assignment of leasehold property

Navigating the assignment of a residential lease

A landlord can assign his leases to a new buyer of his building. Likewise, a tenant may be able to assign his lease if he needs to relocate. Find out how to assign your lease and what you can do to protect yourself when doing so.

assignment of leasehold property

by   Ronna L. DeLoe, Esq.

Ronna L. DeLoe is a freelance writer and a published author who has written hundreds of legal articles. She does...


Updated on: December 4, 2023 · 3min read

Assignment of lease by the tenant

Assignment of lease vs. sublease, assignment of lease by the landlord.

As a tenant, you may want to get out of your residential lease without paying the remaining rent. Likewise, if you're a landlord and sell your rental property, the buyer must now collect rent from the tenants, who may have no idea you sold the property. In both situations, assignment of a lease with a release for the tenant and assignment of leases with notice by the landlord accomplish these goals.

A pair of glasses, a blue ballpoint pen, and a calculator resting on a residential lease agreement

If you're the tenant and want to leave before the end of your lease term, you may be able to assign your lease to a third party if the landlord doesn't let you out of the lease. The third party then becomes the new tenant, who is bound by the terms of the original lease and pays rent to the landlord.

Most often, the lease won't permit assignment without the landlord's approval, but leases often state that the landlord cannot unreasonably withhold consent. As long as you produce a tenant who's shown a history of payment under prior leases and has been a model tenant, a landlord should consent to assignment.

The assignment of lease form should include places for the tenant-assignor, the new tenant-assignee, and the landlord to sign. If the master lease allows assignment, then the tenant doesn't need the landlord's permission; the tenant can sign an assignment of lease agreement without the landlord's signature.

If the landlord allows an assignment of the lease, you, as the tenant, also want him to sign a release stating that you're not responsible for the new tenant's failure to pay or for any damage she causes. Without such a release, you may still be liable for both.

When you, as the tenant, assign the lease, you sign an agreement that either reads “Assignment of Lease," “Lease Assumption Agreement," or “Assignment and Assumption Agreement." An assumption of the lease means that the new tenant assumes your obligations, such as paying rent and keeping the apartment in good condition.

An assignment of a lease transfers the tenant's entire rights in the property to a third party. With a sublease, on the other hand, the tenant transfers only a portion of the remaining lease. For example, if the original tenant has six months remaining on his lease and he gives the entire six months to a third party, the tenant is permanently assigning his rights to live on the property to the third party. If, however, the tenant allows that third party to stay at the premises for only three months, and the tenant intends to return after three months, he is subleasing the premises.

A landlord can assign the right to collect rent to someone who has purchased the property. An assignment of lease from the seller to the buyer allows the new landlord to collect rent from any and all current tenants in the building. The language in the landlord's assignment of lease agreement can include assignment of security deposits, if the parties agree to it. An assignment of leases by the landlord to the buyer affords protection to the buyer so he can collect rent.

An assignment of leases by the landlord to the buyer is meaningless if tenants aren't aware the landlord sold the property, which is why it's important for the assignor-landlord to give tenants proper notice. A notice of assignment of lease, which is a form signed by both the assignor-landlord and the assignee, or new landlord, is one way to give notice. Another way is to send a letter on the landlord's letterhead. Either way, the notice must include the new landlord's address and how rent is to be paid.

Both landlords and tenants who become assignors should sign a formal assignment of lease agreement, which an online service provider can prepare for you. If you're the tenant who has assigned your lease, try to get a release or you'll still be liable to the landlord. If you're the landlord, make sure you can count on the new tenant to pay the rent before you release the primary tenant from his obligations under the lease.

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Demystifying Assignment of Lease: Your Go-To Guide

LegalGPS : July 29, 2023 at 8:17 AM

When you’re talking about property leasing, it’s important to understand that there are a lot of terms and concepts that you may have never heard before. One of them is the assignment of lease, which refers to a situation where a tenant transfers their rights and responsibilities under the lease agreement to another party.

two people posing back to back

What is an Assignment of Lease, and why is it so crucial?

An Assignment of Lease is a term you may have heard thrown around, especially if you're involved in rental properties. It’s a pretty important document. But what exactly is it? Well, in simple terms, an Assignment of Lease is an agreement where the original tenant of a property transfers their leases and all of its rights and obligations to a new tenant. Now, you might be wondering, "When would this scenario ever occur?"

Let's imagine you're a tenant who signed a three-year lease for an office space. However, two years in, you need to relocate due to unprecedented growth of your business. Instead of breaking the lease, you might choose to assign your lease to another business looking for office space. This means that you, as the original tenant, no longer have any obligations under the lease. The new tenant is now responsible for paying rent and complying with all of the terms of the previously signed agreement.

