Commercial real estate landlords commonly face this scenario: one of your tenants sends you a letter indicating that it has sold its business to a third party and has assigned the lease to the third party. Your tenant’s letter requests that you countersign and return the letter acknowledging your consent to the assignment of the lease to the third party. What should you do in response to the tenant’s request?
This is Part II of Jay Gitles' article. Part I (steps one through three) ran on Wednesday.
Step Four: Evaluate the proposed form of Consent to Assignment and Assumption of Lease and modify, as necessary. The assignor’s and assignee’s form of Consent to Assignment and Assumption of Lease is routinely deficient in many respects, and landlords should expect to modify the consent provisions.
Most landlords will want a Consent to Assignment and Assumption of Lease to include that the landlord consents to the assignment of the lease by the assignor to the assignee (and reflects that the same is made in consideration of the payments by the assignor to the landlord as described in the Assignment of Lease, as well as the assumptions, covenants, promises and agreements of the assignee set out in the Assumption of Lease); that neither the landlord’s consent nor the collection of rent from the assignee shall be deemed a waiver or relinquishment for the future of the covenants against assignment or subletting or construed as releasing the assignor from the full performances of the provisions of the lease as the same may be amended from time to time (and the assignor shall remain liable as tenant for the performance of all of the terms, conditions and covenants to be performed under the lease); a limitation on further assignments of the lease or subletting of any portion of the premises without the written consent of the landlord; that the landlord’s consent shall not be deemed a waiver of any of the landlord’s rights under the lease; and a landlord limitation of liability clause. Additionally, landlords may want to address rights to security deposits held by the landlord, and to whom and where notices should be sent on a going-forward basis.
Landlords should not be compelled to rush the Consent to Assignment and Assumption of Lease process. They should carefully evaluate their rights and obligations, exploring options and following the steps described in this article.
Sample Consent To Assignment and Assumption of Lease Clause (landlord-oriented): “The undersigned Landlord hereby consents to the Assignment of the above described Lease by Assignor to Assignee in consideration of the payments by Assignor to Landlord as above set out as well as the assumptions, covenants, promises and agreements of Assignee above set out on the express conditions that neither said consent nor the collection of rent from Assignee shall be deemed a waiver or relinquishment for the future of the covenants against assignment or subletting nor be construed as releasing Assignor or any other person or entity claiming by, through, or under Assignor from the full performances of the provisions of the Lease as the same may be amended from time to time. It is understood that Assignor shall remain liable as Tenant for the performance of all of the terms, conditions and covenants to be performed under the Lease. No further assignment of the Lease or subletting of all or any portion of the Premises will be made without the written consent of Landlord. In no event shall anything contained in this Consent be deeded a waiver of any of Landlord’s rights under the Lease. Landlord holds a letter of credit in the face amount of $______ as security for Tenant’s obligations under the Lease (the “Tenant Letter of Credit”). Landlord covenants to return the Tenant Letter of Credit to Assignor promptly following Landlord’s receipt of a replacement letter of credit in an equivalent face amount issued by ________ in form and substance as required by the Lease and otherwise acceptable to Landlord, in Landlord’s reasonable discretion. Redress for any claims against Landlord under this Assignment and Assumption (and Landlord’s Consent) or under the Lease shall only be made against Landlord to the extent of Landlord’s interest in the property to which the Premises is a part. The obligations of Landlord under this Assignment and Assumption (and Landlord’s Consent) and the Lease shall not be personally binding on, nor shall any resort be had to the private properties of, any of its trustees or board of directors and officers, as the case may be, the general partners thereof or any beneficiaries, stockholders, employees or agents of Landlord. [Add Landlord’s signature block, including date]”
— Jay A. Gitles is a partner in the Real Estate Practice Group of Seyfarth Shaw LLP's Chicago office.