what is assignment and assumption of lease

Assignment and Assumption of Lease and Landlord Consent

You can use a Lease Assignment to outline the terms for assigning the responsibilities of a lease to someone else. You need to make sure that the landlord has given his or her consent for the Lease Assignment to go into effect. The terms of assignment, consent of the lessor, and acceptance by the assignee are covered in this Lease Assignment, including the length of the assignment, consent of the person taking over the lease, and acceptance by you, the current lease holder. A Lease Assignment transfers the rights and obligations of an existing lease from one tenant to another.

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ASSIGNMENT AND ASSUMPTION OF LEASE AND LANDLORD CONSENT

THIS ASSIGNMENT AND ASSUMPTION OF LEASE AND LANDLORD CONSENT (" Agreement ") is effective as of _________________ (the “ Effective Date ”), between  _____________  a ________________ corporation (" Assignor "), and ________________   a ________________ corporation (" Assignee ") who agree as follows:

A.              Lease .  ________________ a Delaware corporation (“ Landlord ”), and Assignor, as tenant, are parties to that certain Master Lease dated as of ________________  (the “ Master   Lease ”), pursuant to which Assignor leased from Landlord, and Landlord leased to Assignor, certain premises consisting of approximately ________________ rentable square feet located ________________ (the “ Leased Premises ”) in the building with a street address of ________________________________  (the “ Building ”).  A true, correct and complete copy of the Lease is attached hereto as  Exhibit “A”  and is by this reference incorporated herein and made a part hereof.  The Lease is scheduled to expire on ________________. 

B.         Assignor desires to transfer and assign all of its right, title and interest, as subtenant, in, to, and under the Lease to Assignee, and Assignee wishes to assume all of Assignor's duties, liabilities, and obligations thereunder.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties mutually covenant and agree as follows:

1.               Assignment .  Assignor, for and in consideration of the payment of rent and the performance of all of the Lease covenants by Assignee as successor subtenant under the Lease, does hereby grant, assign, and convey to Assignee all of Assignor’s right, title, and interest in and to the Lease, for the residue of the term of the Lease, at the rent and other charges set forth in the Lease and subject to the conditions contained in the Lease and henceforth to be performed and observed by Assignee.    

2.               Performance of Lease Covenants and Conditions; Assumption . For the benefit of Assignor and Landlord and Landlord, Assignee hereby assumes all rights, duties, and obligations of the subtenant under the Lease and Assignee hereby covenants and agrees to perform all of the duties and obligations of the subtenant pursuant to the Lease from and after the Effective Date as if Assignee were the original subtenant thereunder. Assignee shall make all payments of rent, additional rent, and other sums due under the Lease from the subtenant thereunder, for the period from and after the Effective Date, when due and payable strictly in accordance with the terms, covenants, and conditions of the Lease.

3.               Letter of Credit .  Within three (3) business days following the full execution of this Agreement by the parties hereto, Landlord’s execution of its consent and Landlord’s execution of the Landlord’s Consent, each as set forth below, Assignee shall deliver to Landlord a letter of credit which satisfies the requirements of Section 21 of the Lease.  Within three (3) business days following Landlord’s receipt of such Letter of Credit from Assignee, Landlord shall return the original Letter of Credit to Assignor and thereafter such original Letter of Credit shall be void and of no further force or effect. 

4.               Possession . Assignor hereby tenders, and Assignee hereby accepts, possession of the Premises in its “AS IS,” “WHERE IS,” AND “WITH ALL FAULTS” condition. Assignor makes no representations or warranties with respect to the physical condition of the Premises or the suitability thereof for Assignee’s use.

5.               Assignment and Subleasing . Subject to the provisions of the Lease, Assignee may assign the Lease, or sub-lease all or any portion of the Premises, but Assignee must also obtain Assignor’s prior written consent, which consent shall not be unreasonably withheld or delayed. As a condition of granting such consent to an assignment, Assignor may require that the new assignee assume the obligations of the subtenant under the Lease and take subject to all of the terms and conditions contained both in the Lease and this Agreement and as a condition of consenting to any lease, Assignor may require that each sublessee agree, by an express provision in its lease, to be bound by all of the terms and provisions of the Lease and this Agreement.  If Assignee assigns the Lease or leases the Premises, in whole or in part, Assignee shall nevertheless remain liable to Assignor for the full performance of Assignee’s obligations under the Lease and this Agreement.

6.               Entry . Assignee agrees that Assignor may at any time during the regular business hours enter upon the Premises for purpose of inspecting the same.

7.               Insurance . Assignee agrees to maintain in effect all of the insurance coverages required to be maintained by the subtenant under the Lease and to provide evidence of such insurance to Assignor from time to time. Assignee agrees to name Assignor as an additional insured under the general liability insurance carried by Assignee with respect to the Premises.

8.               Lease Amendments or Modifications . Assignee shall not enter into any lease amendments or modifications of the Lease with Landlord without the prior written consent of Assignor, which consent shall not be unreasonably withheld or delayed.

9.               Broker Commissions; Fees .  Assignee acknowledges and agrees that Assignee shall be solely responsible for the payment of all broker commissions in connection with this Agreement.  Each of Assignee and Assignor represents and warrants to the other that it has taken no act nor permitted any act to be taken pursuant to which it or the other party hereto might incur any claim for brokerage commissions or finder’s fees in connection with the execution of this Agreement other than Jones Lang LaSalle representing Assignee and CBRE representing Assignor.  Each party agrees to indemnify, defend and hold the other harmless against all liabilities and costs arising from a breach of such representation and warranty, including, without limitation, for attorneys’ fees and costs in connection therewith.  In addition, Assignee shall pay any fees charged by Landlord and Landlord in connection with obtaining the consent of each of them.

10.            Indemnification.    Assignee hereby indemnifies and holds Assignor and its officers, directors, shareholders, members, affiliates, representatives, agents, employees, successors and assigns harmless from and against all claims, damages, demands, losses, expenses and costs incurred, arising out of, or in connection with Assignee’s failure, from and after the Effective Date, to observe, perform and discharge any and all of the subtenant’s covenants, obligations and liabilities in connection with the Lease.  Assignor hereby indemnifies and holds Assignee and its officers, directors, shareholders, members, affiliates, representatives, agents, employees, successors and assigns harmless from and against all claims, damages, demands, losses, expenses and costs incurred, arising out of, or in connection with Assignor’s failure to the extent accruing prior to the Effective Date, to observe, perform and discharge any and all of the subtenant’s covenants, obligations and liabilities in connection with the Lease.

11.            Defaults under Lease . Within two (2) days after receiving any notice from Landlord relating to the performance of the obligations of the subtenant under the Lease, Assignee shall send a copy of such notice to Assignor. Within two (2) days after receiving any notice from Landlord relating to the performance of any obligations of the subtenant under the Lease, Assignor shall send a copy of such notice to Assignee. If Assignee is in default under the provisions of the Lease or this Agreement, and if Assignee fails to cure such default within fifteen (15) days after receipt of notice from Landlord or Assignor specifying the nature of such default with respect to non-monetary defaults and two (2) business days with respect to monetary defaults, then Assignor may reenter the Premises, with or without process of law, and cure such default, in which event Assignee shall promptly reimburse Assignor for all costs and expenses with regard thereto, or, at Assignor’s option, Assignor may repossess and enjoy the Premises as of Assignor’s first and former estate and either declare this Agreement to be terminated at no further force or effect or, without terminating the same, Assignor may reassign the Lease to itself or others or sublet the Premises to itself or others, in whole or in part, for the account of Assignee, in which event Assignee shall promptly reimburse Assignor for any rent deficiencies and other charges, costs, reasonable attorneys’ fees, or expenses so incurred by Assignor with respect thereto.