Now that you understand, let's get into the step-to-step guide on how to create an Assignment of Lease!

Steps to Write an Assignment of Lease

Creating a thorough Assignment of Lease agreement doesn't need to be an overwhelming task. Simply follow these steps to ensure your agreement is both comprehensive and legally binding:

Step 1: Identify the Parties

The information of each party should be included. For the existing tenant (the assignor), make sure to include:

Full legal name or business name

Postal mailing address

Phone number and email address

Do the same for the new tenant (the assignee). Make sure all the information is up-to-date and accurate to avoid any unnecessary confusion or disputes. For example, if the assignor is a business, make sure they have updated their mailing address with the post office to reflect their new building location. If a party has multiple addresses, be sure to list them all.

Step 2: Specify the Lease

This section requires exact information from the original lease agreement, including:

Property address and description

Lease start and end date

A reference to the original lease agreement (for instance, a sentence like "the lease agreement dated...")

Remember to include a copy of the original lease as an attachment to ensure the assignee understands the terms they're adhering to. If not already included in the original lease agreement, be sure to add the following information: Description of rental property, Lease term (how long the lease is good for), Rent amount, and Security deposit amount.

Step 3: Detail the Assignment

State that the assignor is transferring all their interests and obligations in the lease to the assignee. Here, write something like:

"The Assignor hereby assigns, transfers, and conveys to the Assignee all of the Assignor's rights, title, and interest in and to the Lease, together with all the Assignor's obligations, liabilities, and duties under the Lease."

This means that the assignor is transferring all of their interests and obligations in the lease to the assignee. This includes any future rent payments, repairs and maintenance responsibilities, notices of default by either party, and so on.

Step 4: Landlord's Consent

Many leases require the landlord's consent to assign the lease. The assignor should request written consent from the landlord and include a clause like:

"The assignment of the lease is not valid unless and until the landlord provides written consent."

This is followed by a place for the landlord to affirm consent by signing or initialing. This is important because the landlord can elect to withhold consent and the assignment will not be valid. If this is the case, you may need to provide additional consideration for your landlord's assent (for example, an increase in rent).

Step 5: Assignee Acceptance

Include a statement in which the new tenant agrees to the assignment and the terms of the lease. It may look like:

"The Assignee hereby accepts this assignment, assumes all duties and responsibilities under the Lease, and agrees to perform all of the Assignor's obligations under the Lease."

You need to do this because the new tenant needs to have an affirmative acceptance of the assignment in order for it to be valid. This is typically done through a letter from the assignee stating that they agree to perform all of your obligations under the lease.

Step 6: Signature and Date

Every binding legal document needs a date and a signature. Make sure that there is a proper place for the assignor and the assignee to sign and print their names, with a line for the date.

By following these clear, actionable steps, you'll be able to construct an effective Assignment of Lease agreement. Remember, every situation is unique, so adjust the template as necessary, being sure to include all relevant details.

Clear so far? Great! Now, let's focus on the tips to draft a perfect Assignment of Lease.

Tips to Draft a Perfect Assignment of Lease

Accurate Dates: Be sure to include the date when this agreement will take effect. Precision avoids any confusion about durations, when the assignee takes over, or when the assignor's obligations end.

Clear Terms: This document should restate the terms of the original lease. The assignee needs a clear understanding of what they're stepping into. Bit ambiguous? Think of it like this: the assignee should be able to step into the assignor's shoes comfortably.

Specify Rent Terms: Stating the rent amount, due dates, and method of payment in the assignment helps create a record of the agreed-upon rent terms, ensuring no misunderstanding arises in the future.

Specify the Term: The assignment should state how long the new lease lasts. For example, if the original lease is for one year, then the assignee will assume only a one-year term.

Specify Other Conditions: If there are other conditions in place—such as tenant improvements or utility allowances—then specify these too.

An assignment of lease doesn't have to be a formidable task to overcome. With a cautious and considered approach, these documents can be a smooth and seamless part of managing a successful lease transition.

Our contract templates can offer you even more support, empowering you towards crafting an excellent and individualised Assignment of Lease ready for your task. So why not take your next step towards leasing success and check them out today? Click here to get started!

Lease Assignment Agreement

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Lease Assignment Agreement

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A Lease Assignment Agreement is a short document that allows for the transfer of interest in a residential or commercial lease from one tenant to another. In other words, a Lease Assignment Agreement is used when the original tenant wants to get out of a lease and has someone lined up to take their place.

