Sublease vs assignment of lease: how they differ and when to use each
Two different ways to transfer the use of premises
When you no longer want, or are no longer able, to keep using premises for the full lease term — whether because you want to sell the business, scale down operations, or for some other reason — there are two main legal tools: sublease and assignment. They work through different mechanics and carry different legal consequences for you.
Assignment of lease — transferring everything
In an assignment, you transfer all of your rights and obligations under the lease to someone else (the assignee). After the assignment is complete:
- The assignee becomes the direct tenant with the landlord
- You no longer have a day-to-day relationship with the premises
- But you may still have liability to the landlord if the lease has a clause keeping the outgoing party on the hook (original tenant liability) — this is common in many commercial leases
Assignment is the route usually taken when selling a business — the buyer takes over the business and needs to keep using those premises.
Conditions: Most leases require the landlord’s consent before an assignment. The landlord usually has the right to check the assignee’s creditworthiness and may refuse if there are reasonable grounds. For retail leases, some states provide that the landlord cannot refuse unreasonably.
Sublease — sharing part or all of the space
In a sublease, you (the head tenant) let part or all of the premises to a third party (the subtenant), while you remain the principal tenant with the landlord:
- You still have to pay the rent to the landlord and bear all the obligations under the original lease
- You have a separate contract with the subtenant
- If the subtenant does not pay you, you still have to pay the landlord
A sublease is usually used when you want to share spare space, reduce the burden of the premises cost, or temporarily let someone else use it while you wait to sell the business or change your plans.
Conditions: As with assignment, most leases require the landlord’s consent before a sublease. Some leases prohibit subleasing entirely — check the terms of your lease.
Comparing the risks
| Assignment | Sublease | |
|---|---|---|
| Who is the principal tenant with the landlord | The assignee (after assignment) | You (the head tenant) still are |
| Do you remain liable | Possibly, depending on the terms | Yes — you still bear it all |
| If the subtenant/assignee does not pay | Little effect on you (depending on the terms) | You have to pay the landlord |
| Suited to | Selling a business, exiting the lease long-term | Sharing space, reducing cost temporarily |
What does your lease say?
Before going ahead with any assignment or sublease:
- Read the assignment/sublease clause in your current lease
- Determine whether the landlord must consent, and within what time frame
- Understand the conditions on which the landlord may refuse (what are the reasonable grounds?)
- Consider whether you remain liable after an assignment
Never sublease or assign without the landlord’s consent if the lease requires it — breaching this clause is usually grounds for the landlord to terminate your lease.
When selling a business that comes with premises
This is the most common situation requiring an assignment: you want to sell the business and the buyer needs to keep using the same premises. The process:
- Check the assignment clause in the lease
- Notify the landlord of your intention to sell and assign the lease
- The landlord checks the buyer (creditworthiness, industry experience)
- The landlord grants consent to the assignment (possibly with conditions)
- A solicitor prepares the Deed of Assignment
If the landlord refuses to consent to the assignment without reasonable grounds (for retail leases, depending on the state), you may be able to complain to the state’s dispute resolution body.
The time it takes to obtain the landlord’s consent usually runs to several weeks — factor this into the timeline when planning to sell the business.