12.            Attorneys’ Fees .  In any action between the parties to enforce any of the terms or provisions of this Agreement, the prevailing party in the action shall be entitled to recover from the non-prevailing party, in addition to damages, injunctive relief or other relief, its reasonable costs and expenses, including, without limitation, costs and reasonable attorneys’ fees, as the court shall determine.  Any such attorneys’ fees and other expenses incurred by either party in enforcing a judgment in its favor under this Agreement shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys’ fees obligation is intended to be severable from the other provisions of this Agreement and to survive and not be merged into any such judgment.

13.            Successors and Assigns .  This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns.

14.            Severability .  If any provision of this Agreement shall be held invalid or unenforceable for any reason and to any extent, the remainder of this Agreement shall not be affected, but shall be enforced to the greatest extent permitted by law.

15.            Governing Law .  This Agreement shall be governed by and construed in accordance with the laws of the State of California.

16.            Counterparts .  This Agreement may be executed in one or more counterparts.  All such counterparts, when taken together, shall comprise the fully executed Agreement.  Signatures of the parties transmitted by facsimile or electronic mail in PDF format shall be deemed to constitute originals and may be relied upon, for all purposes, as binding the transmitting party hereto.  The parties intend to be bound by the signatures transmitted by facsimile or electronic mail in PDF format, are aware that the other party will rely on such signature, and hereby waive any defenses to the enforcement of the terms of this Agreement based on the form of the signature.

17.            Notices .  For purposes of this Agreement, the notice addresses for Assignee and Assignor shall be as follows:

_____________________

Attn: ________________

18.            Warranty and Authority .  Each party represents that this Agreement has been executed by its duly authorized representative.

19.            Condition Precedent .  This Agreement is not and shall not be effective unless and until each of Landlord and Landlord provides its consent to this Agreement.  If either Landlord or Landlord fails to consent to this Agreement with thirty (30) days after delivery of this Agreement to Landlord and Landlord then either Assignor or Assignee may terminate this Agreement by written notice thereof to the other party at any time prior to receipt of Landlord’s and Landlord’s consent and in such event neither Assignor nor Assignee shall have any obligations to the other party under this Agreement.  Assignee shall reasonably cooperate with Assignor to obtain Landlord’s and Landlord’s consent, including providing Landlord and Landlord with financial information and other information requested by Landlord and Landlord

IN WITNESS WHEREOF, this Agreement has been executed as of the Effective Date set forth above.

LANDLORD’S CONSENT

By its execution below, Landlord consents to this assignment of the Lease to Assignee and acknowledges the continuance of the Lease by and between Assignee and Landlord.  Landlord is not a party to the assignment and executes this document for the limited purpose of granting its consent.  The consent to this assignment shall not act as or be deemed as a waiver of Landlord’s right to consent to any subsequent assignment or lease in accordance with the terms of the Lease.  Notwithstanding the foregoing, so long as Assignee delivers to Landlord a letter of credit which satisfies the requirements of Section 21 of the Lease then within three (3) business days following Landlord’s receipt of such Letter of Credit from Assignee, Landlord shall return the original Letter of Credit to Assignor and thereafter such original Letter of Credit shall be void and of no further force or effect.

Landlord, Inc.

By:                                                      

Its:                                                       

LANDLORD CONSENT TO ASSIGNMENT OF LEASE

By its execution below,  Landlord consents to this assignment of the Lease to Assignee and acknowledges the continuance of the Lease by and between Assignee and Landlord.  Landlord is not a party to the assignment and executes this document for the limited purpose of granting its consent.  Landlord’s consent shall not relieve or discharge Landlord from any of its obligations under the Master Lease, whether or not such Default should occur by fault of the Assignee.  The consent to this assignment shall not act as or be deemed as a waiver of Landlord’s right to consent to any subsequent assignment or lease in accordance with the terms of the Master Lease.

Landlord’s consent is conditioned upon payment by Landlord of all Rent and any other charges due under the Master Lease at the time of the assignment (notwithstanding that such charges may be billed following the date of the assignment).

a ________________ corporation

By:                                               

Its:                                               

(see attached)

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The definition of assignment & assumption agreement.

By Rebecca K. McDowell, J.D.

October 19, 2019

Reviewed by Legal Expert

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• Land Contract Law in Florida

Assignments and assumptions are part of contract law and refer to the transfer of someone's duties and benefits in a contract to another. Assignments and assumptions are common with respect to contracts for loans or leases. A lender or lessor may assign its rights to another lender or lessor, and a borrower or lessee may find someone to assume the loan or lease and make the payments.

The Elements of a Contract

A contract is legally formed when two or more parties enter into an agreement with certain elements, which include:

• An offer. For instance, in a mortgage transaction, the lender offers to loan money to the borrower.
• Acceptance of the offer. The mortgage borrower agrees to borrow the money.
• Consideration. Consideration in a contractual relationship means the things the two parties give to each other in exchange for entering the contract. A mortgage lender loans money to the borrower, and in exchange, the borrower agrees to repay the money and give the lender a lien on the house. The loan, the repayment with interest and the mortgage lien are consideration for the contract.
• Mutuality. The parties must have come together and agreed upon the terms of the contract Read More: How Does a Contract Work?

Burdens and Benefits of a Contract

The contract sets forth what the parties are required to do during the contractual relationship. With a mortgage, the lender is required to loan the money and apply the payments correctly in accordance with the agreement, and then release the lien when the loan is paid. The borrower is required to pay the loan back with interest, pay the property taxes and make sure the property has insurance.

These contractual obligations create both burdens and benefits on both sides. The lender has the burden of making the loan and applying the payments correctly, but it has the benefit of receiving interest on the loan. The borrower has the burdens of making payments and insuring the property but has the benefit of owning the home.

Assigning a Contract

An assignment occurs when one party to a contract transfers, or assigns, its rights and obligations under the contract to another party. This happens frequently with mortgage loans, as lenders sell loans to other lenders. The lender will enter into an assignment agreement and assign the note and the mortgage to another party. The borrower then must make the payments to the assignee. The assignee's right and obligations under an assignment are the same as the assignor's rights and obligations and cannot be changed without a new contract.

Assuming a Contract

An assumption is the other side of the coin, in a sense. Assumptions are common with respect to leases and mortgages and typically occur when the borrower or lessee wants to transfer the property to someone else without paying off the loan or lease. Assumption means someone is taking over the side of the contract that requires payment.

If the contract allows it, another person can agree to assume the original party's obligations under the contract – the obligations to make monthly payments, etc. – in exchange for taking over the ownership or the lease.

Not every contract can be assumed. The language of the contract will state whether the borrower or lessee is allowed to transfer the property or lease by assumption.

Assignment and Assumption Agreements

Assignments and assumptions are both conducted by written agreement. Sometimes an assignment and an assumption will occur in the same transaction, and one agreement will cover both; the parties are assigning the benefits and assuming the burdens.