Within a Lease Assignment Agreement, there is not that much information included, except the basics: names and identifying information of the parties, assignment start date, name of landlord, etc. The reason these documents are not more robust is because the original lease is incorporated by reference , all the time. What this means is that all of the terms in the original lease are deemed to be included in the Lease Assignment Agreement.

A Lease Assignment Agreement is different than a Sublease Agreement because the entirety of the lease interest is being transferred in an assignment. With a sublease, the original tenant is still liable for everything, and the sublease may be made for less than the entire property interest. A Lease Assignment transfers the whole interest and puts the new tenant in place of the old one.

The one major thing to be aware of with a Lease Assignment Agreement is that in most situations, the lease will require a landlord's explicit consent for an assignment. The parties should, therefore, be sure the landlord agrees to an assignment before filling out this document.

How to use this document

This Lease Assignment Agreement will help set forth all the required facts and obligations for a valid lease assignment . This essentially means one party (called the Assignor ) will be transferring their rights and obligations as a tenant (including paying rent and living in the space) to another party (called the Assignee ).

In this document, basic information is listed , such as old and new tenant names, the landlord's name, the address of the property, the dates of the lease, and the date of the assignment.

Information about whether or not the Assignor will still be liable in case the Assignee doesn't fulfill the required obligations is also included.

Applicable law

Lease Agreements in the United States are generally subject to the laws of the individual state and therefore, so are Lease Assignment Agreements.

The Environmental Protection Agency governs the disclosure of lead-based paint warnings in all rentals in the States. If a lead-based paint disclosure has not been included in the lease, it must be included in the assignment. Distinct from that, however, required disclosures and lease terms will be based on the laws of the state, and sometimes county, where the property is located.

How to modify the template

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats. You can modify it and reuse it.

A guide to help you: Tenants and Subtenants Obligations under a Sublease Agreement

Other names for the document:

Assignment Agreement for Commercial Lease, Assignment of Commercial Lease, Assignment of Lease, Assignment of Residential Lease, Assignment Agreement for Lease

Country: United States

Housing and Real Estate - Other downloadable templates of legal documents

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Leasehold Mortgage vs. Assignment of Lease

Leasehold Mortgage vs. Assignment of Lease

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Although leasehold mortgages and assignments of lease are both legal processes relating to property leases, they’re actually very different. A leasehold mortgage is a loan placed on a piece of leased land, usually used by developers for construction projects. An assignment of lease transfers an unexpired lease to someone else, who then takes over the rental payments.

A leasehold mortgage is a loan taken out on a piece of property that is owned by someone else, while an assignment of lease transfers the lease on a property to someone else.

Mortgage Leases and Leasehold Mortgages

Generally, when someone wants to purchase a property, that property is financed using a mortgage. For commercial property buyers, though, mortgage lending isn’t quite as straightforward. There are various types of commercial mortgages, and one of those is a leasehold mortgage .

With a leasehold mortgage, a commercial real estate investor can obtain financing for a building based on the land that person is leasing. Common in real estate development, this type of mortgage gives the developer the funds necessary to put a building on land that is leased, based on the assumption that once construction is finished it will begin generating the income necessary to make it worth it for the property owner.

Assignment of Lease

If you own a home and want to get rid of it, you must either bring in a renter or sell it to someone else. With a lease, though, you can turn over the lease to someone else, provided your landlord is OK with it. This is done through the use of an assignment of lease , which gets you out of an unexpired lease by letting you transfer it to someone else.

Unlike a leasehold mortgage, an assignment of lease is not only a process, but it’s also a title document that both parties must read and sign. This type of arrangement comes in handy if your business fails to become profitable and must close, yet you have a remaining lease on your space. It may also be an option if your business grows so quickly that you need a larger space and therefore must move before your lease expires.

Leasehold Mortgage Versus Lease Assignment

Although leasehold mortgages and lease assignments are different by nature, they also have something in common. They refer to various activities that can take place based on a lease . While leasehold mortgage financing requires taking out a loan, though, a lease assignment is merely transferring an agreement from one party to another.

One similarity between the two is that they both refer to leases, which means property owners may have a stake in the outcome. With a leasehold mortgage, the borrower must have permission to take out such a mortgage – a permission that is usually conveyed as part of a commercial ground lease . With an assignment of lease, the landlord must sign off on the transfer before it can be finalized.

Approvals for Leasehold Mortgages

Getting a leasehold mortgage isn’t just a matter of heading to a bank and asking. The borrower will need to be able to prove that he has the right to request this type of loan . Usually, this starts by looking at the lease and finding the section specific to mortgages on the leased property.

