Subletting or assigning your lease when you need to get out

Aug 29
3 min read

Updated: 3 days ago

Introduction

A business needs to leave its premises. There is no break clause, four years remain, and the tenant recalls that the lease permits assignment, so the plan is to find somebody to take it over and walk away.

The lease permits assignment with the landlord's consent, subject to conditions: a tenant of equivalent financial standing, a guarantee from the outgoing tenant, and the landlord's costs paid. Finding somebody who satisfies all of that, in a market where the unit may be hard to let, takes months and frequently does not happen at all. The right existed and the market did not cooperate. Meanwhile the rent continues to fall due every quarter.

1. Subletting or assigning your lease is a conditional right, not an escape

Read what it actually says.

Almost all leases permit these with the landlord's consent, and the conditions attached determine whether the right is usable. Tenants assume flexibility that the clause frequently does not provide. Reading it before you need it is what prevents planning on a false basis.

2. Understand the difference between the two

They produce different outcomes.

Assignment transfers the lease to somebody else entirely. Subletting keeps you as the tenant with a sub-tenant beneath you, meaning you remain liable to the landlord and become a landlord yourself.

3. Know that you may remain liable after assigning

The point that surprises people most.

Many jurisdictions and many leases require the outgoing tenant to guarantee the incoming one, at least for a period. Assigning does not necessarily end your exposure if the new tenant defaults.

4. Check what the landlord can require

The practical constraints.

Financial standing of the proposed assignee, references, a rent deposit, a guarantor, and payment of the landlord's legal and surveying costs. Each is reasonable individually and collectively they can be difficult to satisfy.

5. Expect the process to take months

Plan the timeline accordingly.

Finding a party, obtaining consent, and completing documentation is not a matter of weeks. Businesses planning a move on the assumption of a quick assignment frequently end up paying for two properties. The overlap is what makes an otherwise sensible move expensive.

6. Consider whether subletting suits your situation

Sometimes the more achievable route.

Where you need to release only part of the space, or where a sub-tenant is easier to find than an assignee, subletting can work. It leaves you managing a tenancy and liable for the rent, which is a real ongoing commitment.

7. Look at surrendering the lease instead

Frequently the cleanest option.

Negotiating a surrender with the landlord, usually with a payment, ends the liability entirely. Where the market is strong or the landlord has plans for the building, this can be considerably cheaper than it sounds.

8. Do not simply leave

The worst available option.

Vacating without dealing with the lease leaves you liable for rent, rates and dilapidations for the remaining term. Landlords pursue this, and it is far more expensive than any negotiated exit.

9. Take advice before committing to a new property

Sequence matters.

Establish your exit position first, then commit elsewhere. Businesses that sign a new lease and then discover they cannot exit the old one carry both for years.

Speak to the landlord early and honestly. Many will engage constructively, particularly if they have a use for the building or another tenant in mind, and an early conversation frequently produces a better outcome than working around them.

Conclusion

Establish what your lease actually permits before assuming you can exit.

Understand that assignment transfers the lease while subletting leaves you liable and makes you a landlord, recognise that you may be required to guarantee an incoming tenant, check what conditions the landlord can impose on consent, allow months rather than weeks for the process, consider subletting where it fits your situation, explore surrendering the lease as a cleaner alternative, never simply vacate, and settle your exit position before committing to new premises.