Assignments and assumptions are both transfers of contractual benefits and burdens from one party to another. They differ from each other based on the original position of the transferring party and the duties and benefits being transferred.

• Bankrate: Assumable Mortgage: Take Over Seller's Loan
• The Law Dictionary: What is Assumption?
• Nolo: What Is an Assignment of Contract?
• U.S. Legal: Elements of a Contract

Rebecca K. McDowell is a creditors' rights attorney with a special focus on bankruptcy and insolvency. She has a B.A. in English from Albion College and a J.D. from Wayne State University Law School. She has written legal articles for Nolo and the Bankruptcy Site.

Related Articles

• The Definition of a Leasehold Deed of Trust
• What Is a Deed of Trust With Assignment of Rents?
• What is an Assignment of Trust Deed?

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Home Resources Real Estate Assignment vs. Sublease

Assignment vs. Sublease: What Are the Key Differences?

Updated September 26, 2024 | Written by Sara Hostelley Reviewed by Brooke Davis

When leasing property, you might encounter situations where you need to transfer your lease or share your rented space. Assigning a lease and subletting are potential solutions, but you should first understand their implications.

In this article, we explore the differences between a lease assignment and sublease, explain how these arrangements work, and discuss the rights and responsibilities they entail.

What Is a Lease Assignment?

A lease assignment is when the tenant transfers all their rights and obligations under a lease agreement to another party. The new tenant (the “assignee”) accepts all of the responsibilities and benefits of the leased property.

The assignment of a lease helps you when you need to get out of a lease before it expires. For example, suppose you’ve signed a 12-month lease for a commercial space. If your business relocates after six months and needs to get out of the commercial lease early, you can assign the lease to another entity to relieve your company from the lease responsibility.

What Is a Sublease?

A sublease agreement lets a tenant rent out all or part of their rented property to another person (the “subtenant” or “sublessee”). This arrangement is beneficial when you (as the direct tenant) need to temporarily vacate your rental unit or share the space with someone else. Subletting offers flexibility for short-term housing needs and can help you avoid breaking your lease .

When you enter a sublease, you’ll still be responsible for fulfilling the terms of your original lease, including paying rent and maintaining your unit. Additionally, you’ll assume landlord-like duties toward your subtenant, such as addressing maintenance issues and collecting rent.

Assignment vs. Sublease: Key Differences

Here are the key differences between a lease assignment and a sublease:

• Assignment: Three main parties—the landlord, the original tenant (the assignor), and the new tenant (the assignee).
• Sublease: Two main parties—the original tenant (the “sublessor”) and the subtenant (the “sublessee”). The landlord isn’t a direct party in a sublease.
• Assignment: The original tenant transfers all their rights under the rental agreement to the new tenant. The assignee takes over the lease for the rest of the term.
• Sublease: The original tenant keeps their lease rights but grants the subtenant rights to use an entire rental unit (or part of it) for a certain period. The subtenant’s rights are secondary to the original tenant’s.
• Assignment: The new tenant assumes liability for the lease, but the original tenant may remain secondarily answerable to the landlord if the assignee defaults.
• Sublease: The original tenant remains fully liable to the landlord for the lease’s obligations. The subtenant is only responsible to the original tenant.
• Assignment: The assignee pays rent to the landlord.
• Sublease: The subtenant pays rent to the sublessor; they have no financial obligation to the landlord. The sublessor must make full rent payments to the landlord.
• Assignment: The assignee can use the leased premises in the manner outlined in the original lease. Any conditions or restrictions that applied to the original tenant now apply to the assignee.
• Sublease: The subtenant uses the property as described in the sublease, which may or may not be consistent with the original lease’s terms. The original tenant must ensure that the sublease’s terms don’t violate the original lease.
• Assignment: The original lease agreement stays in effect, but all responsibilities transfer to the assignee. Any changes to the lease may require the landlord’s consent.
• Sublease: The original lease governs the sublessor’s obligations, while the sublease dictates the sublessor-subtenant relationship. The sublease cannot override the original lease’s terms.
• Assignment: The landlord must typically issue approval before the original tenant can assign the lease to a new tenant. Most leases have clauses that allow the landlord to approve or reject an assignment based on reasonable grounds.
• Sublease: A sublease also typically requires the landlord’s consent . Some leases may allow subletting without further consent from the landlord, as landlords have fewer concerns because the original tenant keeps their promises in the lease.
• Assignment: The landlord and the new tenant (the assignee) enter a relationship.
• Sublease: The landlord has no direct involvement with the subtenant. The subtenant answers to the tenant, while the tenant answers to the landlord.

How to Choose Between Assigning a Lease and Subletting

Here are some factors that may influence your choice between assigning a lease and subletting:

• Duration of Need: Consider how long you plan to vacate the property. If you want the option to return, choose subletting. If you plan not to return, choose assigning the lease.
• Liability: Think about how much responsibility you want to have. Assigning a lease minimizes your liability, while subletting keeps you liable if the subtenant defaults.
• Lease Terms: Check your lease for an assignment or sublease clause. If your lease favors subletting and restricts assignments, you may opt for a sublease.
• Landlord’s Approval: If your landlord is willing to let you assign the lease to someone else, you may choose this option because it provides a cleaner break. However, it might be easier to get approval for a sublease than for an assignment.
• Control Over the Property: Subletting may be right for you if you wish to retain some control over the property. However, if you no longer have an interest in using or benefiting from the property, you may pursue a lease assignment.
• Market Conditions: In a renter’s market, you may be able to sublease to another individual and charge payments that cover your monthly rent and let you profit. If the rental market is weak in your area, you may opt to assign the lease instead.

Privity of Contract and Privity of Estate in Lease Assignments and Subleases

You can further distinguish between lease assignments and subleases by determining the presence or absence of the privity of contract and privity of estate between the involved parties:

• Privity of contract: A relationship between two parties that lets them enforce the terms of their contract against each other.
• Privity of estate: A relationship between two parties with an interest in the same property.

This table summarizes whether privity of contract and privity of estate exists between the parties in an assignment:

This table summarizes whether privity of contract and privity of estate exists between the parties in a sublease:

Example of Privity of Contract and Estate in an Assignment

Sophia owns Riverside Apartments. She leases Riverside Apartments to Mark for a term of 4 years. In the third year of the lease, Mark decides to assign his interest in Riverside Apartments to Jordan.

Here’s whether privity of contract and privity of estate exist between the parties:

• Sophia and Mark: Sophia and Mark retain privity of contract but not privity of estate because the original lease is still valid, but the interest in the property goes to Jordan.
• Sophia and Jordan: Sophia and Jordan maintain privity of estate because Jordan now holds the present interest in the property. Sophia doesn’t have privity of contract with Jordan, as the original lease agreement remains between Sophia and Mark.
• Mark and Jordan: Mark and Jordan share privity of contract because of their agreement regarding the lease assignment. However, they don’t have privity of estate because Mark no longer has a possessory interest in Riverside Apartments; he has fully transferred his rights to Jordan.

Example of Privity of Contract and Estate in a Sublease

David owns Greenfield Plaza. He leases Greenfield Plaza to Brittany for a five-year term. In the fourth year of the lease, Brittany decides to sublease her rights to Emily for the remaining year.

