Set 16 Conditions in Your Assignment Consent

If your lease's assignment clause is like most, it requires the tenant to get your written consent before it may assign its lease. But unless that consent includes certain conditions, you risk unintentionally giving up important lease rights and protections—such as your right to share any assignment profit or get reimbursed for your costs relating to the written consent (such as attorney's fees).

To avoid these and many other problems, clearly set out in the written consent 16 conditions under which you're authorizing the assignment, say Denver attorney Neil B. Oberfeld and New Jersey attorney Marc L. Ripp. Then make sure the tenant and assignee sign the written consent—so they agree to abide by it. (And if there's a lease guarantor, require the tenant to get him to acknowledge in the written consent that he agrees to be bound by the 16 conditions, too, says Oberfeld.) There's a Model Consent on pp. 3–4 that you can adapt and use that includes these conditions.

CONDITIONS FOR CONSENT

Make sure that your written consent, like our Model Consent, includes the following conditions:

* Tenant and Any Guarantor Stay on Hook for Lease Obligations

Say that the tenant and any guarantor remain on the hook for their lease obligations and liabilities—including rent—after the assignment takes effect, says Oberfeld [Consent, par. 1]. Otherwise, the tenant or the guarantor could argue that your consent to the assignment released them from their obligations and liabilities.

* Assignee Assumes Tenant's Lease Obligations

Make sure the assignee “assumes” and agrees to perform all of the tenant's lease obligations, says Oberfeld [Consent, par. 2]. When an assignee assumes a tenant's lease obligations, it creates a direct legal relationship with you, Ripp says. 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, Ripp warns.

Practical Pointer: Expect the assignee to want to limit its assumption to only the tenant's lease obligations arising on or after the date that the assignment takes effect, not those that arise before, notes Ripp.

* Assignee Takes Space in ‘As-Is' Condition

You don't want to get into any disputes with the assignee over the condition of the space, says Oberfeld. So have the assignee acknowledge that it has inspected the space and accepts it in its current “as-is” condition, he advises. Also, say that you haven't made any representations or promises regarding the condition of the space, he adds [Consent, par. 3]. Otherwise, you're vulnerable to claims by the assignee that you were required by the lease or by law to put the space in a certain condition, Oberfeld explains.

* Tenant Shares Assignment Profits

Even if the lease has a clause requiring the tenant to share any assignment profits with you, it's a good idea to refer to that clause and repeat that requirement in your written consent, says Oberfeld [Consent, par. 4]. This prevents a tenant from arguing that you released it from the assignment profit-sharing clause when you consented to the assignment, he says.

* Tenant and Assignee Give You Key Documents

Require the tenant to give you a copy of the document the tenant and assignee sign to confirm the terms of the assignment (typically called an “assignment and assumption” agreement), says Ripp. The tenant should give you this agreement soon—say, within five days—after all the parties sign the consent, says Oberfeld. This way, you'll have proof that the assignee has assumed the lease, that the assignment has occurred, and of what was agreed to. Also, require the assignee to give you proof that it has complied with the insurance requirements set out in the lease, says Ripp. For instance, it may be required to give you certified copies of its insurance policies, he notes. And get proof that the assignee paid its insurance premiums, he adds [Consent, par. 5].

* Assignment and Assumption Agreement Is Subordinate to Lease

Require the assignment and assumption agreement to be subordinate and subject to the lease, says Oberfeld [Consent, par. 2]. This way, the lease's provisions will always take priority and must be followed, even if they conflict with the assignment and assumption agreement's provisions.

* You Don't Consent to Assignment and Assumption Provisions

Make it clear in the written consent that while you're consenting to the lease being assigned to the assignee, you're not consenting to the assignment and assumption agreement's provisions, nor are you bound by them, says Oberfeld [Consent, par. 7(a)]. This way, you haven't waived your right to object to any action taken by the tenant or assignee that the assignment and assumption agreement may permit but the lease doesn't—such as a new use that's barred by the lease, he explains.

* You Don't Waive Your Lease Rights

Clarify that by signing the written consent, you're not agreeing to waive:

• Any lease provisions;

• Any lease default by the tenant;

• Your claims against the tenant; or

• Your rights as an owner under the lease [Consent, par. 7(b)].

You don't want the tenant or assignee to be able to argue that because you didn't reserve your rights and remedies against the tenant in the written consent, you're agreeing to waive them.

