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Retail Lease Assignment

Posted by capital on April 6, 2018
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If a retailer wants to sell their business and assign the lease, the landlord usually requires the tenant to stay on as a personal guarantor for the remainder of the term.  It is unusual for a landlord to automatically release a tenant from liability when the lease is assigned.  It’s a question of assumption of the risk – in the landlords opinion, it is up to tenant to assess the risk and assure that the lease is assigned to a solid successor, in which case the tenants risk is mitigated.  If on the other hand, the lease is assigned to a less qualified (both qualitative and quantitative) successor, the tenant is asking that Landlord take risk they never agreed upon.  At a minimum the Landlord would require the successor have the same or better credit worthiness and experience. Essentially, the landlord does not want to be in a position at a later date of having to make that determination again regarding a successor. We often negotiate a compromise which might look like this  (i) Tenant agress to have the personal guaranty extend for 18 months after which time they are to be released, or (ii) be permitted to exchange a guarantee for a letter of credit in an amount to be agreed upon (i.e. $10,000).

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