• David and Brittany: David keeps privity of contract with Brittany because their original lease is still in effect. David also has privity of estate with Brittany, as she keeps a legal interest in the property.
• David and Emily: David and Emily don’t have privity of contract because the sublease is a separate agreement between Brittany and Emily. As a result, David has no direct legal obligations or rights concerning Emily. Furthermore, David and Emily have no privity of estate.
• Brittany and Emily: Brittany and Emily have privity of contract and privity of estate because of the sublease they entered into together.

Understanding the Differences Between Assignments and Subleases

Understanding the nuances between assignments and subleases can significantly impact tenants navigating their rental agreements. This knowledge helps them make informed decisions when circumstances require them to transfer or share their leased space.

Review your original lease, talk to your landlord, and talk to a lawyer to protect your interests and create flexibility in your living or business arrangements.

Sara Hostelley

Legal Content Editor

Sara Hostelley is a legal and SEO content editor with a bachelor's degree in English from the University of South Florida. She has ample experience writing informative content pieces within various...

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Navigating the assignment of a residential lease

A landlord can assign his leases to a new buyer of his building. Likewise, a tenant may be able to assign his lease if he needs to relocate. Find out how to assign your lease and what you can do to protect yourself when doing so.

by   Ronna L. DeLoe, Esq.

Ronna L. DeLoe is a freelance writer and a published author who has written hundreds of legal articles. She does...

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Updated on: December 4, 2023 · 3 min read

Assignment of lease by the tenant

Assignment of lease vs. sublease, assignment of lease by the landlord.

As a tenant, you may want to get out of your residential lease without paying the remaining rent. Likewise, if you're a landlord and sell your rental property, the buyer must now collect rent from the tenants, who may have no idea you sold the property. In both situations, assignment of a lease with a release for the tenant and assignment of leases with notice by the landlord accomplish these goals.

If you're the tenant and want to leave before the end of your lease term, you may be able to assign your lease to a third party if the landlord doesn't let you out of the lease. The third party then becomes the new tenant, who is bound by the terms of the original lease and pays rent to the landlord.

Most often, the lease won't permit assignment without the landlord's approval, but leases often state that the landlord cannot unreasonably withhold consent. As long as you produce a tenant who's shown a history of payment under prior leases and has been a model tenant, a landlord should consent to assignment.

The assignment of lease form should include places for the tenant-assignor, the new tenant-assignee, and the landlord to sign. If the master lease allows assignment, then the tenant doesn't need the landlord's permission; the tenant can sign an assignment of lease agreement without the landlord's signature.

If the landlord allows an assignment of the lease, you, as the tenant, also want him to sign a release stating that you're not responsible for the new tenant's failure to pay or for any damage she causes. Without such a release, you may still be liable for both.

When you, as the tenant, assign the lease, you sign an agreement that either reads “Assignment of Lease," “Lease Assumption Agreement," or “Assignment and Assumption Agreement." An assumption of the lease means that the new tenant assumes your obligations, such as paying rent and keeping the apartment in good condition.

An assignment of a lease transfers the tenant's entire rights in the property to a third party. With a sublease, on the other hand, the tenant transfers only a portion of the remaining lease. For example, if the original tenant has six months remaining on his lease and he gives the entire six months to a third party, the tenant is permanently assigning his rights to live on the property to the third party. If, however, the tenant allows that third party to stay at the premises for only three months, and the tenant intends to return after three months, he is subleasing the premises.

A landlord can assign the right to collect rent to someone who has purchased the property. An assignment of lease from the seller to the buyer allows the new landlord to collect rent from any and all current tenants in the building. The language in the landlord's assignment of lease agreement can include assignment of security deposits, if the parties agree to it. An assignment of leases by the landlord to the buyer affords protection to the buyer so he can collect rent.

An assignment of leases by the landlord to the buyer is meaningless if tenants aren't aware the landlord sold the property, which is why it's important for the assignor-landlord to give tenants proper notice. A notice of assignment of lease, which is a form signed by both the assignor-landlord and the assignee, or new landlord, is one way to give notice. Another way is to send a letter on the landlord's letterhead. Either way, the notice must include the new landlord's address and how rent is to be paid.

Both landlords and tenants who become assignors should sign a formal assignment of lease agreement, which an online service provider can prepare for you. If you're the tenant who has assigned your lease, try to get a release or you'll still be liable to the landlord. If you're the landlord, make sure you can count on the new tenant to pay the rent before you release the primary tenant from his obligations under the lease.

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Ignite Success with an Effective Assignment and Assumption Agreement: A Comprehensive Guide

LegalGPS : Jul. 29, 2024

Running a successful business is all about staying on top of your game—and that includes being able to navigate legally complex situations with ease. One concept that often comes up in the world of contracts is the assignment and assumption agreement. If you're a business owner who needs a quick yet comprehensive rundown of what an assignment and assumption agreement is and how to create one, you've come to the right place.

Assignment and Assumption Agreement Template

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In this guide, we'll walk you through the ins and outs of assignment and assumption agreements, and even provide you with a step-by-step explanation of how to put one together. So grab your favorite cup of coffee and let's get started!

Being able to efficiently manage and transfer contractual rights and obligations is crucial for businesses of all sizes. Whether you're selling a portion of your company or entering into a new partnership, having a solid assignment and assumption agreement in place can save you time, resources, and potential legal headaches down the line.

That being said, it's important to ensure that your assignment and assumption agreement is accurate, comprehensive, and tailored to suit your specific needs. And that's where this guide comes in. We'll help you understand the role of assignment and assumption agreements in your business and give you the tools you need to create one with confidence.

What is an Assignment and Assumption Agreement?

Before we dive into the nitty-gritty of creating an assignment and assumption agreement, it's important to understand what it is and why it's important for your business. In simple terms, an assignment and assumption agreement is a legal document that transfers the rights and obligations of one party (the "assignor") in an existing contract to another party (the "assignee"). Essentially, it allows one party to step out of a contract and another party to step in, taking over the original party's rights and responsibilities.

An assignment and assumption agreement typically serves a few key purposes, including:

Transferring ownership or control of assets

Refinancing debt or other financial arrangements

Splitting or consolidating business entities

A well-crafted agreement not only helps ensure a smooth transition but also protects all parties involved from potential misunderstandings and disputes.

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The Importance of an Accurate Assignment and Assumption Agreement

Now that you have an idea of what an assignment and assumption agreement entails, let's talk about why it's so important to get it right. Without a solid agreement in place, both the assignor and the assignee can face a whole host of problems, from miscommunications to legal disputes.

For one, an unclear or vague agreement can leave both parties open to misinterpretation and misunderstanding, which can result in disputes down the line. This is especially true when considerable assets or financial interests are at stake—having an accurate agreement in place helps protect both parties from future legal battles.

Moreover, without an agreement that specifically assigns rights and obligations to the assignee, the original parties to the contract may still be bound by its terms. This can give rise to unwanted legal complications and may even defeat the purpose of entering into the assignment and assumption agreement in the first place.

In short, a well-written assignment and assumption agreement protects both parties and helps prevent future misunderstandings and disputes.

How to Write an Assignment and Assumption Agreement: Step-by-Step Guide

Now that we've covered why having an accurate assignment and assumption agreement is so crucial, let's walk through how to write one. Keep in mind that every contract is unique, so your agreement should be tailored to your specific situation.

Step 1: Identifying Parties and their Roles

The first step in creating an assignment and assumption agreement is to clearly identify the parties involved and their respective roles. This typically includes the assignor, assignee, and the original counterparty to the contract (the "obligor"). Be sure to include the legal names and contact information for each party, including any business entities, individuals, or other parties that may be involved.