* Your Obligations or Assignee's Rights Don't Increase

Clarify also that by signing the written consent, you're not agreeing to increase: (1) any of your obligations as an owner; or (2) the assignee's rights and benefits beyond what it's entitled to by the lease, says Oberfeld [Consent, par. 7(b)]. This way, the assignee doesn't get a better deal under the lease than the tenant had.

* Separate Consent Required for Alterations, Future Assignments/Sublets

Let the parties know that you're not consenting to anything other than this one assignment, says Ripp. The written consent shouldn't be treated as a blanket consent to all future assignments and sublets. Rather, you're reserving your right to withhold consent to any future assignments and sublets by the assignee, as well as to any alterations that it might want to make to the space, he says [Consent, par. 7(c)]. Plus, the written consent shouldn't be treated as your consent to any amendment, modification, extension, or renewal of the lease, says Oberfeld [Consent, par. 12].

* You Don't Consent to Assignment of Documents

Say that by signing the written consent, you're not agreeing to let the assignee:

• Assign or mortgage the lease;

• Use the assignment and assumption agreement or lease as security for the loan [Consent, par. 7(d)]; or

• Assign your written consent to any other party [Clause, par. 12].

Otherwise, if the assignee gets financing to buy the lease and uses the lease as security for a loan, you could find yourself dealing with the lender (or, worse yet, a stranger that buys the lease at a foreclosure sale) as your tenant, warns Oberfeld.

* Tenant's Personal Rights or Options Terminate

If you granted any rights or options that were restricted to the tenant (that is, they're “personal” to the tenant)—such as an expansion or extension option—say they'll terminate when the assignment takes effect, says Oberfeld [Consent, par. 8]. Otherwise, the assignee will argue that it's still able to exercise these rights and options, too, warns Ripp.

* Security Deposit Stays with You

To avoid disputes over what happens to the tenant's security deposit, say that the tenant waives any right to the deposit and that you'll keep and apply the deposit in accordance with the lease, says Oberfeld. Then spell out when you'll release the security deposit to the assignee. Try to get the right to hold on to the deposit for a short time—say, 60 days—after the later of: (1) the expiration or earlier termination of the lease; or (2) the date that the assignee returns possession of the space to you, Ripp says. This should give you time to inspect the space carefully and see if the assignee damaged it in any way [Consent, par. 6].

Practical Pointer: Consider requiring the assignee to add more funds to the security deposit if you believe that the current amount won't adequately protect you, notes Ripp.

* Tenant and Assignee Indemnify You for Broker's Fees

Require both the tenant and assignee to “jointly and severally” indemnify you for all broker's fees and costs due or claimed to be due in connection with the assignment, says Ripp [Consent, par. 9]. “Jointly and severally” means that you can sue the parties separately or together. So, for example, if a broker for some reason claims that it's entitled to a fee from you for the assignment, you can demand reimbursement from both the tenant and assignee or either one of them, he explains.

* Tenant or Assignee Reimburses Your Attorney's Fees

Require either the tenant or the assignee to reimburse you for your attorney's fees for reviewing the assignment and assumption agreement and preparing and negotiating the written consent, says Oberfeld. The tenant or assignee should reimburse you for a set amount on or before the date you sign the written consent, he says [Consent, par. 10]. This should keep the tenant or assignee from dragging its feet on the reimbursement. It's up to them to sort out which of them is responsible.

* Assignee Gives You Its Contact Information

Require the assignee to give you its contact information so you'll know where to send notices required by the lease, says Ripp [Consent, par. 11].

Practical Pointer: Consider attaching a sample written consent to the lease as an exhibit and referring to that exhibit in the lease, says Ripp. This may avoid disputes later on, since the tenant will know ahead of time exactly which conditions are required for your consent, he explains. Also, as a precaution, require the tenant, assignee, and any guarantor to sign the written consent before you do, adds Ripp. If you sign it first, they may forget or deliberately fail to sign it, he explains.

CLLI Sources

Neil B. Oberfeld, Esq.: Shareholder, Isaacson, Rosenbaum, Woods & Levy, PC, 633 17th St., Ste. 2200, Denver, CO 80202; (303) 292-5656; noberfeld@irwl.com.

Marc L. Ripp, Esq.: Counsel, The Gale Co., LLC, 100 Campus Dr., Ste. 200, Florham Park, NJ 07932-1007; (973) 301-9500; mripp@thegalecompany.com.