7.Drafting the Assignment or Sublease
Drafting the Assignment. The tenant or assignor usually drafts the assignment. Landlord’s counsel should resist drafting the assignment, as neither the tenant nor the assignee is his client. The assignment typically includes: (a) basic representations and warranties by the tenant; (b) an allocation of responsibility for lease obligations between tenant and assignee; and (c) landlord’s consent to the assignment. See Exhibit M for several sample assignments.
The assignee should request that the tenant provide certain representations and warranties in the assignment (ideally, the assignee would like similar representations and warranties from the landlord, but a landlord is likely to resist such a request). Specifically, the assignee wants tenant’s assurances that tenant has provided the assignee with a true, correct and complete copy of the lease, that the lease is in full force and effect, and that the lease has not been modified, supplemented or amended except as expressly set forth in the assignment. The assignee wants tenant to warrant that neither tenant nor landlord is in default under the lease and that tenant has no knowledge of any fact or condition which, with notice or lapse of time or both, would constitute such a default. The assignee also wants tenant to warrant that it has not assigned, transferred or delegated any of its rights or duties under the lease.
Both the tenant and assignee want the assignment to allocate responsibility between the parties. The assignee does not want to take responsibility for pre-assignment costs, such as an underpayment of CAM expenses by tenant. The tenant wants to ensure that the assignee is responsible for all post-assignment costs. Both parties are likely to require an indemnification provision in the assignment that protects them from liability for the other party’s negligence or willful misconduct.
The assignment should exclude any provisions in the lease that are solely for the benefit of the tenant. For example, options to extend the lease term and rights of first refusal are often exclusively for the benefit of the tenant and non-transferable.
Unless the assignment is a permitted transfer that does not require landlord’s consent, the assignment must either include a landlord’s consent clause or incorporate a separate landlord’s consent agreement. If the assignment includes a landlord’s consent clause, the landlord must sign the assignment agreement. The landlord wants language in the consent specifically stating that landlord’s consent to the assignment does not release tenant from liability under the lease. Exhibit L provides a sample landlord’s consent to assignment.
Drafting the Sublease. The tenant or sublandlord usually drafts the sublease using one of three approaches. The simplest approach is for the sublandlord to incorporate the lease in its entirety. This approach, while quick and efficient, is problematic in that it fails to allocate the rights and obligations of the landlord, sublandlord and subtenant and is likely to incorporate terms into the sublandlord – subtenant relationship that do not belong there (such as the limitation of landlord’s liability to its equity interest in the building/project). A second approach is for the sublandlord to create a new sublease that restates all of the applicable terms in the lease and provides new terms. This approach is also problematic in that it is highly inefficient, encourages renegotiation of lease provisions and increases the risk that a provision in the sublease will contradict the lease. The third and best approach is an approach that incorporates