Moreover, all parties should be represented by a lawyer who is licensed to practice law in the state where the property is located.

Step 2: Describing the Original Contract

The next step is to describe the original contract being assigned and assumed, also known as the "underlying contract." This should include a brief description of the terms and conditions of the underlying contract, as well as the date on which it was executed. You may also want to include a reference to the specific section(s) of the underlying contract that permit assignment, if applicable.

For example, if the underlying contract is a lease agreement, you may want to point out that the lease allows for assignment.

Step 3: Detailing the Assignment and Assumption

Now, it's time to get into the heart of the agreement—the actual assignment and assumption. In this section, you'll need to outline the specific rights and obligations being transferred from the assignor to the assignee, including any limitations or conditions related to the transfer.

You should also identify the effective date of the assignment and assumption, which may be the date on which the agreement is executed, or a later date specified by the parties. In some cases, you may also need to consider any rights or obligations that will remain with the assignor after the assignment and assumption take effect.

Step 4: Consent of the Obligor

In some cases, the assignment and assumption of a contract may require the consent of the obligor. If this is the case, you should include a section in your agreement describing the obligor's consent, including any conditions or limitations on the consent, if applicable.

This is important because if the obligor does not consent or if there are conditions on the consent, it may prevent your assignment and assumption from taking effect.

Step 5: Governing Law and Jurisdiction

It's crucial to establish which laws will govern your assignment and assumption agreement, in case any disputes arise later on. Include a section specifying the state or country whose laws will apply to the agreement, as well as the jurisdiction where any legal disputes will be resolved.

However, make sure the law you choose is not one that would be considered unfair to either party. For example, if one of your companies is based in a state that has laws favorable to creditors and the other company is based in a state with more favorable laws for debtors, it may be best to choose another state as your governing law.

Step 6: Signatures

Finally, the last step in creating an assignment and assumption agreement is to have all parties sign and date the document. This is typically done at the end of the agreement, after all terms and conditions have been outlined. Be sure to include lines for the signatures of the assignor, assignee, and the obligor (if their consent is required), as well as a space for each party to print their name and title, if applicable.

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Pros and Cons of Using an Assignment and Assumption Agreement Template

When it comes to creating an assignment and assumption agreement, you might be considering using a contract template. While templates definitely have their advantages, such as saving time and ensuring that you cover all of the necessary legal bases, there are also some potential downsides to be aware of.

One major advantage of using a template is that it can save you time by providing a well-structured starting point for your agreement. Templates also generally include the essential sections and clauses that most agreements need, helping to ensure that your agreement is legally compliant and thorough.

The main disadvantage of using a generic template is that it may not be tailored precisely to your specific needs. This can result in an agreement that doesn't fully address the nuances of your situation or provide adequate protection for all parties involved. If you're unsure about whether a template is appropriate for your situation, you should consider consulting a legal professional or purchasing a customizable contract template that can be adapted to your specific circumstances.

The Benefits of Choosing Our Contract Template

There's no doubt that a well-designed contract template can be a game-changer when it comes to drafting assignment and assumption agreements. And that's where our expertly crafted template comes into play. Here's what sets our template apart:

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By choosing our contract template, you can feel confident knowing that you're getting a legally compliant and strategically sound agreement that's tailored to your situation. So why wait? Purchase our expertly designed assignment and assumption agreement template and ensure your business's success today!

In the world of business, contracts play a crucial role in protecting your assets and interests. And when it comes to assignment and assumption agreements, accuracy and clarity are key. We hope this comprehensive guide has given you the tools and understanding you need to confidently create your own assignment and assumption agreements.

Ready to make your life easier? Grab our expertly designed assignment and assumption agreement template today and streamline your business operations with confidence!

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Assignment and Consent Standards in Commercial Leases

Mar 6, 2020

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. This article presents a brief overview of the assignment provision in commercial leases, both office and retail.

Assignment provisions in commercial leases are heavily negotiated and very important to both landlords and tenants. When a tenant’s interest in a lease is assigned, the tenant is transferring its entire leasehold interest and 100% of the leased premises to a third party for the entire remaining term of the lease. For the tenant, the assignment provision represents a potential exit strategy, dependent of course on the local market, and increased flexibility for future needs. For the landlord, the assignment offers greater security for its revenue stream and hopefully the avoidance of a tenant bankruptcy or default while keeping its building occupied. The tenant’s desire for flexibility and the landlord’s need for control is where the negotiations are focused. This article presents a brief overview of the assignment provision in commercial leases, both office and retail, with particular attention on the laws of Maryland, Virginia and the District of Columbia. The landlord’s standard for providing consent to a request to an assignment will be reviewed, and we will conclude by offering suggested language.

What If The Lease Does Not Contain An Assignment Provision?

The law traditionally favors the free alienation of property. Therefore, under the laws of almost every state, if the lease is silent on whether the landlord’s consent to an assignment is required, then the commercial tenant has the right to assign its interest. This is true in Maryland, Virginia and the District of Columbia. Given this baseline, almost every lease form will have a detailed provision setting forth the assignment process. Note also, however, that in most states it is also enforceable for a commercial lease to have an outright prohibition against assignments. Such a provision would likely be a non-starting deal point for most sophisticated tenants.

What Does Reasonable Mean?

If a lease simply provides that the tenant requires landlord’s consent to an assignment, but does not include the standard for giving or withholding that consent, then in many states the implied standard is that the landlord’s consent may not be unreasonably withheld. Historically this was the minority view, with the historical rule allowing the landlord to withhold consent for any reason. The implied duty of reasonableness is now more the norm as more states adopt this position when presented with the issue. There is express case law establishing this rule in Maryland, and most courts in Virginia and Washington, DC will imply such a covenant of good faith and fair dealing. Most states, though, do allow a landlord the sole right to grant or withhold its consent if the lease clearly expressly provides, and in Maryland the lease must specifically state that the landlord’s consent may be granted or withheld in the sole and absolute subjective discretion of the landlord. Again though, a sophisticated tenant with any leverage should never agree to such a provision.

Most negotiated leases will instead contain a provision requiring that landlord’s consent to an assignment is required, but such consent will not be unreasonably withheld. The tenant will likely also try to include landlord’s obligation to not unreasonably delay or condition its consent. A short clause without further defining what constitutes “reasonableness” generally favors the tenant, and landlords typically prefer including specific standards as to the criteria it can consider when reasonably deciding whether or not to consent to an assignment. Without such specificity, defining “reasonable” is difficult as the landlord and tenant clearly will have differing viewpoints and it may be left as a factual question to be decided in litigation. The typical definition (set forth in the Restatement (Second) of Property) would be that of a reasonably prudent person in the landlord’s position exercising reasonable commercial responsibility.

Absent a detailed provision listing the criteria a landlord can consider when reasonably reviewing a request to assign, a landlord is typically found to be considered reasonable if it considers certain general broad factors. First, the landlord reviews the assignee’s proposed use. In a retail setting, the landlord will be concerned whether the proposed use fits with the existing center and/or violates any existing exclusives or insurance requirements. In an office setting, the landlord might review the expected traffic and wear and tear on the building. Second, the landlord will consider the creditworthiness of the assignee. The landlord (and the assignor) will want to be confident that the assignee is capable of performing tenant’s obligations under the lease and a large creditworthy tenant increases the value of the asset. The assignor might argue that a strict financial test (such as a minimum net worth, for example) is unfair since the assignor is likely not being released upon the assignment and the landlord can still pursue the assignor in the event of a default. Third, the landlord will review the experience and history of the assignor. As mentioned above, landlords instead prefer a detailed list setting forth the many factors that they can include as part of reasonably reviewing a request for a lease assignment.

