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Commercial Lease Assignment and Subleases Part 2: What Due Diligence Should Landlord Conduct

Just because a tenant requests a landlord consent to an assignment or sublease doesn’t mean that the landlord must or should consent. Depending on the terms of the particular lease, a commercial landlord typically has the right to reject a request so long as it is not unreasonable. Therefore, when exercising its rights to review and consent, commercial landlords should perform due diligence to determine if the assignee or sublesee is acceptable.

With respect to an assignment, landlord should conduct due diligence to determine if the assignor has the financial ability to perform all of the tenant obligations under the lease. The landlord’s scope of due diligence is determined by the requirements contained in the lease. Evidence that the assignee has sufficient operating capital to meet the financial obligations of the lease and a satisfactory business plan are often sufficient criteria for the landlord. A landlord should also be concerned that the assignor’s business is compatible with the permitted use clause in the lease and does not conflict with any other tenants’ exclusive use clauses, the overall type, class and quality of the assignee’s business are compatible with landlord’s building, the assignee will be an asset to landlord’s tenant base in the building.

With respect to a sublease, a landlord may undertake less due diligence for a subtenant because the tenant remains fully liable for all tenant obligations under the lease. The scope of landlord’s due diligence is determined by the requirements of the lease, and usually depends on the size of the subleased premises, the amount of rent payable and the sublease term. A landlord should review the sublease, review the subtenant’s information required under the lease and confirm that the subtenant complies with the requirements under the lease.

Landlords should carefully consider requests from tenants for approval of assignments and subleases. It may be prudent to retain experienced legal counsel to review proposed agreements to ensure that the landlord’s rights are adequately protected. Call the experienced Florida business litigation attorneys at Rosenthal Law Group to start exploring your options today. Use our online form to request a case evaluation.

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