Assignment of a commercial lease for an English company: France and England
A UK company looking to vacate its premises can consider assigning its commercial lease to a successor. This process allows for the transfer of the lease agreement, but it requires verifying the conditions imposed by the lease and the obligations that will remain in effect after the assignment.
Two situations must be distinguished: that of a UK company holding a lease in France and that of a company assigning a lease for premises in England. The nationality of the company is not enough to determine the applicable rules. The location of the premises, the terms of the contract, and, in England, the type of lease are the deciding factors.
What is transferred when a UK company assigns a commercial lease?
The existing lease passes to a new tenant
Lease assignment consists of transferring the position of tenant to a third party. The outgoing company is called the assignor; the successor is the assignee. The latter gains the right to use the premises and assumes the obligations attached to the contract.
The transaction does not automatically create a new lease. The successor enters into the existing contract for the remainder of its term. They must therefore examine the conditions they are taking over: rent, service charges, permitted use, and expiration date.
For the outgoing company, finding a successor is not enough. It is also necessary to ensure that the transfer is permitted and to determine whether it releases the company from its future obligations. An assignment may allow for vacating the premises while maintaining certain guarantees for the benefit of the landlord.
An assignment distinct from the sale of a business (fonds de commerce)
In France, the distinction between assigning a lease alone and selling a business (fonds de commerce) is essential. Article L. 145-16 of the French Commercial Code specifically protects the transfer of the lease to the purchaser of the business against clauses that would prohibit it.
This protection does not extend to an isolated assignment of the leasehold right. An English company wishing to transfer only its lease agreement must therefore check for contractual restrictions, even if it has already found a buyer.
It is also important to distinguish this operation from a sublease. In a sublease, the primary tenant retains their position in the lease and grants a third party the right to occupy the premises. In an assignment, the new tenant becomes the holder of the contract themselves.
What are the conditions for assigning a commercial lease for an English company in France?
Reviewing prohibition and approval clauses
A French commercial lease may prohibit the assignment of the leasehold right alone. It may also authorize it subject to the prior agreement of the landlord, known as approval. Other clauses govern the landlord's involvement in the deed or the notification procedures.
The first step is therefore to review the lease and its amendments. Verbal authorization or informal exchanges should not be considered sufficient when the contract requires a specific procedure.
If the assignment is prohibited, negotiation with the landlord may be considered to obtain express authorization. If it is subject to approval, the application must clearly present the buyer, their business activity, and the proposed guarantees. Signing may be conditional upon obtaining this agreement.
Verify the authorized business activity and the obligations being assumed
Authorization to assign a lease does not necessarily imply authorization to change the business activity conducted on the premises. A buyer wishing to operate a different business must verify its compatibility with the contractual permitted use and the rules applicable to changing business activities.
The analysis must also cover charges, renovations, repairs, insurance, and any ongoing legal proceedings. The existence of unpaid debts or prior breaches can complicate the transaction and must be addressed in the assignment documents.
The remaining lease term is another key point of negotiation. A lease nearing its expiration does not offer the same long-term security as a recently renewed contract. The buyer must examine the conditions for continuing occupancy rather than assuming they will immediately have a new lease term.
Identify the English company and its representative
The international dimension requires verifying which legal entity actually holds the lease. The trade name used on a daily basis may differ from that of the signatory company.
The documents must clearly identify this company, its registration number, and its representative. The signatory's authority must also be verified, especially when the signature is provided via delegation.
When a French branch operates the premises, the parent company must be identified: a branch is not a separate legal entity. Any requirements for translation or certification are assessed based on the documents and the specific needs of the transaction.
What formalities govern the assignment of a commercial lease by an English company in France?
Verify the municipal right of first refusal
Before finalizing the assignment, you must check whether the premises are located within a protected area for local commerce and craftsWhen conditions are met, the municipality may hold a right of first refusal on the transfer of the leasehold interest.
The corresponding prior declaration must therefore be integrated into the project timeline. Parties must anticipate this step before making a final commitment or setting a transfer date that is incompatible with the procedure.
Drafting the deed and organizing landlord notification
The transfer must be formalized in writing. The deed identifies the parties, the contract being transferred, the price (if any), and the effective date. It also specifies the conditions precedent, the handling of outstanding amounts, and the obligations of each party.
Notification to or acceptance by the landlord must be handled in accordance with the contract, the form of the deed, and applicable enforceability rules. Their participation in the signing can help clarify agreements, but it does not exempt the parties from fulfilling necessary formalities.
A property inspection report must also be scheduled. The status of the security deposit requires special attention: the parties must determine how it will be handled with the landlord and avoid assuming it will be automatically refunded to the outgoing company.
