Require Assignee to Assume Tenant's Lease Obligations
To protect your interests and your finances, you want to keep as many parties on the hook for the tenant's lease obligations as possible, especially when a tenant wants to assign its lease. But if you're negotiating with a strong tenant, you may find yourself working with its lease form—and its assignment terms. And that means the lease may be missing certain key owner protections.
A glaring omission we've seen in many tenants' lease forms is that they don't require the tenant to make the assignee assume all of the tenant's lease obligations. Without this assumption requirement, the tenant will have an easier time finding an assignee because the assignee will know that it won't be on the hook to you for all of the tenant's lease obligations. But you've lost key protection if any of the tenant's lease obligations are violated—you won't have the choice of taking action against the tenant or assignee, or both.
How to Make Assignee Liable
To protect yourself, have the lease say that the tenant must have the assignee assume and perform all of the tenant's lease obligations, advises Denver attorney Mark A. Senn. When an assignee assumes the tenant's lease obligations, it creates a direct legal relationship with you, he says. In legal terms, this relationship is referred to as “privity of contract.” This relationship gives you the right to enforce all of the lease's provisions against the assignee as if it had signed the lease as the tenant, he explains. Without this assumption requirement, you have far fewer rights against the assignee.
An assignee typically assumes a lease in a separate document known as an “assignment and assumption agreement,” Senn notes.
Add Lease Language
To add the assumption requirement to the tenant's lease form, have the assignment clause say that you won't consent to an assignment unless you first get an assignment and assumption agreement signed by the tenant and the assignee, advises Senn. You should also require the terms of the assignment and assumption agreement to be in a form acceptable to you, he adds. This way, you won't be forced to accept an agreement that doesn't properly protect your interests, he explains.
Model Lease Language
Landlord's consent to an assignment will not be effective until:
(x) Landlord has received a written instrument in a form acceptable to Landlord in which the assignee has assumed and agreed to perform all of Tenant's obligations in the Lease (“Assignment and Assumption Agreement”).
Practical Pointer: A savvy tenant may try to limit the assignee's assumption to only those lease obligations that accrue after the date of the assignment, says Senn. Although it's best to avoid that limitation, you may have to give in on this point if the tenant has a lot of negotiating power, he says.
Keep Tenant on the Hook
Also, add language to the assignment clause in the tenant's lease form to make sure that the tenant stays on the hook. Say that your acceptance of the assignment and assumption agreement won't release the tenant from its obligation to pay rent and perform its lease obligations, suggests Senn. Also say that the tenant and its assignee will be “jointly and severally” liable for paying the rent and performing the tenant's lease obligations, he adds. That means that you've got the flexibility to sue the assignee alone, the tenant alone, or both at the same time for the nonpayment of rent or any other lease violations, he explains.
Model Lease Language
Landlord's consent to an assignment and acceptance of the Assignment and Assumption Agreement will not release Tenant from the payment and performance of its obligations in the Lease, but rather Tenant and its assignee will be jointly and severally liable for such payment and performance.
CLLI Sources
Mark A. Senn, Esq.: Member, Senn Visciano Kirschenbaum, PC, 1801 California St., Ste. 4300, Denver, CO 80202; (303) 298-1122; msenn@sennlaw.com.