What to Do When a Tenant Is Selling Their Business or Shutting Down and Assigning to a New Tenant: Key Landlord Lease Assignment Consent Considerations

When a tenant decides to sell their business or shut down operations, the lease they hold often becomes a valuable asset—one that may be assigned to a buyer or replacement tenant. For landlords, this is a critical juncture that requires careful legal and business review. Here are ten essential considerations to guide landlords through the lease assignment process:

1. Review Assignment Provisions in the Existing Lease.
Assignment clauses often dictate whether landlord consent is needed or if other fees and conditions apply. Some leases even treat ownership changes as assignments.

2. Determine Whether a Lease Amendment Is Necessary.
Even if landlord consents to the assignment, it is important to evaluate necessity of amendment, especially if certain concessions or incentives, like tenant improvement (TI) allowances or free rent, don’t apply to the new tenant. Non-transferable rights such as parking or signage licenses may also need to be eliminated.

3. Evaluate the Creditworthiness of the Assignee.
A landlord should always assess the financial health of the proposed new tenant. Reviewing financials, business history, and operational strength are required to ensure a weak replacement doesn’t lead to default and disruption. Due diligence is a must!

4. Consider the Need for Additional Security.
If the assignee lacks the credit strength of the original tenant, landlords can request added protection. This might include a personal guaranty, increased deposit, or letter of credit.

5. Review Use Restrictions.
Ensure the assignee’s business use is compliant with the lease’s permitted use clause. Even similar businesses may not fall within the existing permitted use. Raising concerns around noise, traffic, or zoning is crucial.

6. Check for Conflicts with Exclusive Use Rights.
Before approving a new tenant, landlords must confirm the proposed use doesn’t violate any exclusive use clauses granted to existing tenants, or that the new tenant’s lease does not include exclusives that conflict with existing tenants. Infringing another tenant’s exclusivity can lead to legal and financial consequences.

7. Use the Opportunity to Renegotiate Lease Terms.
If the lease permits, or if consent cannot be unreasonably withheld, landlords may still use this moment to negotiate better business terms such as increased rent, lease extension, or updated operating covenants. Advisors like brokers can provide valuable insight in this area.

Lease assignments offer landlords both risk and opportunity. With the right approach - thorough review, proper documentation, and strategic negotiation - landlords can ensure the new tenant is a strong fit while protecting the long-term value of their asset.

If you have any questions or concerns about the lease assignment process, please feel free reach out to the attorneys at Holmquist & Gardiner, PLLC.