Commercial Real Estate and Development
Leases: the options
There are essentially two ways to acquire leasehold premises namely to purchase an existing lease or to enter in to a new lease.
Depending on whether you wish to buy an existing lease or enter in to a new lease, there are several documents that need to be negotiated and completed in addition to consideration of the terms of the Lease itself;
Agreement to Assign:
This allows the current tenant to agree to assign the lease subject to certain conditions, such as obtaining landlord’s consent (see below). The purpose of this document is to give the Buyer comfort also that, provided certain conditions are met, the Buyer has a contractual right to acquire the lease.
Deed of Assignment (unregistered lease)/Transfer (registered lease):
This document effects the actual transfer of the lease from the current tenant to the Buyer.
Licence to Assign:
The majority of leases contain a provision preventing its assignment without the immediate landlord’s consent. As such, the assignment is void unless a Licence to Assign (which documents the Landlord’s consent) is provided.
If the lease being bought is granted out of another lease (i.e. is not granted directly out of the freehold title), it is very likely that the Buyer will need the consent of the Superior Landlord who should also be a party to the Licence to Assign.
Licence for Alterations:
In most cases, the Buyer will want to carry out work to render the premises suitable for its business. In order to protect the Landlord, a Licence for Alterations documents how the work is to be carried out. Approved plans and specifications detailing these works need to be attached to the licence.
Deed of Variation:
The terms of the existing lease may not be appropriate for the Buyer’s proposed use of the premises. As such, the Buyer may need to enter into a Deed of Variation to change some of the lease terms; for example the user clause, rights granted etc.