Without further establishing the criteria, the landlord puts itself at risk of a challenge by the tenant that a denial of a consent is unreasonable.

In defining “reasonable,” courts typically do not allow a landlord to deny or condition consent to an assignment based purely on economic reasons where the landlord results in substantially increasing what it was entitled to under the lease. In Washington, DC, there is well established case law holding that it is unreasonable for a landlord to withhold consent solely to extract an economic concession or improve its economic position. For example, a court would not consider it reasonable for a landlord to condition its consent on the assignee paying a greatly increased rent. Instead, as discussed below, landlords should look to protect their interests in a market of increasing rents by providing for either the sharing of excess rentals or a right to recapture.

What Are Typical Provisions In an Assignment Clause?

As discussed above, tenants generally prefer a short assignment provision simply requiring the landlord to not unreasonably withhold, condition or delay its consent to an assignment. But most leases are drafted by landlords, and over the years the assignment provisions have evolved to contain many typical provisions in addition to further defining “reasonableness,” including the following below.

• Sharing of Excess Rents. Since many states do not permit a landlord to condition its consent on improving its economic position (e. g. , by increasing the rent), most leases instead contain a provision where the landlord is entitled to all or a portion of the profits. The profits may mean increased rent, or it may even be construed more broadly to consider the value of the location in a sale of the tenant’s business. The landlord’s argument is that it doesn’t want the tenants competing in the real estate market. The tenant should push back here, and certainly try to lower the percentage shared, carve out any consideration received in the sale of tenant’s business, and only share profits after all of the tenant’s reasonable costs incurred in connection with the assignment were first deducted.
• Corporate Transfers. Since a purchase of the entity constituting tenant is likely not deemed an assignment under the law, most leases make clear that any such corporate sale, including the sale of either a controlling interest in the stock or substantially all of the assets of the tenant, is deemed an assignment for purposes of the lease. The tenant should carve out permitted transfers for typical mergers and acquisitions under certain conditions, and also carve out routine transfers of stock (or other ownership interests) between existing partners or for estate planning purposes. The landlord will likely accept a permitted transfer concept provided they receive adequate notice and the successor entity succeeds to all of the assets of the original tenant with an acceptable net worth.
• Assignment Review Fee. Most landlords include in their form lease the requirement that the tenant reimburse them for legal and administrative expenses incurred in reviewing the request for consent and preparing the assignment. The tenant clearly wants to keep these fees reasonable and in keeping with the local market.
• Recapture Rights. Landlords like to include the express right to recapture the premises in the event the tenant comes to it to request a consent for an assignment. A recapture clause allows the landlord to terminate the lease if market rents have increased or if it needs the space for another use. Sophisticated tenants should push back here as much as leverage allows, try to limit the time periods, and if nothing else try for the right to nullify the recapture by rescinding its request for the consent.
• Tenant’s Remedy. To protect themselves from claims for damages from the tenant if the landlord withholds its consent to a requested assignment, landlords often include a provision where the tenant waives its rights to monetary damages in such a situation and can only seek injunctive relief. The tenant should try to delete this provision, or at least, if leverage permits, provide for the right to seek damages if the landlord is subsequently found to have acted in bad faith.

Assignment provisions are heavily negotiated and both the commercial landlord and tenant need to be advised to the applicable local law and know the market for a comparable transaction. ( Note: The author represents office and retail landlords and tenants throughout Virginia, Maryland and the District of Columbia.) Sample reasonableness provisions for both office and retail uses are copied below for reference.

Retail Lease

Landlord and Tenant agree, by way of example and without limitation, that it shall be reasonable for Landlord to withhold its consent if any of the following situations exist or may exist: (i) In Landlord’s reasonable business judgment, the proposed assignee lacks sufficient business experience to operate a business of the type permitted under this Lease and to a quality required under this Lease; (ii) The present net worth of the proposed assignee is lower than that of Tenant’s as of either the date of the proposed assignment or the date of this Lease; (iii) The proposed assignment would require alterations to the Premises affecting the Building’s systems or structure; (iv) The proposed assignment would require modification to the terms of this Lease, or would breach any covenant of Landlord in any other lease, insurance policy, financing agreement or other agreement relating to the Shopping Center, including, without limitation, covenants respecting radius, location, use and/or exclusivity; (v) The proposed assignment would conflict with the primary use of any existing tenant in the Shopping Center or any recorded instrument to which the Shopping Center is bound; and/or (vi) The proposed assignment or subletting would result in a reduction in the Rent collected by Landlord during any portion of the term of this Lease.

Office Lease

Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply: (i) The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building; (ii) The Transferee intends to use the Premises for purposes which are not permitted under this Lease; (iii) The Transferee is a governmental agency; (iv) The Transfer occurs prior to the first anniversary of the Lease Commencement Date; (v) The Transferee has a net worth of less than $10,000,000.00; (vi) The proposed Transfer would cause a violation or trigger a termination right of another lease for space in the Building; or (vii) Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Building at the time of the request for consent, or (ii) is negotiating with Landlord to lease space in the Building at such time, or (iii) has negotiated with Landlord during the six (6)-month period immediately preceding the Transfer Notice.

Reprinted with permission from the March edition of the Commercial Leasing Law & Strategy© 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected] .

• John G. Kelly

Related Practices Areas

• Commercial Leasing
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Leases and Assignments – The Benefit of Express Assumption

General Law on Assumption of Leases

Why the lease terms were insufficient to obligate the lender, a guide to drafting your lease.

Updated on July 5, 2022

Whenever a tenant assigns its rights under a lease to another tenant, it befits the landlord that the assignee tenant executes an express assumption of the lease. A recent case, BRE DDR BR Whittwood CA LLC v. Farmers & Merchants Bank of Long Beach (“BRE”), serves as an example. In BRE the former tenant/lender (the “Second Tenant” or “Lender”) prevailed over the landlord because the Second Tenant failed to execute an express assumption of the lease. The lender became the Second Tenant after foreclosing on a construction deed of trust against the trustor/first tenant (the “First Tenant”). Because the Lender had no interest in the lease it subsequently assigned it to a third-party tenant (the “Third Tenant”). Everything fell apart when the Third Tenant stopped paying rent and returned possession of the premises before the end of the lease. Seeking to recover its damages, the landlord brought action against the Second Tenant.

Two types of privities arise under a lease. One is privity of contract, and the other is privity of estate. ( Vallely Investments v. BancAmerica Commercial Corp . (2001) 88 Cal.App.4th 816, 822.) These distinctions are important in determining the liabilities of a succeeding assignee/tenant.

An assignee who takes possession of the premises without executing an assumption contract is bound by all lease covenants which run with the land under privity of estate . However, upon assigning the lease, the former assignee tenant, now the assignor tenant, is relieved of all its obligations because privity of estate no longer exists. ( Kelly v. Tri-Cities Broadcasting, Inc. (1983) 147 Cal.App.3d 666, 678 (“Tri Cities”).) The result is entirely different when a tenant assumes the obligations of the lease pursuant to an express agreement.

