Selling a business is about far more than agreeing a purchase price. If the business operates from leased commercial premises, one of the most important legal considerations is whether the lease can be transferred (“assigned”) to the buyer.
In many cases, the buyer will want to continue trading from the existing premises. However, unless the lease specifically allows it, a commercial tenant cannot simply transfer the lease to a new owner. Instead, the landlord’s consent is usually required by way of a Licence to Assign.
Obtaining that consent is often a key part of the transaction and, if not dealt with properly, can delay or even jeopardise the sale of the business.
At AFG Law, our Commercial Property team regularly advises buyers and sellers on business sales involving leasehold premises, helping clients through the licence to assign process and keep transactions moving.
What is a Licence to Assign?
A Licence to Assign is a legal document issued by the landlord giving permission for the current tenant (known as the assignor) to transfer their lease to a new tenant (the assignee).
The licence records the landlord’s consent to the assignment and often includes conditions that must be satisfied before the transfer can take place. Without the appropriate consent, assigning a lease may amount to a breach of the lease, potentially giving the landlord the right to take enforcement action.
Why is a Licence to Assign Required?
Most commercial leases prohibit assignment without the landlord’s written consent. This protects landlords by allowing them to assess whether the proposed incoming tenant is financially strong enough to comply with the lease and operate successfully from the premises.
From the landlord’s perspective, they entered into the lease with one business, not necessarily the purchaser of that business. A licence to assign provides an opportunity to review the proposed tenant before agreeing to the transfer.
Is Landlord’s Consent Always Required?
The landlord’s consent is not always required, so the starting point is to review the lease carefully. Some leases prohibit assignment altogether, while others permit assignment subject to certain conditions. In most modern commercial leases, assignment is permitted provided the landlord’s consent is first obtained.
In many cases, the lease will state that consent must not be “unreasonably withheld or delayed”. This means the landlord cannot refuse consent without a valid reason, although what is considered reasonable will depend upon the circumstances.
Why is This Important During a Business Sale?
Where the business is being sold as a going concern, the premises are often one of its most valuable assets. The buyer may only be willing to proceed if they can continue operating from the same location.
For example:
- A retail shop with an established customer base.
- A restaurant with valuable footfall.
- A manufacturing business requiring specialist premises.
- Professional offices with long-term clients.
If landlord’s consent cannot be obtained, the buyer may withdraw from the transaction or seek to renegotiate the purchase price. For this reason, the lease should be reviewed at an early stage of the business sale.
What Will the Landlord Consider?
Before granting consent, landlords will usually want to understand who will be taking over the lease.
They may request information including:
- Company accounts.
- Financial references.
- Bank references.
- Business plans.
- Details of previous trading history.
- Information about directors or guarantors.
The landlord’s primary concern is whether the incoming tenant will be able to comply with the lease obligations and continue paying the rent.
Can the Landlord Impose Conditions?
Yes. Depending on the lease, the landlord may grant consent subject to conditions. These commonly include:
- Payment of legal costs.
- Provision of financial information.
- An Authorised Guarantee Agreement (AGA).
- Rent deposits.
- Personal guarantees.
- Completion of outstanding repairs.
Some of these conditions are expressly permitted by the lease, while others arise through legislation or negotiation. Understanding whether proposed conditions are reasonable often requires specialist legal advice.
What is an Authorised Guarantee Agreement?
One of the most common conditions is an Authorised Guarantee Agreement (AGA). An AGA requires the outgoing tenant to guarantee the incoming tenant’s performance of the lease.
If the new tenant later breaches the lease or fails to pay the rent, the outgoing tenant may remain liable in certain circumstances. Whether an AGA can be required depends upon the terms of the lease and the applicable legislation.
Its potential financial implications should never be overlooked during a business sale.
Can the Landlord Refuse Consent?
Sometimes. A landlord cannot simply refuse consent because they do not wish the business to be sold.
However, they may have reasonable grounds for refusal, such as:
- Poor financial standing of the proposed tenant.
- Unsuitable proposed use of the premises.
- Previous breaches of covenant.
- Failure to provide requested information.
- Existing rent arrears.
Each case depends upon its own facts. Where consent is unreasonably withheld, legal remedies may be available.
Timing is Important
One of the most common causes of delay during business sales is leaving the licence to assign process until the last minute. Ideally, solicitors should review the lease as soon as the sale is agreed.
This allows:
- Financial information to be prepared.
- Landlord enquiries to be answered.
- Draft documentation to be negotiated.
- Conditions to be satisfied before completion.
Early preparation can significantly reduce delays.
What If Alterations Have Been Made?
Before granting consent, landlords sometimes review the current condition of the premises. If alterations have been carried out during the tenancy, the landlord may ask for evidence that the appropriate licences for alterations were obtained.
Unauthorised works can complicate both the licence to assign and the wider business sale. Resolving these issues before completion is usually preferable to leaving them for the buyer to discover during due diligence.
What About Rent Arrears?
Outstanding rent or other breaches of the lease can also affect the landlord’s decision. If the tenant is already in breach, the landlord may refuse consent until those breaches have been remedied.
For this reason, sellers should ensure:
- Rent is fully paid.
- Service charges are up to date.
- Insurance contributions have been settled.
- Other lease obligations have been complied with.
Legal Due Diligence
For buyers, the licence to assign is only one part of the wider legal due diligence exercise. Their solicitor will also review:
- The lease.
- Rent review provisions.
- Repairing obligations.
- Service charges.
- Break clauses.
- Security of tenure.
- Rights affecting the property.
- Existing licences and consents.
Understanding the lease before completing the purchase helps avoid unexpected liabilities after completion.
Common Mistakes
Some of the most common issues we encounter include:
- Assuming the lease can be transferred automatically.
- Waiting too long before contacting the landlord.
- Failing to provide sufficient financial information.
- Overlooking Authorised Guarantee Agreements.
- Ignoring outstanding lease breaches.
- Failing to obtain specialist legal advice.
Addressing these issues early usually leads to a smoother transaction.
How AFG Law Can Help with Licence to Assign?
Whether you are buying or selling a business, our Commercial Property solicitors work closely with our Corporate team to ensure leasehold issues are dealt with efficiently and proactively.
We can assist with:
- Reviewing commercial leases.
- Advising whether landlord’s consent is required.
- Preparing and negotiating Licences to Assign.
- Advising on Authorised Guarantee Agreements.
- Liaising with landlords and their solicitors.
- Resolving lease issues identified during due diligence.
- Supporting buyers and sellers throughout the transaction.
A Licence to Assign is often one of the most important legal documents in a business sale involving leasehold premises. Dealing with it early can help prevent delays, reduce risk and provide greater certainty for everyone involved.
At AFG Law, we understand that buying or selling a business is a significant commercial decision. Our experienced Commercial Property team works alongside our Corporate lawyers to provide practical, commercially focused advice at every stage of the transaction, helping you complete your sale with confidence.