Assigning a commercial lease: consent, guarantees and the steps

Assignment or subletting

There are two ways to pass business premises to somebody else during the term of a lease, and they leave you in very different positions.

An assignment transfers the lease itself. The assignee steps into your shoes as tenant, pays rent to the landlord directly and takes on every obligation in the lease. Whether you keep any liability afterwards depends on when the lease was granted and on what the landlord requires as a condition of consent, which is the subject of most of this guide.

A sublease creates a new lease out of yours. You remain the landlord's tenant, with every obligation intact, and become the subtenant's landlord. The subtenant pays you and you pay the landlord. If the subtenant stops paying, the landlord still looks to you. A sublease is the only option where you want to pass on part of the premises. It can also be the right one where you may want the space back before the term ends.

Most leases allow assignment of the whole with consent and forbid assignment of part. Subletting is often allowed on stricter terms, sometimes only of the whole, at a rent no lower than the market rent, and with the sublease contracted out of the renewal rights in the Landlord and Tenant Act 1954.

What the alienation clause allows

The clause dealing with assignment, subletting, charging and sharing is called the alienation clause. Read it before anything else, because it sets the starting point.

An absolute prohibition means no assignment at all, and the landlord can refuse for any reason or none. That is rare in a lease of any length and, where it appears, the tenant's only route is to ask for a variation or a surrender.

A qualified covenant allows assignment with the landlord's consent. This is the usual form, and it is where the statutory protection applies.

Leases granted since 1996 often contain a list of circumstances in which the landlord may refuse consent and conditions on which it may be given: that there are no arrears, that the assignee meets a stated financial test, that the outgoing tenant gives an authorised guarantee agreement. Section 19(1A) of the Landlord and Tenant Act 1927 allows those lists in leases of business premises, and a landlord acting under one is not treated as unreasonable. The RICS Code for leasing business premises, which most institutional landlords follow, says such circumstances should be reasonable and appropriate and gives arrears and insufficient financial strength as examples.

Consent not to be unreasonably withheld

Section 19(1)(a) of the Landlord and Tenant Act 1927 reads into every qualified covenant a proviso that consent is not to be unreasonably withheld. It applies whether or not the lease says so. The same subsection preserves the landlord's right to be paid its reasonable legal and other expenses of dealing with the application.

What is reasonable turns on the facts, but the pattern from the cases is consistent. A landlord may refuse because the proposed assignee cannot show it can pay the rent, because the assignee's use would breach the lease or damage the landlord's investment, or because there are existing breaches that ought to be cured first. A landlord may not refuse for reasons unconnected with the relationship of landlord and tenant, such as wanting the premises back to relet at a higher rent, or to secure some collateral advantage. A landlord may attach conditions, and those conditions must themselves be reasonable.

The assignee's covenant strength is where most arguments happen. Three years' accounts, references and a guarantor or rent deposit are the usual answer, and a tenant proposing a newly formed company with no trading history should expect to be asked for a guarantee from the people behind it.

The landlord's duties under the 1988 Act

The 1927 Act said consent could not be unreasonably withheld and then gave the tenant nothing to enforce it with. The Landlord and Tenant Act 1988 supplied the mechanism.

Section 1 imposes duties on a landlord who receives a written application for consent. The landlord must, within a reasonable time, give consent unless it is reasonable not to, and serve written notice of its decision. If consent is given subject to conditions the notice must state them; if it is refused the notice must state the reasons. The section also puts the burden of proof on the landlord: it is for the landlord to show that any refusal was reasonable, that any condition was reasonable, and that the decision was given within a reasonable time.

A landlord who sits on an application, or who refuses without proper reasons, is in breach of statutory duty and liable in damages, which can include the tenant's losses from a collapsed assignment. That gives a tenant real leverage. The application should be in writing, should be addressed as the lease requires, and should enclose enough about the assignee for the landlord to make a decision, because the reasonable time only starts running once the landlord has what it needs.

Authorised guarantee agreements

The Landlord and Tenant (Covenants) Act 1995 changed what happens to an outgoing tenant. For a new tenancy, which section 1 defines as one granted on or after 1 January 1996 other than under an earlier agreement, option or court order, section 5 releases the tenant from the tenant covenants when the whole of the premises is assigned.