The assumption agreement creates a new privity of contract between landlord and assignee, enforceable by the landlord as a third-party beneficiary, regardless of whether the landlord was a party to the assumption agreement. As a consequence, the assuming assignee is required to perform all covenants of the lease for the remainder of its term, absent a release by the landlord. ( Hartman Ranch Co. v. Associated Oil Co. (1937) 10 Cal.2d 232, 244–245; Rest.2d Property, Landlord and Tenant, § 16.1 (4), com. c, p. 121; BRE DDR BR Whittwood CA LLC v. Farmers & Merchants Bank of Long Beach (2017) 14 Cal.App.5th 992, 1000.)

For privity of contract to apply courts require an “express assumption” of the contractual obligations of the lease. ( Enterprise Leasing Corp. v. Shugart Corp. (1991) 231 Cal.App.3d 737, 746.) Only then will the law hold an assignee liable for the lease obligations. ( Id .)

To establish an express assumption, the lease must contain language that the assignee/tenant specifically agrees to bind itself to the lease obligations. ( BRE DDR BR Whittwood CA LLC v. Farmers & Merchants Bank of Long Beach (2017) 14 Cal.App.5th 992, 1001.) In In Bank of America National Trust & Savings Association v. Moore , the court found the defendant assumed the obligations of a lease by stating so in a written assignment agreement. The document was signed by the defendant, as assignee, and the assignor. The document concluded, “ ‘It being understood that said Assignee … is to accept, assume and agree to perform all of the terms, conditions and limitations contained in said lease.’ ‘The undersigned, [defendant], hereby accepts, assumes and agrees to perform all of the terms, conditions and limitations contained in the aforementioned lease to be kept and performed by said lessee.” ( BRE DDR BR Whittwood CA LLC v. Farmers & Merchants Bank of Long Beach (2017) 14 Cal.App.5th 992, 1001.)

The Court’s reference to the lease in Tri Cities best explains why it failed to find that the Lender was obligated to the terms of the lease under privity of contract. There, a lease between the landowner and tenant required any assignee to assume the lease obligations: “Lessee hereby warrants and represents that in the event said assignment shall ever take place, the assignee therein shall assume all of the liabilities and obligations assumed by Lessee in this Lease Agreement.” ( BRE DDR BR Whittwood CA LLC v. Farmers & Merchants Bank of Long Beach (2017) 14 Cal.App.5th 992, 1002.) The lease further provided that the “assigns and/or heirs of both parties shall carry out the terms of this Lease Agreement.” ( Id. )

Thereafter the defendant purchased the lessee’s business, including the lease. The purchase agreement acknowledged the lease and attached an exhibit that stated, “Land Lease covering real property on which broadcasting transmitter is located.” ( Id .) In ruling in favor for the landlord, the trial court agreed with the Landlord that this language was sufficient evidence that the assignee expressly assumed the obligations of the lease. The appellate court disagreed.

The appellate court noted that “in every case examined where there has been an express assumption, the assignee has stated specifically either orally or in writing that he agrees to be bound by the terms of the lease.” ( Id . at 1003.) Thus, the appellate court concluded that “as a matter of law no evidence was presented to the trial court… to substantiate the conclusion Tri-Cities had assumed the lease.” ( Id.)

First the BRE court noted that the Landlord should have required the Lender to execute a document requiring it to assume the lease obligations. ( Id . at 1003.) However, if this proves to cumbersome, the court also noted that landlords could include language in the original lease requiring consent and assumption. ( Id . at 1004.) For examples see Bennett v. Leatherby (1992) 3 Cal.App.4th 449, 452 “lessor consented to the sublease and required ‘the specific assumption of all of the obligations ”; Bank of America National Trust & Savings Association v. Moore (1937) 18 Cal.App.2d 522, 525 (“the lease itself declares that an assignment shall be void unless the assignee agrees, in writing, to carry its burdens, the agreement of the defendant, in harmony with the requirement of the lease, may be interpreted as a contract directly with the lessor.”)

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By Randy Aguirre, esq.

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Assumption Agreement: Definition & Sample

Jump to section, what is an assumption agreement.

An assumption agreement, sometimes called an assignment and assumption agreement, is a legal document that allows one party to transfer rights and/or obligations to another party. It allows one party to "assume" the rights and responsibilities of the other party. This agreement is often used in real estate transactions and mortgage lending.

A seller may include an assumption agreement in order to provide legal protection by transferring obligations to a buyer. If a buyer then decides to default on a mortgage or otherwise go against the contract, the original seller would not be held liable.

Assumption Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10 8 exhibit107.htm ASSUMPTION AGREEMENT , Viewed October 13, 2021, View Source on SEC .

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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I am a corporate attorney with 20+ years of in-house and law firm experience. My practice is focused on the preparation, negotiation, and review of commercial contracts. In my most recent in-house role at a national manufacturer, I was the principal attorney responsible for legal review of all core company sales contracts, which involved negotiations with major distributors and retailers. I have extensive experience working with business clients. I understand how to effectively identify relevant issues and assess risks to help my clients achieve their objectives.

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Lease Assignment and Assumption Agreement

This is a sample lease assignment and assumption agreement, between a landlord as assignor, an assignee company, and a tenant. The sample relates to the assignment of the lease by the landlord to the assignee, in connection with the sale of the premises by the landlord to the assignee. 

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• Data Extraction

What is Lease Abstraction? Overview and Techniques

Managing multiple lease agreements in the real estate world can be overwhelming. These documents are often lengthy—sometimes running over 100 pages—making it challenging to grasp the key points quickly. Not just that, they are filled with legal jargon and clauses requiring specialised knowledge, making manual data extraction time-consuming, error-prone and generally inefficient. That’s where lease abstraction comes in.

Lease abstraction is a critical process in the real estate and property management industries, involving the extraction of key information from lengthy and complex lease documents. This process has become increasingly important as businesses and organisations seek to streamline their lease management, ensure compliance with accounting standards (ASC 842, IFRS 16, or GASB 87), and make data-driven decisions about their property portfolios.

Use-cases for lease abstraction are diverse and span various industries. As technology advances, many organisations are turning to artificial intelligence and machine learning solutions to automate the lease abstraction process. 

If you are reading the blog, chances are you are struggling with lease abstraction. Through the following sections, we will dive deeper into what lease abstraction is, the various techniques one can use to automate lease abstraction and the various benefits of using AI-based document processing tools over these techniques. 

Lease Abstract: An Overview

A lease abstract takes complicated lease contracts and breaks them down into an easy-to-read summary. It serves as a quick reference document that allows stakeholders to access essential lease information without having to go through the entire lease document. 

Essentially, it breaks down a complex legal document into a digestible format that can be easily understood and utilized by various departments within an organization, including finance, operations, and facilities management.

Not just that, it also serves as a navigation tool which directs you to detailed sections whenever necessary

The importance of lease abstracts cannot be overstated in today's business environment. With the introduction of new lease accounting standards such as ASC 842 and IFRS 16, organizations are required to report lease obligations on their balance sheets, making accurate and comprehensive lease data more crucial than ever. Lease abstracts provide the foundation for this compliance by ensuring that all relevant financial information is captured and readily available.

