Your business has outgrown its premises, shrunk into half of them, or moved on entirely — but the lease still has years to run, and walking away usually means paying rent until the term ends. Most tenants in this position have two realistic exits: assign the lease to someone else, or sublet the space while keeping the lease themselves. They sound similar, but they leave you in very different places on liability, control, and cost. This guide explains both routes, compares them side by side, and gives you a decision framework to apply before you call your solicitor.
Assignment vs Subletting at a Glance
| Assignment | Subletting | |
|---|---|---|
| What happens | You transfer your whole lease to a new tenant (the assignee), who steps into your place | You grant a new sublease to a subtenant while keeping your own lease (the headlease) |
| Who pays the landlord | The assignee | You do — the subtenant pays you |
| Your liability afterwards | Released for modern leases, except under an AGA | Continues in full, whether or not the subtenant pays |
| Part of the premises? | Whole lease only | Often possible, if the lease allows it |
| Best for | A clean, permanent exit | Surplus space, or a temporary need you may reverse |
What Assignment Actually Means
On assignment, your entire interest passes to the assignee, who takes over on the existing terms, pays rent directly to the landlord, and becomes responsible for the tenant covenants: repair, insurance, service charge, and use restrictions. You step out — with one major exception.
The Authorised Guarantee Agreement (AGA) trap
For leases granted on or after 1 January 1996, the Landlord and Tenant (Covenants) Act 1995 releases the outgoing tenant from future liability on assignment — but section 16 lets the landlord require an Authorised Guarantee Agreement as a condition of consent, where reasonable, typically where the incoming tenant is financially weaker than you. Under an AGA you guarantee the assignee’s performance: if they stop paying rent or breach the lease, the landlord can pursue you, normally until the assignee lawfully re-assigns or the term ends. An assignment with an AGA is therefore not quite a clean break; negotiate an indemnity from the assignee so you can recover anything you are forced to pay under it.
For pre-1996 leases, the old privity rule can still leave the original tenant liable for the whole term — take specialist advice.
What an assignee will pay you — and the tax point
An assignee may pay a premium for a desirable lease — for example, where rent is below market levels. SDLT can then be payable by the assignee on that premium, at the non-residential rates of 0% up to £150,000, 2% from £150,001 to £250,000, and 5% above £250,000, with the return due within 14 days of the effective date. Rent already paid under the original grant is not charged again on an ordinary assignment; with no premium, still confirm the position with your advisers.
What Subletting Actually Means
On a sublet, you keep your headlease and grant a sublease to a third party. You become your subtenant’s landlord: they pay rent to you, and you keep paying your landlord regardless of whether they pay. If the subtenant defaults, the landlord looks to you — there is no direct landlord-subtenant relationship — and you must pursue the subtenant separately while still meeting your own obligations.
Three constraints shape every sublet: the sublease must end before the headlease term expires; many leases require the sublet rent to be no less than open market rent; and the sublease must usually mirror the headlease terms, so you cannot give your subtenant rights your own lease does not give you.
Which Route Fits Your Situation? A Decision Framework
Ask five questions, in order:
- Do you need the space again? If you might grow back into it, sublet; if the move is permanent, assignment is the cleaner exit.
- Is it the whole premises or only part? Assignment of part is almost always prohibited. If only one floor is surplus, subletting is usually your only option — provided the lease permits subletting of part, which many do not.
- Can you carry the risk of someone else’s default? On a sublet you remain liable for the full rent even if your subtenant stops paying. If a void or default would threaten your cash flow, assignment — even with an AGA — caps your exposure far better.
- How strong is your replacement? A landlord will scrutinise the incoming tenant’s finances, trading history, and proposed use. A weak occupier invites an AGA demand or outright refusal — line up a credible one before applying.
- What does the lease actually say? This overrides everything: some leases ban assignment and subletting outright (an absolute covenant), some allow them only with consent (a qualified covenant), and some are silent. An absolute ban leaves you negotiating a surrender or a break instead — see our guide to when to use a break clause.
Worked example: a consultancy with three years left on a £24,000-a-year lease needs only half its office. Assignment is unavailable for half a floor, so it can sublet the surplus half — collecting perhaps £12,000 a year while remaining liable for the full £24,000 — or negotiate a surrender. Leaving entirely, it could assign the whole lease and end the commitment, subject to any AGA. Subletting halves your cost only while the subtenant keeps paying; assignment removes it.
Landlord Consent: What “Not Unreasonably Withheld” Really Means
Most modern leases require the landlord’s prior written consent, usually in the qualified form: consent “not to be unreasonably withheld”. That phrase triggers protection under the Landlord and Tenant Act 1988: the landlord must consent unless refusal is reasonable, respond within a reasonable time, and give written reasons for refusal. There is no fixed deadline — reasonableness depends on complexity and whether you supplied all requested information — but unjustified delay can itself be unreasonable, and an unreasonable refusal can lead to a claim for your losses.
Consent is rarely free: most leases require you to pay the landlord’s reasonable legal and surveyor’s costs, granted or not — several hundred to several thousand pounds plus VAT. Other common conditions: a rent deposit or guarantor where the incoming tenant is weak, and — on assignment — the AGA. Clear any rent or service-charge arrears before applying, as these can justify refusal.
Practical tip: apply early and complete — accounts, references, business plan, and a draft assignment or sublease — since missing information is the most common cause of delay. The landlord’s solicitor drafts the licence; budget for your own solicitor to check it.
The Traps Tenants Most Often Miss
- Acting without consent. Assigning or subletting in breach of the lease can lead to forfeiture. Never let an occupier in informally first.
- Losing break rights. Some leases make break rights personal to the original tenant, so they are lost on assignment. Check before assigning away a valuable exit.
- Dilapidations on exit. Under an AGA, the landlord may still look to you for the assignee’s repairing failures, and on a sublet you remain liable for the whole premises.
- Use restrictions and informal occupiers. The incoming occupier’s use must fit the lease’s permitted use; a landlord can reasonably refuse an assignee whose business breaches it. And letting a group company occupy without a formal sublease or consent is still a subletting in law.
Your Step-by-Step Process
- Read the alienation clause — banned, qualified, or unrestricted, and whether part-subletting is allowed.
- Choose your route using the five questions above.
- Find a credible occupier and gather their financial information early.
- Apply for consent in writing with the full pack, keeping a dated record of everything sent.
- Negotiate the conditions — AGA scope, rent deposit, guarantor — and take legal advice on the licence before signing.
- Complete the documents: the licence, the assignment or sublease, and any AGA or deposit deed.
- Confirm the tax position (SDLT on any premium) and diarise AGA exposure, sublet rent reviews, and headlease expiry.
Frequently Asked Questions
Can my landlord refuse consent for any reason?
No — where consent is not to be unreasonably withheld, the Landlord and Tenant Act 1988 requires the landlord to act reasonably, respond within a reasonable time, and give reasons for refusal. Weak finances or unsuitable use can justify refusal; personal dislike, or wanting a higher rent, generally cannot.
Is assignment always better than subletting?
Not always. Assignment suits a permanent exit but needs a whole-lease replacement, consent, and often an AGA. Subletting suits surplus space and temporary needs, and can generate income — but you keep the full liability. The five-question framework gives the answer. The landlord’s solicitor drafts the licence, and the documents — especially an AGA — create liabilities lasting years, so take your own legal advice. This article is general information, not legal advice.
Related reading
Before you start, read our guide to the difference between a commercial lease and a licence and our guide to negotiating a commercial lease. If consent is refused outright, our guide to when to use a break clause covers the alternative exit, and our rundown of the hidden costs of renting commercial property will help you budget for consent fees and SDLT.