent-free assignment to a defined “Successor Corporation” upon not less than ten (10) business days’ prior notice (or notice within five (5) days after closing where law or the transaction terms prohibit advance notice), no default beyond applicable cure periods, and a successor net worth, determined in accordance with GAAP, at least equal to Tenant’s; the model language makes the recapture and profit-sharing sections expressly inapplicable to such transfers. Replicate each feature in the Permitted Transferee clause: the post-closing notice alternative for confidential M&A transactions, and an express statement that recapture and excess-rent sharing do not apply to any Permitted Transfer. The same source endorses a tenant “Vitiating Notice” right to withdraw a transfer request before Landlord’s recapture election takes effect, which reinforces the notice-and-withdrawal mechanic described above.

Release of assignor and guarantor. The originally named tenant remains liable after assignment absent an express release. Negotiate a release of the assignor and any guarantor upon assignment to a qualified transferee; at a minimum, provide that if Landlord and the assignee later modify or extend the Lease, the unreleased assignor’s and guarantor’s liability shall not exceed what it would have been under the original Lease, and require notice of any assignee default with an opportunity to cure.

The consent process

Consent standard. Push for a "not to be unreasonably withheld, conditioned, or delayed" standard, with objective criteria limiting what landlord may consider (financial condition, operating experience, compliance with use restrictions). Resist "sole and absolute discretion"; courts in many jurisdictions read good-faith limits into consent standards even where express, but a clear contract is the safer course.

Response window and deemed consent. Demand a fifteen (15) business-day response window with deemed-consent if landlord fails to respond. Tenant’s consent package should specify what information is "reasonably required" (financial statements, business plan, intended use, identity of principals).

Consent form and consent conditions. Attach the required form of landlord consent as a lease exhibit so that Landlord cannot impose new conditions at the consent stage, and bar Landlord from conditioning consent on an increase in rent, an increase in the security deposit, or delivery of a new guaranty. Strike any criterion permitting Landlord to withhold consent because the proposed sublease rent is below Landlord’s asking rent for other space; Tenant remains liable for the full rent regardless of the subrent.

Cure of underlying lease defaults. Assignment or sublease should not extinguish tenant’s right to cure landlord defaults; reserve the right to step in.

Cure right for prohibited transfers. Require notice and an opportunity to cure a transfer made in violation of the clause (including cure by rescission of the transfer) so that an inadvertent transfer does not become an incurable default.

Recapture and the price of consent

Recapture and termination. Resist recapture of the lease. If conceded, limit to recapture of the subleased portion only, exercisable only on subletting (not assignment), with a notice-and-objection mechanic that allows tenant to withdraw its consent request rather than face recapture.

Recapture mechanics. If a recapture right is conceded, require reimbursement of the unamortized cost of Tenant’s improvements, furniture, and equipment upon recapture, and negotiate a deviation tolerance so that a waived recapture right does not revive unless the final transaction economics deviate materially (for example, by more than three percent (3%)) from the terms stated in Tenant’s marketing notice.

Excess rent. Tenant should keep all proceeds from a sublease or assignment. If conceded, share excess only above tenant’s actual costs of the transfer (broker commissions, free rent, TI allowance amortized over the sublease term) and only at 50% of net excess.

Profit-sharing computation traps. Current landlord-form profit-sharing clauses define “Excess Sublease Rent” to capture disguised consideration: amounts paid for Tenant’s fixtures, leasehold improvements, equipment, and personal property in excess of the net unamortized or undepreciated cost shown on Tenant’s federal income tax returns, and charges for services provided to the subtenant in excess of fair market value, and grant Landlord the right to audit Tenant’s books, records, and federal income tax returns. Landlord counsel likewise negotiates to narrow each category of Tenant’s deductible transaction costs on an assignment (transaction fees, personal property transfers, alteration costs). Tenant counters: strike any tax-return disclosure or open-ended audit right; preserve the full slate of deductible costs, amortized over the transfer term; and compute any shared profit net of all actual transaction costs.