Most commercial ground leases will state that the lessee must provide written notice to the lessor of an impending request to obtain financing for the property. That notice should include contact information for the potential mortgage lender, and the lender should verify that the lease allows a tenant to borrow money from the type of lending institution the borrower has approached.

Approvals for Lease Assignments

A tenant can’t simply turn a lease over to someone else. Obviously, the landlord will have a say in the situation and likely will want to clear the new tenant before approving the transfer. The landlord’s permission is usually granted in the form of a legal document known as the License to Assign .

The landlord’s approval may not be the only thing you’ll need to secure before you can complete an assignment of lease. On your lease agreement, check the section called Alienation , which should detail circumstances in which your landlord can refuse to allow you to assign your lease to someone else. If you fail to go through the landlord approval process, your landlord could later revoke the lease assignment.

Defining a Ground Lease

Before you can establish a mortgage leasehold interest in a property, you first must have the rights to lease the space. Leasehold mortgages are most commonly seen with ground leases, which are commercial leases issued to a tenant who wants to develop property on a lot. The property owner permits the developer to erect a building on that land with the understanding that once development is complete, the land and all the improvements revert back to the owner of that land.

Property owners agree to leasehold mortgages because once development is complete, the owner can then sell the property at a profit. It’s a small price to pay to allow someone to lease the property during the construction phase in order to recoup some money at the end of it. However, it can be risky for the property owner if the person leasing the property stops paying the lease or the leasehold mortgage payment and there’s no one around to pay the rent.

Leasehold Mortgage Foreclosures

If you own a property and stop paying your mortgage, the bank will eventually foreclose. But if you stop making payments on your leasehold mortgage, things get a little more complicated. Someone else owns that property, and that person expects a lease to continue to be paid even if the loan goes bad.

A lender can foreclose on the borrower’s interest in a property , but that same lender likely won’t want to continue to make the rent on that property, even if the owner expects it. Since commercial leases can sometimes run for multiple years, this obligation is something a lender definitely needs to think about. It’s important that agreements be written in a way that the lender doesn’t expressly assume the lease in the event of a foreclosure.

Assignment of Lease Versus Subletting

If you think assignment of lease sounds a lot like subletting , you’re right. But there’s a very specific difference between the two. With an assignment of lease, you are stepping out of the situation and setting up a direct relationship between the new tenant and your previous landlord. With subletting, your relationship with your landlord continues, but you introduce a new relationship between you and a third-party tenant who now pays the rent.

While both processes require legal documentation, subletting puts the agreement between the original tenant and the person who will be staying in the rented property. As with an assignment of lease, though, you’ll need to make sure you have your landlord’s approval before the new person moves in. But neither assignment of lease nor subletting require that you involve a lender, as in the case of leasehold mortgage financing.

Liabilities of Assignments of Lease

As with any type of mortgage lease, when you have a lease on a property, the liability falls on you if you fail to make mortgage payments or you damage the building in some way. When you shift the lease via a legal document, though, this liability goes with it. This only applies if the landlord releases that liability , though, so it’s important to make sure that’s part of your documentation.

Although you may be able to escape liability for what the transferee does to the rental space, there’s one area where liability will probably be unavoidable. If your transferee exits the lease before your original term is up, your landlord will probably come right back to you to fix the issues. Your Assignment of Lease document should detail what will happen in this event, including your right to reoccupy the premises if you choose.

Benefits of a Ground Lease

You may have never heard of these ground leases before, but they’ve definitely happened all around you. Large chain retailers like Whole Foods and Starbucks use ground leases to build new locations on already-owned land, often in situations where they rest alongside other shops and restaurants in a retail strip.

Businesses often choose ground leases with leaseholder mortgages because they can access a property without having to make a considerable down payment. They simply need to obtain leasehold mortgage financing and they can start building. For larger corporations, this is as much a benefit as a slowly growing small business since it keeps capital free for them to spend on other expenses, such as building costs.

Subordinated Ground Lease

When a landlord agrees to a ground lease, often that means agreeing to take a subordinated position if the tenant defaults on her leasehold mortgage. This means your landlord is agreeing that if you don’t make your payments, the property itself acts as collateral. As a result, the landlord may increase rent payments for tenants in order to compensate for that risk.

An unsubordinated ground lease, on the other hand, accounts for any mortgage lease issues by stating that if you don’t pay your rent or your mortgage payments, the property owner takes a top role legally. You may have a tougher time getting a bank to agree to take a lower priority than the landlord and because of this inconvenience, generally, you’ll find the rent is lower to compensate for it.

