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Commercial Leasing Law & StrategyFeaturesLandlord Tenant Law

Don't Sleep On Prohibitions on the Assignability of Leases

By Kevin M. Levy and Krystal R. Bordoni-Cowley
October 01, 2024

In commercial real estate transactions, lease assignment provisions play a critical role in balancing the rights of landlords, tenants and potential assignees. Lease assignability clauses, which determine how and under what circumstances a tenant may transfer their leasehold interest to another party, are often heavily negotiated due to their potential impact on the property's control, value and long-term stability. From the tenant's perspective, flexibility in assignment can be essential for business growth or restructuring, while landlords typically seek to maintain oversight, continue to have financial assurances, and protect the integrity of the lease.

In the absence of any language prohibiting or otherwise limiting a tenant's ability to transfer the tenant's right in the leasehold estate, there is a presumption that a tenant should have free assignability (i.e., alienability) of the lease, based on the fundamental bundle-of-sticks theory of real property law. If the tenant is not otherwise prohibited from doing something within a lease, the general presumption is that the tenant can do that thing! For example, a straightforward provision that absolutely prohibits a tenant from assigning its interest in a lease does precisely nothing to prohibit the same tenant from subletting the entire space to a third-party subtenant.

Accordingly, commercial landlords typically will place safeguards on the tenant's assignability of a lease by absolutely prohibiting the tenant from assigning, subletting, mortgaging, encumbering, pledging, transferring, whether voluntarily or involuntarily or "by operation of law" the tenant's interest in the lease and the leased premises (or subjecting the prohibition to landlord's consent, sometimes not to be unreasonably withheld, delayed or conditioned).

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