My tenant has just told me that they are selling their business – what do I need to do?

This is a question I often get asked by clients who are landlords of commercial property, and I’ve jotted down below some of the key things to consider:

Has the tenant actually made a formal application for consent to assign?

A tenant selling their business is likely to approach their landlord for consent to assign (transfer) the lease, but often this is just a conversation or even a text message.

To start the clock ticking on a landlord’s obligation to respond, the application should be made in writing and include relevant information about the proposed assignee.

Has the tenant provided financial information about the proposed assignee?

Given that the proposed assigned would be your tenant, you need to investigate their
covenant strength in the same way as if you were granting a new lease to them.

Documents we would expect to see so that you can assess the performance of the proposed assignee include, for example:

– A business plan;
– Business accounts for the past 3 years;
– A reference from a supplier, or bank manager.

Has an undertaking for the landlord’s fees been provided?

It is generally a standard term of a commercial lease that the tenant would be responsible for the reasonable landlord’s legal and surveyor’s fees, so once we have given an estimate of those, it is reasonable not to carry out any substantive work until that costs guarantee (known as a solicitor’s undertaking) has been received.

What additional security has been offered?

Given that the assignee would be taking on the tenant’s obligations under the original lease, it may be appropriate to ask for additional security, particularly if the lease allows for this.

This could include:

– an Authorised Guarantee Agreement (“AGA”) from the outgoing tenant;
– A rent deposit from the incoming tenant;
– If the proposed assignee is a company, a personal guarantee from one of the Directors of
the company.

Landlords are generally obliged to respond to a tenant’s request for consent to assign, but that doesn’t mean that a snap decision has to be made without considering all of the options.

This is where mfg Solicitors LLP can help, so for any assistance in landlord and tenant matters, please do get in touch by emailing emma.chater@mfgsolicitors.com, or giving us a call on 0845 55 55 321.