Leasehold Improvements Versus Leasehold Mortgages

Another term that can be confused with leasehold mortgages is something called leasehold improvements , which can be done without the loan and subsequent mortgage leasehold interest involved in a leasehold mortgage. A leasehold improvement simply refers to adjustments a tenant makes to a property that apply specifically to the internal contents , such as paint, new flooring or upgraded lighting fixtures. This is different from the building improvements that are handled by a landlord and apply specifically to common areas, elevators and other nonrentable areas of a building.

Unlike leasehold mortgages, leasehold improvements don’t involve taking out a loan . The owner may provide a particular amount of money for such improvements, called a Tenant Improvement Allowance. Landlords may also be willing to discount rent or provide money through something called a Building Standard Allowance. In other cases, the landlord himself pays for the improvements in something called a Turnkey Job, which is generally done prior to move-in but can be done while you’re occupying the space, with sufficient notice each time before entering the unit.

Liabilities of Leasehold Mortgages

Before taking a mortgage leasehold interest stake in a property, a lessee will also want to reduce his own liability. If there is a casualty during the time this loan is in place, the developer may find it difficult to get access to the insurance proceeds necessary to repair any damages that were suffered. For that reason, many property owners will employ an escrow agent to hold the funds so that they’re guaranteed to only be used for damage-related costs.

If there’s an injury or another incident on your property during the time you hold a lease, local laws will determine where responsibility falls. Landlord-tenant law covers such a situation, and often landlords have insurance to protect against these types of claims. Although you, as the developer, have a responsibility to keep your worksite safe, the landlord is responsible for ensuring common areas are maintained and proper signage is posted when a hazard exists on site.

  • USLegal: Leasehold Mortgage Law and Legal Definition
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  • LawDepot: What Type of Leases Do You Have?
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  • FindLaw: Liability for Tenant Injuries and Insurance for Landlords

Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.

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assignment of leasehold property

Assignment Of A Lease: Everything You Need To Know! 📃

Sep 04, 2023 | Shakeel Mir

There are are plenty of reasons why you might want to exit your commercial lease early. Perhaps your current premises are no longer suitable for the needs of your growing business, or maybe your business is in financial difficulty and you need to find a lease with more favourable terms.

There are also plenty of options when it comes to deciding how to exit a lease before the specified end date. Some of the most common include: assignment of a lease, which involves passing the lease onto another business; terminating the lease, with the help of a break clause if your contract contains one; or subletting your premises and adopting the role of landlord yourself.

Unfortunately, exiting a lease early is not always a simple process. A lease is a legal contract, and if you break it your landlord could take you to court. Opting to pursue a process such as assigning the lease to a new tenant can make exiting a lease early possible, but there are many factors that should be considered before beginning this process.

If you are thinking of trying to leave your lease early, it is advisable to obtain independent legal advice from an appropriately experienced commercial property solicitor before taking any action.

If you require legal advice or assistance on getting out of a commercial lease please call us on 0800 086 2929 , email [email protected] or complete our Free Online Enquiry Form .

In addition to office meetings, we also offer remote meetings via telephone and video conferencing software so can assist you wherever you are based.

What is assignment of a lease?

The process of assignment of a lease is essentially selling the lease to a third party (the “assignee”).

If you are a commercial property tenant, your contract likely contains a clause that allows you to assign your lease to a new tenant. To do this, you will need to find a potential new tenant yourself. Your landlord will expect this new tenant to meet the same expectations they originally set for you, and you will probably need their consent before the assignment can be completed.

While your landlord cannot reasonably withhold their consent for the assignment, they are under no obligation to give their consent if the new tenant doesn’t meet the terms set out in your contract – so it’s wise to be picky yourself about the tenant you select.

There are likely to be restrictions around when and if you can assign your lease specified in your contract. Some common restrictions include not allowing lease assignments if the contract is for a short period, and not allowing the lease to be assigned if the lease is ending within a few years.

Once a lease as been assigned, the assignee will become the new tenant and will be responsible for ensuring compliance with all of the tenant’s obligations in the lease.

What checks will a landlord make before permitting assignment of a lease?

Financial status

Your landlord will want to see evidence – usually in the form of business bank account statements – that the new tenant is in a strong financial position

Statements from previous landlords that the tenant has leased property from will be required to show that the tenant is reliable and doesn’t have a history of missing payments or otherwise neglecting their responsibilities as a tenant

Proposed use of the premises

Your landlord will probably be looking for a new tenant to intend to use the premises in broadly the same way as you have done in the past as the lease will specify what use is allowed.