Moreover, lease abstracts play a vital role in other areas as well: 

1. Stay on top of important dates like rent reviews, break options, and lease expirations.

2. Improve how you budget and forecast property-related expenses.

For a clearer understanding of lease abstracts, here is a general overview of the key components extracted from leases:

• Property Information: Details about the leased property, including its address, size, and specific features.
• Lease Parties: The names and contact information of the landlord and tenant involved in the lease agreement.
• Lease Term: The duration of the lease, including the start and end dates and any options for renewal.
• Rent: The base rent amount the tenant must pay, along with the payment schedule (e.g., monthly, quarterly).
• Additional Rent: Any extra payments the tenant must make, such as property taxes, utilities, or common area maintenance fees.
• Tenant Improvement Allowance: Funds the landlord provides for the tenant to customize or improve the leased space.
• Maintenance and Repairs: The landlord and tenant are responsible for maintaining and repairing the property, including who covers the costs.
• Parking: Terms related to parking facilities, including the number of spaces provided, fees, and any specific conditions.
• Use of Premises: The tenant's permitted use of the property, including any restrictions on activities or business operations.
• Assignment and Subletting: Conditions under which the tenant can transfer the lease or sublet the property to another party.
• Default and Remedies: The actions considered a breach of the lease and the remedies available to the landlord, such as penalties or lease termination.
• Insurance and Indemnification: There are insurance requirements for both parties and provisions for indemnification in case of damages or legal claims.
• Additional Clauses: Any other specific terms or conditions that are important to the lease, such as options for expansion, early termination rights, or unique tenant obligations.

The specific data points extracted may vary depending on the type of property, industry, and the organization's particular needs. However, the goal remains the same: to create a comprehensive yet concise summary that captures all critical information necessary for effective lease management.

Techniques for Lease Abstraction

While many small organisations still rely on manual processes involving emails and spreadsheets, the game has changed. Thanks to the rise of lease abstraction software and AI-based or automated document processing tools, what once took hours can now be done in just a few clicks. Let’s take a look at a few techniques that can be used for Lease Abstraction but before we jump into each one in detail, here’s a quick summary of the methods we will be discussing today:

1. Using Lease abstraction software

This method has been a go-to solution for many companies looking to streamline their lease management processes. These specialized tools offer pre-built templates and extraction rules tailored to common lease formats. Common examples include Imprima, LeaseLens and MRI Software. However, they often fall short when dealing with non-standard leases or company-specific clauses. 

The rigidity of these systems can lead to missed critical information, and they typically require significant manual setup and ongoing maintenance. Many users find themselves still relying heavily on human review to ensure accuracy, somewhat defeating the purpose of automation.

2. Using LLMs for lease abstraction

LLMs or Large Language Models are machine learning algorithms that are trained on large data sets and can respond to queries the same way a human would. So, this method essentially involves using an LLM to summarise leases.

We will leverage the GPT-4o user interface to summarise a lease. Alternatively, one can request extraction of specific data points from the lease. This requires some level of prompt engineering. We tried out the following two prompts which worked for us.

3. Using AI-based Intelligent Document Processing (IDP) systems for lease abstraction

Using AI-based Intelligent Document Processing (IDP) systems represent the cutting edge in lease abstraction technology. These solutions combine the power of data extraction with workflow automation to automate the entire lease abstraction workflows end-to-end. 

AI-based IDPs are specialized for data extraction from any document type and format. Since they are powered by artificial intelligence, they can understand data points and infer from context. Their accuracy is high, surpassing humans with specialised legal knowledge. They also have validation features, built-in which offer the capability of human review should the need arise. With automated import and export and high security standards, IDPs are the ultimate solution for automating lease abstraction.

Nanonets is one such example. We will take a look at how we can automate lease abstraction using the zero-training extractor from Nanonets. Let’s get started.

Step 1: Log into the Nanonets application (app.nanonets.com)

Step 2: Click on “New Workflow” on the left panel > Zero-training Extractor.

Step 3: Enter the fields you want extracted from the lease, for instance:

• Landlord name
• Tenant name
• Rent amount
• Billing frequency
• Lease start date
• Lease end date

Step 4: Click on continue. Upload the file, and allow some time for processing.

Benefits of using AI-based IDPs (Nanonets) for Lease abstraction

1. format agnostic.

Nanonets offers a zero-training extractor, completely powered by generative AI. It doesn’t require any manual training and can be deployed in seconds. It infers text from context and extracts it without any manual or template-based training. You just need to enter the data points you want to extract and click "Continue."

This ensures scalability regardless of the layout and requires no maintenance or “re-training” for different templates.

2. Data Validation and Approval 

There’s a dedicated section on data validation that can flag files based on custom logic, for instance, the lease is missing “lease start date”, or lease start date + tenure doesn’t equal lease end date.

This ensures that no critical data points are missed out and facilitates human review for specified sections only. The export section can be triggered once the files have been manually reviewed and approved. Moreover, since this is AI-powered the model learns from its mistakes and improves over time by carefully analysing the “approved files”.

3. Custom Data actions

There is a dedicated section on “custom data actions” which powers all kinds of formatting actions in-house, such as lookup against external databases, finding and replacing characters, etc. There is a section powered by LLMs, where you can summarize entire sections within leases, ask questions based on lease sections, etc. This comes in handy when preparing comprehensive lease abstracts and cuts down the time taken by over 80%. For instance, let's say we have monthly rent (US$ 1800), we can calculate annual rent using the "Data Actions" section powered by LLMs. Not just simple mathematical calculations, but more advanced and complicated questions.

4. Automated Import and Export options

Nanonets offers the capability to import leases from a host of different places. Popular options include email inboxes (auto-forwarding option available), cloud storages, like, G-Drive, OneDrive, Dropbox, Sharepoint or even databases, like Amazon S3. There’s always an option of importing leases from API endpoints.

Similarly, there are plenty of export options available as well. The default options include Excel, CSVs, XML and JSON files. There are one-click integrations with third-party ERP software, like, Google Docs, Salesforce, Airtable, or Hubspot as well as the option to export to databases, like, MsSQL, PostgresSQL, Yardi, etc. You can always export the output in JSON format via API endpoints.

So, as we saw, Lease abstraction is a critical process in real estate and property management that involves extracting key information from complex lease documents. It has become increasingly important as organizations seek to streamline lease management, ensure compliance with accounting standards, and make data-driven decisions about their property portfolios. 

Lease abstracts provide a concise summary of essential terms and conditions, allowing stakeholders to quickly access important information without having to go through entire lease documents. The process is crucial for various industries, from retail companies managing multiple locations to real estate investment trusts evaluating potential acquisitions.

We discussed three main techniques for lease abstraction: using Large Language Models (LLMs), template-based lease abstraction software, and AI-based Intelligent Document Processing (IDP) systems. 

While LLMs and template-based software have their applications, they come with limitations such as potential inaccuracies, rigidity, and the need for significant manual oversight. 

AI-based IDPs, particularly Nanonets, are the most advanced and efficient solution for lease abstraction. These systems offer benefits such as format-agnostic processing, data validation and approval features, custom data actions, and automated import and export options, making them highly scalable and adaptable to various lease structures and organizational needs.

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Assignment and Assumption of Leases (Commercial Real Estate Purchase and Sale) (FL) | Practical Law

Assignment and Assumption of Leases (Commercial Real Estate Purchase and Sale) (FL)

Practical law standard document w-003-6967  (approx. 12 pages).