In exchange the landlord got the authorised guarantee agreement, or AGA. Section 16 allows a landlord, as a condition of consent to an assignment that requires consent, to require the outgoing tenant to guarantee the assignee's performance of the lease. The guarantee can make the outgoing tenant liable as principal debtor, and can require the outgoing tenant to take a new lease if the assignee's lease is disclaimed on insolvency.

Section 16 also limits what an AGA can do. It cannot require the outgoing tenant to guarantee anyone other than the immediate assignee, and it cannot extend beyond the point at which that assignee is itself released, which is normally the next assignment. So the exposure is to one person, for as long as that person holds the lease.

Whether the landlord can demand an AGA in every case depends on the lease. Where the alienation clause says an AGA is a condition of consent, the landlord can require one. Where it says an AGA may be required "if reasonable", or says nothing, the landlord has to justify it, and a tenant assigning to a plainly stronger covenant has a good argument against giving one. The RICS Code says leases should provide for an AGA only where the landlord reasonably requires it.

Leases granted before 1996

A lease granted before 1 January 1996 works on the older rule. The original tenant contracted with the landlord for the whole term, and assignment does not release it. If a later assignee defaults ten years on, the landlord can pursue the original tenant, who may have forgotten the lease existed.

Section 17 of the 1995 Act, which applies to old leases as well as new, softens this in one respect. A former tenant, or a former tenant's guarantor, is not liable for rent, service charge or any other fixed charge unless the landlord serves a notice within six months of the sum falling due, stating the amount and that it intends to recover it. A landlord who lets arrears build for a year and then turns to the former tenant can recover only the six months covered by notices served in time.

An outgoing tenant under an old lease should therefore keep a record of the assignment, take an indemnity from the assignee, and keep the landlord informed of an address for service, since the section 17 notice is only useful if it arrives.

The licence to assign and its cost

Consent is documented in a licence to assign, a short deed between landlord, outgoing tenant and assignee, with any guarantor joined. It records the consent, the AGA where one is required, the assignee's direct covenant with the landlord to perform the lease, and any conditions.

The tenant pays the landlord's reasonable costs of dealing with the application, including its solicitor's and surveyor's fees, whether or not consent is given, because section 19(1)(a) preserves that right and the lease almost always repeats it. Ask for an estimate at the outset and for an undertaking to be limited to that figure. Beyond that there are the tenant's own legal costs, the assignee's, the fee for registration and any stamp duty land tax on a premium.

The assignment itself is a separate deed, in HM Land Registry form TR1 for a registered lease, completed on the same day as the licence.

Registering the assignment

Under section 27 of the Land Registration Act 2002 a disposition of a registered estate does not operate at law until it is registered. HM Land Registry's practice guide on leases says that most transfers of registered leases, whatever the length of term remaining, are compulsorily registrable. So if the lease has its own title number, the assignee must be registered as proprietor before it holds the legal estate.

If the lease is unregistered, the position depends on how long is left. An assignment of an unregistered lease with more than seven years to run triggers first registration, and the application must be made within two months of the deed. A lease with seven years or fewer left can be assigned without registration, though the assignee should still give the landlord notice of the assignment where the lease requires it.

An assignee that fails to register holds only an equitable interest, cannot be sure of its priority against later dealings, and will find the position expensive to unpick when it comes to assign in turn.

Stamp duty land tax on an assignment is charged on any price paid for the lease at the same rates as a purchase of freehold non-residential property, and a return is required where the price is £40,000 or more.

The practical steps

Start with the lease. Check the alienation clause, any listed conditions, what the landlord's costs provision says, whether there is a guarantor who has to consent, and whether the lease is registered.

Find the assignee and gather what the landlord will ask for: accounts, references, a business plan where the assignee is new, and details of any proposed guarantor. A weak package produces a slow or negative answer and starts the reasonable time later.

Apply in writing to the landlord at the address the lease specifies, enclosing the package and asking for the landlord's estimate of costs. If there is a superior landlord whose consent is also required, the immediate landlord has to pass the application up, and the 1988 Act applies to each.

