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In the Spotlight: The Assignment Provision
Tenants are accustomed to negotiating assignment provisions heavily as they relate to a third-party transfer. However, the effects that such provisions can have on a tenant's corporate autonomy are often overlooked. A thorough consideration of the assignment clause reveals that it can have a profound impact on a tenant's ability to run its business, including any expansion or reorganization. This article explores the strategy of negotiating an assignment provision that protects a tenant's ability to conduct business, and offers practical suggestions that will allow both the landlord and tenant ultimately to arrive at a mutually agreeable result.
Restrictions on Assignment
During the typical lease negotiation, the parties tend to treat assignment rights the same as subletting rights, and fail to recognize that restrictions on assignments can have far greater consequences on a tenant's business operations. From the tenant's perspective, the ideal outcome is for the tenant to have the right to freely assign the lease to any party it deems appropriate, without the consent of the landlord. The landlord will typically insist on having the right to consent to assignments, in which case the tenant's next best option is to require that landlord's consent not be unreasonably withheld, conditioned or delayed. However, especially in situations where a tenant holds significantly less leverage than the landlord, a landlord may refuse to allow any assignment without its consent, and require that it have the right to deny such consent for any reason. Obviously, this is an extremely undesirable outcome for the tenant.
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