What is an Assignment Clause?
An assignment clause is defined as a contract clause that determines whether the transfer of rights or obligations for all or part of a leased space can be re-assigned from the original lessee to a third party, and under what conditions such an action could take place.
Often an assignment clause is necessary to protect a tenant if there is no option for sublease, if the tenant does not plan to return to the space or to help with rental costs to help tenant avoid being penalized for ending their lease prior to the end of agreement. The clause protects a tenant in cases where they simply outgrow their current space, or in the event of an economic downturn.
Unlike a sublet (sublease), the transfer is for the entire remaining term of the lease and the original tenant gives up all interest in the space and the right to return to the space at a later date.
Assignment Clauses: The Pros and Cons
The inclusion of an assignment clause is beneficial in the following ways:
- Helps with rental costs to avoid being penalized for early departure of space
- Can relieve tenant of lease obligations
- No need to manage subtenant
- Unless otherwise stated original tenant can choose replacement and rent amount
Cons of an assignment clause include:
- The tenant may still be liable for the new tenant even if released by landlord
- Original tenant cannot return to space without an entirely new agreement
- Original tenant still responsible for rent if assignee fails to pay
- May be responsible for other obligations such as paying for any damages to property or keeping insurance current. A tenant may only be freed of these obligations if the landlord signs a release.
Return to the main Glossary of Commercial Leasing Terms.