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Prepare for a potential lease transfer by protecting yourself in writing.
The assignment clause is one of a lease agreement’s most vital components and should be included in the offer to lease. But even if a landlord agrees to give assignment rights to a tenant, he or she might try to stipulate problematic conditions that can cause you to stumble or cost you money later.
Landlords typically frown upon one chiropractic tenant selling a practice and assigning or transferring the lease agreement to another DC. As a best-case scenario to the landlord, the assignment or transfer of the lease represents a lateral move. In the worst-case scenario, the chiropractor sells the practice to a new tenant who runs it into the ground and can’t pay the rent. This is the reason landlords want to check out and approve anyone to whom you want to sell your practice and assign your lease agreement.
Down the road, you may want to downsize or expand your practice. If this is the case, then you can probably 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 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, create a timeline for the landlord to either grant or deny your assignment request. In some situations, a practice sale falls apart simply because the landlord took too long to respond to the assignment request. Ten to 20 days is a reasonable timeframe, 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 terms seem unreasonable.
Be wary of other terms that may have negative implications on the sale of your practice. Some common pitfalls include:
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. Although 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 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 the terms, it can derail the process.
Deposit increase
The landlord may want the buyer of your practice to supply a substantial deposit or personal guarantee 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 negotiated for your benefit. Landlords do not always agree to lease assignments for any number of reasons, and this is their right. Caution should be part of your due diligence as existing terms may not always be directly inherited by or assumed to be passed along to a new assignee. This can kill any deal to sell your practice or even lead to future lawsuits. Never assume that the successfully negotiated terms on your initial lease can be easily transferred, and you’ll be thankful when the time comes to relocate.
Dale Willerton (far left) and Jeff Grandfield (immediate left) are The Lease Coach, commercial lease consultants. They are speakers and the co-authors of Negotiating Commercial Leases and Renewals for Dummies. For a copy of their free CD, “Leasing Do’s & Don’ts for Chiro Tenants,” email your request to dalewillerton@theleasecoach.com. You can also visit them through theleasecoach.com.
