by Jeff Grandfield and Dale Willerton
June 23rd, 2016
When The Lease Coach speaks at chiropractic conventions (such as Parker Seminars in Las Vegas), we are magnets for commercial leasing-related questions. Among the most common, are concerns relating to assigning or transferring a Lease Agreement.
As we explain in our new book, Negotiating Commercial Leases & Renewals For Dummies, the most common reason for assigning a lease agreement is to facilitate the sale or purchase of your practice. The assignment clause is one of the most vital organs of a lease agreement and should be included in the offer to lease. Read this carefully. Just because the landlord agrees to give assignment rights to a tenant, doesn’t mean they can’t build in many tricky and dangerous conditions that can trip you up or cost you money later.
One chiropractic tenant selling a practice and assigning or transferring their lease agreement to another chiropractic tenant is not typically a benefit to the landlord. As a best-case scenario to the landlord, the assignment or transfer of the lease agreement represents a lateral move. In the worst-case scenario, the chiropractic tenant sells their practice to a new tenant who runs it into the ground and can’t pay the rent. This is the reason why landlords want to check out and approve anyone you sell your practice and assign your lease agreement to.
The second reason for assigning a lease agreement, is that you want to move, because you need to downsize or expand or practice. If this is the case, then you will look to assign your lease agreement to a company in a different type of business altogether. Landlord approval and consent to the stated use or the change of use is essential in such a case. Don’t just assume that you can assign your lease agreement to just any other tenant, if the landlord doesn’t also agree to the Permitted Use.
The key wording to include in an assignment clause, is that the landlord will not unreasonably withhold their consent to the lease assignment. Another point to look at closely is the fee the landlord will charge to process the assignment. This can range from $0 to over $2,000, depending on the landlord. Finally, ensure that there’s a timeline for the landlord to either grant or deny your assignment request. We have seen situations where the practice sale falls apart, simply because the landlord took too long to respond to the assignment request. 10 – 20 days is a reasonable time frame, but much longer, and the buyer might walk away. This is all negotiable, so don’t just automatically accept the landlord’s standard assignment clause if the term seems unreasonable.
Although there are a few basic points The Lease Coach ensures that your assignment clause includes, we are always wary of other terms that may have negative implications on your business or the sale of your practice. Here are some common pitfalls:
- Landlord’s right to terminate: In some cases, as an alternative to granting the assignment request, the landlord has the option to terminate your lease, simply for requesting an assignment. While this may be good news if you’re assigning your lease, because you’re relocating to a bigger or smaller space, it can be devastating if you’re selling your practice, and you’ve just lost your location.
- Landlord’s right to adjust the rent: Your lease may also state that when you assign the lease, the rent can be adjusted by a certain percentage or index amount – or increased to a fair market value. Again, this can have a major impact on the sale of your practice.
- Requirement to sign a new lease: The lease may require that the new tenant sign a new lease agreement and, depending on these terms, it can derail the process (this is common if the landlord has changed).
- Deposit increase: The landlord may want the buyer of your practice to increase or supply a substantial deposit or personal guaranty in order to gain landlord approval.
- Removal of terms: In some cases, an assignment results in the new tenant losing renewal options, exclusive use provisions, or any other terms that were negotiated for your benefit. Caution should be part of the due diligence during the lease assignment process as existing terms may not always be directly inherited or assumed by the new assignee. This can kill any deal to sell your practice or even lead to future lawsuits.
For a copy of our free CD, Leasing Do’s & Don’ts for Chiro Tenants, please e-mail your request to DaleWillerton@TheLeaseCoach.com.
Dale Willerton and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals For Dummies (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.