Difference Between Assignment And Subletting Ukiah

You are free to agree on what you want. California law on transfers is fairly straightforward. The general rule is that unless illegal or unconscionable, whatever the parties agree on in the lease regarding transfers will be enforceable. A lease may prohibit transfers altogether or permit transfers subject to specified conditions, the most common condition being that a landlord consent to transfer before it is made.

If you are silent, rules will be implied. The only time standards are implied into a lease is when the lease is silent, in which case: (1) if the lease is silent on transfers altogether and neither prohibits nor permits them, then a tenant may freely transfer the lease; and (2) if the lease requires the landlord's consent, but does not specify the standard that applies to such consent, then the landlord's consent must be reasonable.

If you are unclear, what you say will be interpreted as narrowly as possible. If any restriction is particularly important to a landlord, the landlord needs to make that restriction crystal clear because courts are required to interpret any ambiguity in favor of transferability. In other words, if a lease does not expressly impose a condition on a transfer, a court will not read it in, and if a restriction is unclear, it will be interpreted as narrowly as possible.  

All of these rules and the others noted below are found in Sections 1995.010-1995.340 of the California Civil Code. (Note that there is one exception to the general rules above, which is that if your lease was entered into on or before September 23, 1983, unlikely unless you have a ground lease or other long-term lease, and the lease requires the landlord's consent but is silent on the standard that applies, the landlords consent need not be reasonable. )

If you want a "transfer" to include a transfer of interest or control in the tenant, you have to say so in the lease.

A "transfer" as used in the Civil Code includes an "assignment, sublease, or other voluntary or involuntary transfer or encumbrance of all or part of a tenant's interest in the lease." Some commentators reason that this is such a broad definition, it covers a transfer in the tenant as well.  But that's not the case.  The key part part of the definition is the last part: "a tenant's interest in the lease."  As we discussed above, a transfer of an interest in a tenant is not a transfer of a lease, and when you recall the rule about any ambiguities being interpreted in favor of transferability, it should be clear that if a landlord wants to prevent a tenant from making this type of transfer, then the landlord needs to specifically say so in the lease.

After a transfer, the original tenant remains liable under the lease.

If a tenant subleases, the tenant of course remains liable under the lease -- the tenant is still in possession, still paying rent, still the only party directly obligated to the landlord. (Remember, with a sublease there is no direct link between a subtenant and the landlord -- everything, including including liability flows through the tenant).

But even if the tenant makes a complete assignment of the lease, the default rule is that the tenant remains liable under the lease -- and not only for the initial term, but for any extension options that were granted before the assignment. If you are a tenant (or guarantor) this is something to carefully consider.  Even though you are out of the picture and the new tenant has taken over the lease and is directly liable to the landlord, if the new tenant stops paying rent or otherwise defaults under the lease, the landlord can come come after you to collect.  

There are two caveats: First, this is just a default rule. The parties are free to negotiate and generally do. For example, a lease might provide that if the new tenant/assignee meets certain conditions (e.g., same amount of money as the original tenant, same use, and operational experience) and performs for a period of time after the assignment, the original tenant and any guarantors will be released. Second, this rule only applies to the original lease as assigned. If the landlord and new tenant extend the term of the lease (beyond any extension options granted before the assignment) or materially change the terms of the lease, the original tenant is no longer on the hook.

A landlord may require that the tenant pay over bonus rent, but the requirement must apply only to rent and must be in the lease before the proposed transfer.

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.

Key Takeaways

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.

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