Likelihood of requesting alterations to the building

As above, your landlord will require advanced notice of any alterations the new tenant may wish to make to the premises, and in some cases written permission in the form of a Licence to Alter will be required. It is likely that they may withhold their consent for assigning the lease to any tenant intending to make large-scale changes depending upon the type of premises involved.

What liabilities will you have when assigning a lease?

It is important to recognise that the assignment of a lease to a new tenant does not automatically exempt you from all liabilities related to that tenancy going forwards. In fact, once the lease assignment is complete you can still be liable should the new tenant miss any payments or otherwise break the terms of their contract.

Exactly what you will be liable for depends on when your lease began. If your lease began before January 1996 you will remain liable for all payments by any subsequent tenants – even if the lease is assigned several more times after you. This is called “privity of contract”.

For leases that began after January 1996, you will be required to sign an Authorised Guarantee Agreement . This means you guarantee payments for the next tenant, but not any further tenants.

Landlords can only claim payments of rent within six months of the money being due, and only after full notice has already been served to the former tenant.

What does lease assignment cost?

On the other hand, if the rent under the new lease is below the market rate, the new tenant may instead want to pay you a premium. If this is the case, you’ll need to make a decision on whether to charge VAT – or “opt to tax” – something that’s worth getting professional advice on.

A final charge to be considered is the cost of this advice. It is highly recommended to involve your solicitor when opting to pursue a lease assignment so as not to inadvertently break the terms of your contract and leave yourself open to court action. You should therefore also factor solicitors’ fees into your calculations when considering the cost of exiting your lease.

How to get out of a commercial lease – what are the alternatives?

Assignment of a lease is not the only way to get out of a commercial lease and depending on your circumstances and the contract you have with your current landlord, it may not always be the best option.

Some alternative ways to get out of a commercial lease early include:

Using a break clause

Some lease contracts include a “break clause” which offers both parties the opportunity to end the lease early in certain circumstances. Read your contract carefully to check if it contains a clause like this, and if it does, what terms and conditions are involved. Any time limits specified in the lease for giving of notice must be strictly followed.

Negotiating a lease exit

If your contract does not include a break clause, your landlord may still be open to you exiting the lease early. You would need to negotiate the specific terms of your exit and your landlord may require a pay-out to offset the inconvenience of having to market the property again.

Compared to lease assignment, negotiating an exit from your lease should provide a clean break with no further liabilities, but we would recommend seeking legal advice to confirm that you were exiting the contract cleanly.

Subletting the premises

A final option to consider when looking at how to get out of your commercial lease early is subletting. If your contract allows it, you can take on the role of landlord by finding and leasing your property to a new tenant.

You can use the rent payments from your new tenant to cover your own obligations, but in return you’ll be expected to take a hands-on role managing the property and dealing with the sub-tenant directly.

Need assistance with assignment of lease?

Exiting a lease early can be a complex process, whether you choose to do so by arranging the assignment of your lease or by one of the other means mentioned above.

Lease assignment is an effective way for tenants to get out of a commercial lease early. However, this can be a slow process and you will incur costs.

Contacting a solicitor at an early juncture is advisable so that you are appropriately advised at the outset of any key considerations and potential pitfalls. For example, even though you are selling the lease, you could potentially remain liable afterwards; this will depend on the age of the lease and whether you have entered into an authorised agreement or not.

Shakeel Mir is the Head of our Commercial Property department and has many years of experience in dealing with lease assignment.  He is based in our Amersham office but assists and advises clients all over the country.  In addition to office meetings, Shakeel offers remote meetings via telephone or video conferencing software so can assist you wherever you are based.

Make a Free Enquiry

If you are considering how to get out of a commercial lease or have any queries relating to any of the issues discussed in this article, please get in touch with Shakeel by calling 0800 086 2929 , emailing [email protected] or completing our Free Online Enquiry Form .

The content of this article is for general information only. The information in this article is not legal or professional advice. If you require legal or professional advice you should obtain independent expert advice from qualified commercial property solicitors such as those within our firm .

Call us 24/7 on 0800 086 2929 , email  [email protected] , or complete our Free Online Enquiry Form to arrange a free, no-obligation discussion and let us explain your legal rights and options.

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  • Assignment of Leasehold Rights on Land – Critical analysis

assignment of leasehold property

  • Last Updated
  • June 2, 2023

Table of Contents

Leasehold rights on land play a crucial role in various real estate transactions and business operations. Many units are set up on leasehold land provided by state industrial development corporation.

