Costs of Lease Assignment

In Business Property

In most (but not all) cases, assignment of a lease will require the landlord’s approval of the incoming tenant. The extent of the landlord’s involvement, as well as factors such as the property’s rental value, cause variation in the costs of different lease assignments.

This article will discuss how the costs are usually allocated between the various parties involved, and (where possible) give a general indication of the amounts which might be involved.

The assignor

The assignor is the existing tenant which wishes to transfer its interest in leased premises to a new tenant (the assignee).

In some circumstances, an assignor might be able to profit from assigning a lease. If rents are generally rising, but the lease specifies infrequent rent reviews, or none at all, then the lease has added value, as rents will stay below the market rate. The assignor might then realise this value by requiring the new tenant to pay a premium. This is particularly likely if there are several prospective tenants interested in the premises.

Conversely, if the rent is high, and there is little demand for the premises, an assignor (or landlord) may pay a reverse premium to the assignee to persuade them to take on the premises.

The assignor will also have to pay their own legal fees for the transaction.  Depending on which party’s solicitors draft the Deed of Assignment, and how much revision and negotiation is necessary, this might cost the assignor more than £1,000, on an hourly rate basis. In order to keep fees down, it might be beneficial to agree a lower fixed-fee arrangement in advance.

The assignee

The assignee will, in many cases, have to pay a premium to the assignor. However, if the premises are less sought-after, they might sometimes receive a reverse premium.

The level of fees in relation to the Deed of Assignment itself are likely to be similar to those which might be incurred by the assignor. However, the assignee typically meets the landlord’s legal fees in addition to its own.
The landlord might also insist on a rent deposit as security, refundable at the end of the assignee’s tenancy, which will involve the preparation of a Rent Deposit Deed.

If the landlord insists that all parties sign a Licence to Assign (recording the conditions on which the landlord consents to the assignment), this might be a further £600–£900 (plus VAT). In some circumstances, an Authorised Guarantee Agreement might also be required, and so the landlord’s legal fees might conceivably run to a significant four-figure sum.

A fee is payable to the Land Registry for registration of an assignment, but apart from some high-value cases, this is likely to be £20–£40.

Stamp Duty Land Tax (or equivalent) is also payable on lease assignments, but only where the premium paid exceeds £150,000. A land transaction tax may be payable in Wales on premiums of over £40,000.

The landlord

As mentioned above, the assignee will typically meet the landlord’s legal fees, but (depending on the circumstances) the landlord might agree to meet some of their own fees.

If the landlord is particularly keen to complete an assignment, they might also consider paying part (or all) of a reverse premium to the assignee.
  

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