COMMERCIAL PROPERTY
ALIENATION CLAUSES
WHY IS AN ALIENATION CLAUSE NECESSARY?
Clause in the lease that restricts the tenant’s ability to deal with or dispose of ASSIGNMENT AND
his interests in the lease ie a restriction on assigning/ underletting/ granting a SUBLETTING
sublease/ charging/ parting with (or sharing) possession of the whole or part of
the premises
Leases should:
WHAT ARE ITS MAIN PURPOSES?
- Allow tenants to
Allows landlord to control who property is assigned to
assign the whole of
the premises with the
LANDLORD’S CONSIDERATIONS
landlord’s consent not
Drafted narrowly = more control by negative effect on rent review to be unreasonably
Drafted widely = less control on assignees but positive effect on rent review withheld or delayed
Prevent premises being used by an undesirable tenant and
Prevent landlord’s interests from being prejudiced by a poor quality of tenant - Not refer to any
To prevent the premises becoming vacant (consider shopping precinct) specific circumstances
Allows landlord to exercise estate management for refusal, although a
Ensures any tenant can afford the rent and afford to perform its obligations lease would still be
under the lease Code compliant if it
requires that any
TENANT’S CONSIDERATIONS group company taking
an assignment, when
Drafted narrowly = may restrict the marketability of the premises
assessed together
Drafted widely = negative affect on rent review
with any proposed
Lease may become a burden to the tenant and he may need to assign his
guarantor, must be of
interest
least equivalent
Tenant may no longer have any use for the premises
financial standing to
Tenant may need to charge the premises
the assignor
In order to compete in the market place it may be necessary to consider
allowing a third party to occupy part ie in retail environment, a shop within a
shop
Premises may no longer be suitable for the tenant
ALIENATION
No implied rights at law preventing a tenant from disposing with his interest under the lease
If there are no alienation provisions, a tenant is free to do what he wishes with his interest
Traditional position is that a landlord will insert an absolute covenant against assigning / underletting/ sharing part of the
premises with anyone else and insert a qualified covenant against assigning/ underletting the whole of the premises
WHAT IS AN AUTHORISED GUARANTEE AGREEMENT?
Deed of guarantee that has contractual status between landlord and outgoing tenant
Tenant agrees to guarantee the new tenant’s performance and observance of the terms of the lease
Tenant remains financially liable for any default of the new tenant
Only applies after 1st January 1996
Sought to strike a balance between uncertainty of liability of a tenant who assigns a lease and the protection of the
landlord if the tenant assigns to a party who is not particularly acceptable to the landlord
ALIENATION CLAUSES
WHY IS AN ALIENATION CLAUSE NECESSARY?
Clause in the lease that restricts the tenant’s ability to deal with or dispose of ASSIGNMENT AND
his interests in the lease ie a restriction on assigning/ underletting/ granting a SUBLETTING
sublease/ charging/ parting with (or sharing) possession of the whole or part of
the premises
Leases should:
WHAT ARE ITS MAIN PURPOSES?
- Allow tenants to
Allows landlord to control who property is assigned to
assign the whole of
the premises with the
LANDLORD’S CONSIDERATIONS
landlord’s consent not
Drafted narrowly = more control by negative effect on rent review to be unreasonably
Drafted widely = less control on assignees but positive effect on rent review withheld or delayed
Prevent premises being used by an undesirable tenant and
Prevent landlord’s interests from being prejudiced by a poor quality of tenant - Not refer to any
To prevent the premises becoming vacant (consider shopping precinct) specific circumstances
Allows landlord to exercise estate management for refusal, although a
Ensures any tenant can afford the rent and afford to perform its obligations lease would still be
under the lease Code compliant if it
requires that any
TENANT’S CONSIDERATIONS group company taking
an assignment, when
Drafted narrowly = may restrict the marketability of the premises
assessed together
Drafted widely = negative affect on rent review
with any proposed
Lease may become a burden to the tenant and he may need to assign his
guarantor, must be of
interest
least equivalent
Tenant may no longer have any use for the premises
financial standing to
Tenant may need to charge the premises
the assignor
In order to compete in the market place it may be necessary to consider
allowing a third party to occupy part ie in retail environment, a shop within a
shop
Premises may no longer be suitable for the tenant
ALIENATION
No implied rights at law preventing a tenant from disposing with his interest under the lease
If there are no alienation provisions, a tenant is free to do what he wishes with his interest
Traditional position is that a landlord will insert an absolute covenant against assigning / underletting/ sharing part of the
premises with anyone else and insert a qualified covenant against assigning/ underletting the whole of the premises
WHAT IS AN AUTHORISED GUARANTEE AGREEMENT?
Deed of guarantee that has contractual status between landlord and outgoing tenant
Tenant agrees to guarantee the new tenant’s performance and observance of the terms of the lease
Tenant remains financially liable for any default of the new tenant
Only applies after 1st January 1996
Sought to strike a balance between uncertainty of liability of a tenant who assigns a lease and the protection of the
landlord if the tenant assigns to a party who is not particularly acceptable to the landlord