Negotiate the licence. Resist an AGA where the lease does not make it a condition and the assignee is a stronger covenant. Check that any guarantor's release is dealt with. Make sure the assignee's direct covenant is limited as the lease allows.

Complete the licence and the transfer together, apportion rent and service charge to the completion date, hand over the rent deposit or arrange a replacement, and give notice of assignment to the landlord and any insurer as the lease requires.

Register the transfer within two months where registration is required, and keep a copy of everything. An outgoing tenant who remains exposed under an AGA or an old lease should diary the position and keep an address on file with the landlord. Our guide to commercial leases covers the assignment clause at the point of negotiating a new lease, which is the cheapest time to get it right.

Frequently asked questions

Can a landlord refuse consent to assign a commercial lease?

Only for a reason that is reasonable, unless the lease contains an absolute bar. Section 19(1) of the Landlord and Tenant Act 1927 makes every qualified covenant subject to a proviso that consent is not to be unreasonably withheld. A landlord can refuse where the assignee cannot show it will pay the rent, where its use would breach the lease, or where existing breaches need curing first, and cannot refuse in order to get the premises back or for an unconnected advantage.

How long does a landlord have to respond to a request for consent?

A reasonable time, under section 1 of the Landlord and Tenant Act 1988. The Act does not fix a number of days. Time runs from a written application with enough information for the landlord to decide, so a full package of accounts, references and guarantor details starts the clock sooner. The landlord must give written reasons for any refusal, and it is for the landlord to prove that the decision was reasonable and made within a reasonable time.

What is an authorised guarantee agreement?

It is a guarantee the outgoing tenant gives the landlord, as a condition of consent to assign, covering the immediate assignee's performance of the lease. Section 16 of the Landlord and Tenant (Covenants) Act 1995 permits it for leases granted on or after 1 January 1996, and limits it: the outgoing tenant cannot be made to guarantee anyone other than that assignee, and the guarantee ends when the assignee is itself released, usually on the next assignment.

Am I still liable after I assign my lease?

For a lease granted on or after 1 January 1996 you are released from the tenant covenants on assignment of the whole, except under any authorised guarantee agreement you give for your immediate assignee. For a lease granted before 1996 you remain liable for the whole term as original tenant. In both cases section 17 of the 1995 Act means a landlord can only recover rent or other fixed charges from a former tenant if it serves notice within six months of the sum falling due.

Who pays the landlord's costs on an assignment?

The tenant, in almost every case. Section 19(1)(a) of the Landlord and Tenant Act 1927 preserves the landlord's right to reasonable legal and other expenses of dealing with the application, and the lease usually repeats it. Ask for an estimate when applying and offer an undertaking capped at that figure. The tenant also pays its own solicitor, the registration fee and any stamp duty land tax on a premium paid for the lease.

Does an assignment have to be registered at the Land Registry?

Yes if the lease is registered, whatever the term remaining, and yes if it is an unregistered lease with more than seven years to run, which triggers first registration within two months. Under section 27 of the Land Registration Act 2002 the transfer does not take effect at law until it is registered. An unregistered lease with seven years or fewer left can be assigned without registration, though notice to the landlord is still normally required.

Is it better to assign or sublet?

Assign if you want a clean exit, because the assignee becomes the landlord's tenant and, for a post-1996 lease, you are released apart from any authorised guarantee agreement. Sublet if you only want to pass on part of the premises, if the lease forbids assignment, or if you may want the space back before the term ends. A subtenant pays you and you remain fully liable to the landlord, so a sublease keeps the risk with you.

Sources & further reading

• Landlord and Tenant Act 1927, section 19
• Landlord and Tenant Act 1988, section 1
• Landlord and Tenant (Covenants) Act 1995, section 5
• Landlord and Tenant (Covenants) Act 1995, section 16
• Landlord and Tenant (Covenants) Act 1995, section 17
• Land Registration Act 2002, section 27
• HM Land Registry practice guide 25: leases, when to register
• RICS Code for leasing business premises, 1st edition

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 22 September 2026. AD Solicitors Limited is a recognised body regulated by the SRA (no. 8011228).