If a tenant wants to leave their premises before the vacation date specified in their lease agreement, they can assign (i.e. transfer) or sub-let the shopfront.
By assigning or sub-letting the lease to a third party, tenants can leave the property without breaking the terms of their lease or paying two sets of rent. Assignment and subletting appear similar as they both rely on a third party taking over premises. But there are some key differences between the two.
We set these out below to help tenants decide which is better suited to their needs.
When is a Sub-let Used Instead of an Assignment?
A sub-let is when an existing tenant leases out all or part of their premises to a third party. However, the original tenant is still liable under the lease. You can read more about subleasing in our article, ‘I’m Sub-letting a Property. What Do I Need to Know?‘
An assignment, on the other hand, is when a tenant transfers their lease to someone else. The tenant is then no longer responsible under the original lease from the assignment date. Tenants more commonly assign the property when selling the business and sublease when the business has additional space they want to lease out. Importantly, a tenant requires the consent of the landlord to assign or sublet the property.
Should I Sub-let or Assign My Lease?
The answer depends on the circumstances of the parties’ transaction. For instance, a tenant may choose to sub-let if they are simply looking to rent out additional space to recoup costs or increase profit margins but want to remain as a tenant.
If, however, a tenant wants to end the lease early and vacate their business’ premises entirely, an assignment is likely a preferable option. An assignment transfers the obligations under the original lease to the new tenant (the assignee), placing them in the shoes of the old tenant. Both parties usually enter into a transfer of lease and deed of consent to assign the lease with the landlord and each other.
Sub-letting also creates a new series of obligations for head-tenants who act, essentially, as landlords. The head-tenant will require the sub-tenant to indemnify the tenant and landlord for their use of the property. Parties will effect this by entering into a formal sub-let with the landlord’s consent.
Assigning a lease and sub-letting are two options for tenants wanting to leave the premises before their lease ends.
Sub-letting involves a tenant leasing out all or part of their premises to a third party. Under a sub-letting agreement, the rights and obligations created under the initial lease remain in force.
An assignment involves transferring the lease from one party to another. After the assignment date, a tenant’s rights and obligations no longer exist. Tenants looking to vacate their premises entirely should, where possible, assign their lease as it gives rise to fewer liabilities and duties.
Question: What is the difference between assignment and subletting?Answer:
Assignment and subletting occur in instances when an existing lessee (tenant) wishes to abandon his lease before the date specified in the lease agreement.
An assignment of a lease is the transfer of the entire property and giving over of proprietary rights under the lease to a new tenant. A sublease only transfers a part of the interest in the property. So when you assign a lease you give up your rights in relation to the property and the lease, when subletting you retain these rights and share them with the sublessee.
A sublease can apply to a physical part of the property, or for a period of time within the existing lease. This might happen when an existing tenant, the ‘head tenant’, wishes to rent out a part of the property such as a room or a basement to another person, the ‘sub-tenant’, without giving up the entire property, OR if they wish to rent out the entire property for a period of time within their fixed-term lease. The sub-tenant treats the head tenant as their landlord, as the head tenant retains his tenancy agreement with the actual landlord and assumes liability on behalf of the sub-tenant for any loss or damage they may cause.
You will need the consent of the landlord in order to assign lease or sublet – before you do so, speak directly with your landlord or consult a leasing lawyer.
Answered by Emma Jervis
Emma is an experienced franchise lawyer and litigator who has successfully helped many clients achieve commercial and workable solutions to their legal problems. With over 10 years legal experience, Emma has run many cases in all tiers of the NSW Court system and Family Court of Australia, as well as having many years experience in advising clients of their legal rights in both the commercial and family law spheres. Emma is also experienced in drafting a range of documents, including franchise documents and complex commercial contracts.