Tips for Tenants when Deciding Between an Existing Lease Assignment and a New Lease

Deciding between taking over an existing lease through an assignment or entering into a new lease is a significant decision for any tenant. Each option comes with its own set of advantages and disadvantages and understanding these can help you to make an informed choice which is most preferable for your business needs.
 

Advantages of Taking on an Existing Lease (i.e. Assignment)
 
One of the primary advantages of having an existing lease assigned to you is the potential for lower costs. Often, the existing lease might have been negotiated at a time when market conditions were more favourable, resulting in a lower rent than what is currently available (unless the existing lease contains specific rent review provisions). Additionally, by taking over an existing lease, you can often avoid the upfront costs typically associated with a new lease, such as hefty security deposits or initial rent premiums.
 
Another significant benefit is the predictability and established nature of the lease terms. Since the conditions are already set, there is no guesswork involved. You know exactly what you are stepping into, which can provide a sense of stability.
 
Disadvantages of Taking on an Existing Lease (i.e. Assignment)
 
However, there are notable disadvantages to consider. The inflexibility of pre-existing terms can be a significant limitation. You must accept the terms as they are, which might not be as favourable as what is available in the current climate or might not meet all of your specific requirements. Additionally, the remaining lease term might be shorter than desired, potentially necessitating a renegotiation or a move sooner than planned.
 
Another concern is the potential for inherited liabilities and obligations. Any problems or disputes with the landlord, or issues with the property that existed under the previous tenant may become your responsibility. This includes any remaining financial obligations or legal liabilities from the original lease.
 
Moreover, the assignment process itself can be cumbersome. Typically, the landlord must approve the assignment, which can sometimes run the risk of being denied.
 
Advantages of Taking a New Lease
 
On the other hand, entering into a new lease offers the opportunity to negotiate terms that are tailored to your current needs and market conditions. This customisation can be a significant advantage, allowing you to secure a lease length that matches your strategic plans and includes favourable terms.
 
Another key benefit of a new lease is the possibility of landlord incentives. Landlords often offer incentives to attract new tenants, such as rent-free periods, contributions towards fit-out costs or other financial perks. These incentives can significantly reduce your initial expenses and provide a financial cushion during the early stages of your tenancy.
 
Additionally, starting with a clean slate, free from any historical liabilities, is a notable advantage. There are no pre-existing issues or disputes to worry about, which can simplify your tenure and reduce unforeseen complications. This fresh start allows you to establish your tenancy on solid ground, ensuring that your operations can proceed smoothly without inherited problems.
 
Disadvantages of Taking a New Lease
 
However, these benefits come at a cost. New leases are often negotiated at current market rates, which might be higher than an older lease being assigned. This can lead to higher rent expenses. Additionally, there are significant upfront costs to consider, including security deposits and fit-out expenses.
 
The negotiation process for a new lease can also be time-consuming. Starting from scratch means that every term and condition needs to be agreed upon, which can delay occupancy. This added time and effort can introduce uncertainty and potentially disrupt your plans.
 
Finally, new leases might come with provisions for higher rent increases, especially if the market is on an upward trend. This can lead to significant future costs that need to be factored into your financial planning.
 
Making the Right Choice
 
Ultimately, the decision between assigning an existing lease and taking a new lease depends on your specific circumstances and priorities. An assignment might be beneficial if you are looking to minimise costs and move in quickly, but it comes with the risk of inflexibility and inherited issues. A new lease offers the chance for customisation and a fresh start but involves higher costs and a longer negotiation process.
 
Carefully evaluating your needs, conducting thorough due diligence and weighing the pros and cons of each option will help you make the best decision for your business.

If you are a Commercial Property Tenant and looking to out a new Lease, or take over an existing Lease, contact a member of our Commercial Property Team to discuss how we can help.