Failure to Assign Lease Leaves Tenant Liable

May 5, 2015

Failure to Assign Lease Leaves Tenant Liable

Termination or assignment of commercial leases can have many pitfalls, so cases involving tenants who wish to, or do, vacate let premises abound in the courts.

A recent case concerning what seemed like a straightforward assignment of a commercial lease illustrates just one problem that can arise. The tenant had a ten-year lease on the premises, but after a year wished to vacate them. It found another tenant to take on the lease and the 'new' tenant moved in and started paying the rent due.

The new tenant carried out works on the premises, as did the landlord at the new tenant's request. However, a year later the new tenant decided to vacate the premises because of an inability to agree the precise terms under which it accepted the assignment of the lease. These had been in negotiation since before it occupied the premises.

In particular, the new tenant had refused to provide personal guarantees from its directors, which were insisted upon by the landlord. The new tenant moved out and the landlord then claimed the rent due from the original tenant under its lease.

The case turned on whether the lease had been successfully assigned in the first place. The argument went to the Court of Appeal, which ruled that it had not.