If you are a business owner in New Zealand, then you might have a commercial lease for your premises. This is a document that underpins the legal relationship that you have with your landlord, whilst outlining your rights and obligations. Having a commercial lease allows you to seek remedies if your landlord breaches the contract. However, there may be circumstances where you want to transfer the lease to another party. This article will outline whether you are still liable after transferring a commercial lease and what those liabilities might be.
Assignment
An assignment is a method for a contract to be transferred. The person transferring the contract becomes the ‘assignor’, and the person receiving the contract is the ‘assignee’. An assignment allows the rights and benefits of a contract to be transferred. The rights and benefits are the positive aspects of a contract, such as receiving money or being given something. You cannot transfer obligations under an assignment.
Obligations Under an Assignment
As you cannot transfer obligations under an assignment, you are still liable for any of these once you have assigned a contract, including a commercial lease. Under an assignment, the assignor remains responsible for paying the lease if your assignee fails to pay it themselves. This means if your assignee refuses to pay the lease, then you are legally responsible for making it up.
However, there are different rules if the assignee has made a variation. You are not liable for any obligations to the extent of any variations made to the contract. However, if there was a pre-existing condition on the lease, then you will be legally liable for it. You are also not liable if the assignee has renewed the lease. This is because that will be classed as a new lease between the assignee and the landlord.
Continue reading this article below the formSubleasing
Another method of transferring a commercial lease is through a subletting agreement. This is where a third party leases the property you are already leasing from a landlord. This is a good solution if you will be away for the short term and want to recoup some rental expenses.
Obligations
Under a sublease agreement, you remain fully liable for any obligations under the contract. This means that even if your subleaser does not pay you, you must still pay rent to your landlord. You can recoup any damage to the property from your sub-leaser if it is provided for in the sublease agreement. However, if they refuse to pay, you are still ultimately liable to cover the cost.
How Can I Remove My Liability?
There are a couple of ways in which you can transfer a lease without maintaining any liability. These are to:
- cancel a contract; or
- sign a deed of novation.
Cancel the Contract
The best way to exclude liability is to cancel your contract with your landlord. If you want to leave your commercial lease early, your contract may have a provision that allows you to do this, as long as you can find a replacement tenant. Finding a new tenant means that your replacement tenant signs a new contract with your landlord. This is the best method because you are not under any responsibility, and you can wipe your hands clean with that agreement.
Deed of Novation
A deed of novation allows you to transfer the rights and obligations of an existing contract to a third party. Practically, a new contract has been formed with the third party. This is an excellent way to exclude your liability as it means you are free from any obligations under the contract. However, to undertake a novation, you must get the consent of all the contracting parties.
Key Takeaways
There may be times when you want to transfer your commercial lease. This may be because you want to move to new premises or your lease is getting too expensive. There are a few different ways that you can do this. However, not every way will mean that you are free from all liability once the contract has been transferred. You must understand that under:
- an assignment; or
- a subleasing agreement
you will still have responsibility for any obligations under the contract. Even if you feel as if the new party can cover their payments, you are still legally required to pay up if they fail to do so. Therefore, it is a good idea to use a different method, such as cancelling your contract or using a deed of novation. These methods allow you to be free from obligation or responsibility under the contract.
If you need any legal assistance with transferring your commercial lease, contact LegalVision’s property and leasing lawyers on 0800 005 570 or fill out the form on this page.
Frequently Asked Questions
Unless your contract says otherwise, you usually do not need permission to undertake an assignment.
Yes, you will create a new contract, and you will essentially become a landlord to your sublease. However, you can only undertake a sub-lease arrangement if your landlord allows it. If you sub-lease without permission, you may be in breach of contract.
No, you will usually only be able to cancel the agreement if you have met the terms in the termination clause. However, you can come to an accord with your landlord to cancel the contract.
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