What Is Assignment Of Leasehold Rights?

  • The assignment of leasehold rights on land refers to the transfer of the leasehold interest or rights from one party to another.
  • It involves the transfer of the rights and obligations associated with a lease agreement from the original lessee (assignor) to a new party (assignee).

Leasehold rights on land typically arise when a lessee enters into a lease agreement with the lessor to use and occupy the land for a specific period, usually for commercial, industrial, or residential purposes. The lessee holds the leasehold rights, which include the right to possess and use the land within the terms and conditions outlined in the lease agreement.

However, there may be situations where the original lessee, for various reasons, decides to transfer or assign their leasehold rights to another party for consideration. This can occur when the lessee wants to exit the lease, restructure their business operations, or transfer the lease to a new owner.

The assignment of leasehold rights involves a formal agreement between the assignor and assignee that outlines the terms of the transfer. The assignor relinquishes their rights and responsibilities as the original lessee, while the assignee assumes those rights and obligations for the remaining lease term.

It is important to note that the assignment of leasehold rights does not necessarily involve the transfer of ownership of the land itself. The assignee steps into the shoes of the original lessee and continues to hold the leasehold interest for the remaining term specified in the lease agreement.

The assignment of leasehold rights on land can have various legal, financial, and operational implications for both the assignor and assignee. It is crucial for all parties involved to carefully review the terms of the lease agreement, understand their rights and obligations, and ensure compliance with any legal or regulatory requirements related to the assignment.

Income Tax Implication

Lease hold rights is a capital asset as per Section 2(14) of the Income Tax Act,1961 and Assignment of lease hold rights falls under definition of transfer u/sec. 2(47) of the Income Tax Act by way of relinquishment of rights in Immovable property.

  • Assignment as discussed herewith results into capital gain tax implication u/sec. 45 of Income Tax Act.
  • Leased Land Property assigned for a consideration is cost of Acquisition for the capital purpose. Holding period of Lease beyond 3 years is considered as long-term Capital Asset and tax rate applicable is 20% plus applicable surcharge and cess. Short term capital Asset has holding period less than 3 years and normal rate of tax would be applicable.
  • Further, since the Lease hold right is neither a Land nor Building, provisions of Section 50C, which deems the Stamp Duty Value as Consideration in case if the actual consideration is less than Stamp Duty Value shall not apply.
  • Wherein Capital Gains on Land is liable to be taxed as Long Term Capital Gains and Capital Gains on Structure is liable to tax short term capital gain.
  • Other view is Entire Gains on Transaction is treated as short term capital gain.

GST Implications

The Goods and Services Tax (GST), introduced in India in 2017, has brought significant changes to the taxation system. It is important to understand the implications of GST on the assignment of leasehold rights on land and how it affects different stakeholders involved.

As per Section 7(1) of the CGST Act, 2017, supply” includes:

All forms of supply of goods or services or both, such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Thus, under the GST regime, leasehold rights on land can be considered as a supply of services and thereby subject to taxation.

Upfront amount called as premium, salami, cost, price, development charges or by any other name payable in respect of long term lease of 30 years, or more of industrial plots or infrastructure development plots for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 50 % or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area subject to following conditions:

  • the leased plots shall be used for industrial or financial activity in an industrial or financial business area
  • the State Government shall monitor and enforce the condition as per the order issued by the State Government
  • in case of any violation or subsequent change of land use, the original lessor, original lessee as well as any subsequent lessee or buyer or owner shall be jointly and severally liable to pay tax along with the applicable interest and penalty
  • the lease agreement entered shall incorporate in the terms and conditions that the tax was exempted on the long term lease of the plots by the original lessor to the original lessee subject to above condition and the parties to the said agreements undertake to comply with the same.

Thus, GST on assignment of lease hold rights has been classified as exempt only if it falls within the ambit of above entry satisfying all the conditions.

Contradictory View

As per Section 7(2)(a) of the CGST Act 2017 read along with Entry no. 5 of Schedule III, sale of land is treated neither as supply of goods nor as supply of services.

As per the Registration Act 1880, “immovable Property” includes land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth, or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass.

As per the General Clauses Act 1897:, “Immovable property’ shall include land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth”.

Leasehold rights can be construed as benefit arising from land, thereby treating the same as Immovable Property or Land itself for the purpose of Registration Act attracting Stamp Duty and registration charges.  Thus, as per State Governments, the assignment of leasehold rights on land is considered as a transfer of ownership for state revenue purposes.

