Form-of-the-week: Assignment of Lease – Form 595 and 596
Transfer of any interest
A commercial lease agreement entered into by a tenant contains an assignment and subletting provision. This provision is also called a:
- restriction-on-transfer provision;
- restraint-on-alienation provision; and
- lease assumption.
This restriction-on-transfer provision either prohibits any transfer of the tenant’s interests in the leased property or requires the landlord’s consent prior to assigning, subletting or further encumbering the tenant’s leasehold interest. If the provision permits an assignment or subletting, it states the landlord’s consent requires modifications in the terms for rent or that the landlord’s consent will not be unreasonably withheld. [See RPI Form 552 §9 and 552-7]
An assignment of the leasehold held by the original tenant under a lease agreement transfers the tenant’s entire interest in the property to a successor tenant, leaving no interest held by the original tenant. However, on an assignment the original tenant named on the lease agreement remains liable for the successor tenant’s performance on the lease, whether or not the landlord consents to the assignment or that the successor tenant becomes primarily responsible for the lease obligations.
The successor tenant’s act of accepting responsibility on the prior tenant’s lease agreement is called an assumption. [See RPI Form 596]
For the original tenant to be released of their liability under the lease agreement on an assignment, a novation (also known as a substitution of liability) needs to be negotiated and entered into by the landlord and both the original and successor tenants. [Samuels v. Ottinger (1915) 169 C 209]
In contrast to an assignment, when entering into a sublease with a subtenant, the original tenant (who is now a master tenant) transfers to the subtenant less than all of the master tenant’s interest in the property. Also, possession reverts back to the master tenant on expiration of the sublease.
The master tenant granting the sublease remains obligated to perform under the terms of the master lease agreement. The subtenant does not assume liability of the master lease. However, the subtenant may not act in any way to breach the master lease agreement. The subtenant receives a copy of the master lease agreement as an attachment to the new lease agreement they enter into to create the sublease. [See RPI Form 552 §2.5]