Registering the transfer and anticipating costs
The deed of transfer for the leasehold interest must be registered with the relevant tax authority within one month of signing. Registration duties may be payable; responsibility for these costs must be specified between the parties.
The budget should also include any potential drafting, notification, and translation fees. The tax treatment of the gain realized by the English company requires a separate analysis, taking into account its Franco-British status.
To prepare for a lease assignment in France, the main steps are as follows :
- Review the lease, its amendments, and existing guarantees.
- Obtain the landlord's consent when required by the contract.
- Check for any municipal right of first refusal and file the necessary declaration.
- Draft the deed and arrange the property inspection as well as the handling of the security deposit.
- Complete the formalities to make the assignment enforceable against the landlord.
- Register the deed and pay any duties that may be due.
How do you assign a commercial lease for a British company in England?
Review the assignment of lease clause
In England, the transfer is called assignment of lease. The outgoing tenant is theassignor and the new tenant is theassignee. As in France, reviewing the lease agreement is the starting point.
The lease may prohibit assignment or make it subject to the landlord's consent. When it provides for assignment with consent, English law may require that such consent not be unreasonably withheld, even if this is not expressly stated in the contract. However, this mechanism does not turn an absolute prohibition into an authorization to assign.
It is also necessary to distinguish between an assignment of the entire premises and a partial assignment, which may be subject to different restrictions. The rules presented here apply to England and should not be applied indiscriminately to all territories of the United Kingdom.
Preparing the request for landlord consent
When their consent is required, the landlord must receive a written request accompanied by relevant information about the new tenant. The application may include their financial situation, business activities, and proposed guarantees.
When the Landlord and Tenant Act 1988 applies, the landlord must process the request within a reasonable timeframe and notify their decision in writing. A refusal must be justified the terms of an agreement must also be specified. There is no single timeframe applicable to all requests.
Whether a refusal or a condition is reasonable depends on the lease and the specific circumstances. The assignee's financial standing can become a central point of discussion. A landlord's silence should not be interpreted as authorization to proceed freely with the assignment.
Formalizing consent and the transfer
Consent is generally documented through a licence to assign. This document sets out the landlord's authorization and the associated commitments. It must be distinguished from the deed that actually executes the lease transfer.
The documents must set out the effective date, adjustments for rent and service charges, and the deposit and guarantees. Formalities with the Land Registry must also be reviewed depending on the status of the title.
An assignment may trigger obligations under Stamp Duty Land Tax, particularly when a premium is paid to acquire the existing lease. Any tax due and the filing obligation must be checked separately, as the latter may exist even if no tax is payable.
After the assignment of a commercial lease, does the English company remain liable?
In France, verify the assignor's guarantee
A clause may maintain a guarantee from the outgoing company for the benefit of the landlord. The landlord may then invoke it in the event of the assignee's default, under the conditions applicable to that guarantee.
Article L. 145-16-2 of the French Commercial Code limits the period during which the landlord may invoke this clause to three years after the assignment. Article L. 145-16-1 also stipulates that the landlord must inform the assignor of any payment default within one month of the missed due date.
The landlord's agreement to the assignment does not necessarily mean they waive the guarantee. This issue must be addressed explicitly. Debts and breaches prior to the assignment must also be distinguished from obligations concerning the future period.
In England, understand the Authorised Guarantee Agreement
For leases governed by the Landlord and Tenant (Covenants) Act 1995, a valid assignment may release the outgoing tenant from future obligations. However, when legal conditions permit, the landlord may request an Authorised Guarantee Agreement, commonly known as an AGA.
The assigning company then guarantees the obligations of its immediate successor. This guarantee may maintain financial exposure after their departure. Its scope must be carefully examined; it should not indiscriminately cover all future successive tenants.
The French three-year limit does not apply to the AGA. The regime for older leases may also differ. The date of the lease, the conditions under which it was concluded, and any prior deeds must therefore be verified before concluding that the assignor will be released.
The main differences between the two situations can be summarized as follows:
Preparing the assignment of a commercial lease for an English company
The assignment of a commercial lease should be prepared as soon as the contract is reviewed. The lease and its amendments, guarantees, information about the transferee, and company documents help identify the necessary authorizations and the risks that will remain after the transaction.
For an English company, the Franco-British dimension also requires coordination of documents and stakeholders. The timeline must take into account the landlord's consent, any preliminary formalities, and the conditions for signing.
Are you planning to assign a commercial lease in France or England? Contact Azmy Avocat to present your project and discuss the terms of support tailored to your situation.
