Explaining the document that enables a landlord to grant formal consent for a tenant to assign their lease to a third party.
What is a Licence to Assign?
A licence to assign is a landlord’s formal permission allowing a tenant to transfer (or “assign”) their lease to a third party. In many commercial (and some residential) leases, the tenant cannot assign the lease without the landlord’s consent, as specified in the lease terms. The licence sets out the conditions of that consent, often requiring the incoming tenant to meet certain criteria and sometimes including guarantees or obligations to protect the landlord’s position.
What is the Licence to Assign process?
- Review the lease: Check the lease terms to confirm whether landlord consent is required and identify any conditions attached.
- Submit a request: Make a formal application to the landlord or their managing agents, typically via solicitors. At this stage, the landlord’s solicitors may request an undertaking from the outgoing tenant’s solicitor to cover their legal fees.
- Landlord due diligence: The proposed assignee may be required to provide references and/or financial information.
- Draft the licence: Once consent is granted in principle, the Licence to Assign is prepared, setting out the terms on which consent is given.
- Signatures and completion: The licence is executed by the landlord, the outgoing tenant (assignor), and the incoming tenant (assignee).
Who drafts a Licence to Assign?
Tenant’s solicitor: In most transactions, the outgoing tenant’s lawyer prepares the first draft because it is the tenant that is seeking consent to assign the lease.
Landlord’s solicitor: The landlord (or their lawyer) will review, amend, and approve the document since the licence represents the landlord’s formal consent. In some cases, the landlord’s solicitor may provide their standard form of licence.
What do Licences to Assign cost?
There is no fixed cost for a Licence to Assign. The cost depends on the property being assigned and factors such as lease complexity and the fees for the Landlord’s solicitor. The outgoing tenant usually bears most of the cost, including the landlord’s legal fees, which are typically the largest element and range from about £750 to £2,000 plus VAT, but may exceed £5,000 for more complex transactions. The tenant will also incur their own solicitor’s fees, usually between £600 and £1,500 plus VAT, while the incoming tenant (assignee) tends to pay their own legal costs of around £500 to £1,500 plus VAT. Additional expenses may include the landlord’s surveyor’s fees, often between £300 and £1,000 or more, and any costs associated with ancillary documents such as a deed of covenant or rent deposit deed.
Who pays for the Licence to Assign?
In a typical commercial lease transaction, the outgoing tenant usually pays for the licence to assign, as most leases require the tenant seeking consent to cover the landlord’s reasonable legal and professional fees as well as their own costs, while the incoming tenant generally pays only their own legal fees.
Does a Licence to Assign need to be Registered?
A licence to assign itself does not need to be registered, as it is only evidence of the landlord’s consent, although the assignment of the lease that follows may require registration at the Land Registry depending on the nature of the lease.
A licence to assign is an important safeguard in leasehold transactions, ensuring that any transfer of a lease is carried out with the landlord’s consent and on appropriate terms. Understanding the conditions attached to that consent and the limits on a landlord’s ability to refuse it can help avoid delays and potential disputes. Seeking legal advice ensures the process is handled correctly and that both parties’ interests are protected.
If you require assistance with a licence to assign, please contact our Real Estate Team who would be happy to help guide you through the process.
This article is part of our “What Is It” series where we consider various property documentation and explain what it is and when it is used, find more in the series here.