Irony created due to non-alignment of definition of Assignment of Lease hold rights under Registration Act and GST leading to double taxation as the individuals or businesses involved in the assignment of leasehold rights on land must comply with both the state revenue requirements, such as stamp duty and the GST obligations.

It is important to note that under the erstwhile service tax regime in India, the assignment of leasehold rights on land was specifically listed as an exempted service. This means that no service tax was applicable on such assignments, regardless of the purpose of the lease (residential, commercial, or industrial). The exemption from service tax on the assignment of leasehold rights was provided to avoid double taxation since the leasehold rights were considered immovable property, and the transfer of immovable property was already subject to other taxes, such as stamp duty.

Burning Issue In MIDC Areas For GST Matter

Thousands of units in Maharashtra including Thane, Navi Mumbai, Pune, Nagpur etc have not paid GST on assignment of lease considering this as sale of land and assuming that the exemption under Sr. No. 41 of notification No. 12/2017 dated 28.06.2017 would be available to them. However, it does not cover subsequent transfers of lease premium on assignment of leasehold right.

Also, there are many GST Advance Rulings stating that long term lease cannot be equivalent to sale of land and would be taxable under the GST law, thereby confirming GST on such supply.

Thus, the GST department has also started issuing notices under the CGST Act 2017 on the assignment of lease hold rights charging 18% GST on the total value of the assignment agreement.

While, the State Revenue department is considering this assignment of lease as sale of land and building and thus charging full stamp duty and registration charges accordingly.

The above contradictory views from the GST Laws and State Laws are creating multiplicity of taxes for the same transactions, which should not be viable in the eyes of the law. Thus, the government should hence analyse the situation and take pertinent action on urgent basis.

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A river flood warning in effect for Glynn County

Florida lawmakers unanimously pass bill to combat squatting; giving property owners ‘positive hope’.

Anne Maxwell , I-TEAM and general assignment reporter

JACKSONVILLE, Fla. – State lawmakers have unanimously passed a bill to combat squatting.

This comes after a News4JAX I-TEAM investigation exposing how a loophole in the law allowed people to live rent-free in a home for weeks while the property’s owner, Patti Peeples, wasn’t allowed on the premises.

The bill would close that loophole, and it’s now headed to the governor’s desk.

“It gives me a real feeling of positive hope that we still have the ability to discuss challenges in our society and work with our legislatures in a bipartisan way,” Peeples said.

RELATED | I-TEAM: Court ordering women to leave rental property where owner says they’ve been squatting

It’s been a year since Peeples found strangers had moved into her rental property.

They refused to leave, and it was Peeples who was banned from the premises as the case spent weeks moving through civil court. When she first discovered those unwelcome guests living there, they produced a lease, claiming they were victims of a rental scam, again. Court records revealed they made the same claim at a nearby house.

It took months for the owners to evict them, right around the time they moved into Peeples’ house.

After several weeks, the women were evicted, and the house was left with tens of thousands of dollars worth of damage.

MORE | Jacksonville squatters finally evicted from home after 40 days leave behind $15K in damage, owners say

“It’s just the wild west,” Peeples said. “They simply move from one place to another.”

Now, state lawmakers have passed a bill to put a stop to it.

The bill allows law enforcement to immediately remove squatters who do not have a lease authorized by the property owner. It also adds criminal penalties, including designating intentionally presenting a fraudulent lease as a misdemeanor and making it a felony to intentionally sell or lease someone else’s property or intentionally cause more than $1,000 in property damage while squatting or trespassing.

The women who made themselves at home at Peeples’ house were never criminally charged.

“I have never felt more unempowered or helpless in my life than on March 1, 2023,” Peeples said.

It was soon after that date when Peeples first shared her story with the I-TEAM. Later, she was invited to share it on national TV and then, in Tallahassee.

Peeples said she is not surprised her story has resonated so widely.

“I’ll tell you why. Because at the crux of this issue is just basic unfairness, you know, if we don’t have the right to inhabit our own property, then what kind of world are we living in?” Peeples said.

The bill allows a person wrongfully evicted to sue to be placed back inside, as well as recover attorneys’ fees and damages.

Critics, including from Florida Rising, which is a group advocating for historically marginalized communities, had previously expressed concerns that the bill could lead to abusive landlords removing lawful tenants.

However, in a statement to the I-TEAM today, a spokesperson said they are now neutral on the bill’s passage because they feel it was satisfactorily amended to protect legitimate tenants from wrongful eviction.

If signed by the governor, the bill will go into effect July 1.

Copyright 2024 by WJXT News4JAX - All rights reserved.

About the Author:

Anne maxwell.

I-TEAM and general assignment reporter

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