Sublease vs. Assignment of a Commercial Lease in BC: What Does Your Lease Say?

In BC, an assignment transfers the tenant’s entire interest in a commercial lease to a new tenant, while a sublease lets the tenant keep the lease and rent out all or part of the space. Either way, the landlord’s consent is generally required (usually subject to a requirement that the landlord not unreasonably withhold it), and the original tenant stays liable unless the landlord releases it.

Signing a lease may feel like the end of negotiations, but a tenant’s business can later grow, downsize, merge, or shift to remote operations. In those situations, the tenant may be left with space it no longer needs and years of lease obligations it no longer wants. The two most common options are subleasing and assignment. Although these terms are often used loosely or interchangeably when it comes to a transfer, they have different legal consequences and create different levels of risk and control.

What is the Difference Between a Sublease and an Assignment?

A sublease allows the original tenant to lease all or part of its space to a new party, known as the subtenant, while remaining as a tenant under the original lease. In effect, the original tenant becomes the landlord to the subtenant while still owing rent and other obligations to the landlord under the main lease. Think of it as a lease within a lease.

An assignment transfers the original tenant’s entire lease interest to a new party, known as the assignee. The assignee then steps into the original tenant’s shoes and deals directly with the landlord. Unless the landlord agrees to release it, the original tenant generally remains liable under the lease after the assignment, as will any guarantor.

Pros and Cons of Subleasing Commercial Space

Pros :

• Retained control. You keep the master lease and can negotiate your own terms with the subtenant, including rent, use restrictions, and duration.
• Flexibility for partial space. Subleasing lets you carve out a portion of your space if you do not need to vacate entirely.
• Potential cost recovery. Subject to any landlord profit-sharing clause, you may be able to offset your costs by subleasing at a higher rate.

Cons:

• You remain liable. You are still responsible to the landlord for rent and lease obligations, even if the subtenant stops paying rent or damages the space.
• Two landlord-tenant relationships. You now have obligations to both the landlord and the subtenant, which can mean more paperwork, more risk, and a greater chance of being caught in the middle of a dispute.
• Landlord consent is almost always required. Whether you sublease all or part of the space, the lease will usually require the landlord’s approval, often with a requirement that the landlord not unreasonably withhold it, and the process can be slow or come with conditions.
• Limited long-term relief. A sublease does not mean you can fully exit the lease; you remain contractually bound.

Pros and Cons of Assignment

Pros:

• Potential full exit. If the landlord agrees to release you from liability on assignment (which is sometimes negotiable), you may be able to walk away once the assignee takes over.
• Simpler ongoing relationship. Once the lease is assigned, the landlord deals directly with the new tenant.
• Better fit for a permanent departure. If you are leaving the space for good, an assignment is usually the cleaner structure.

Cons:

• You will usually remain liable on the lease. Unless the landlord expressly agrees to a full release, the original tenant (and any guarantor) generally stays liable after an assignment, meaning that if the new tenant fails to pay rent, the landlord can seek recovery of rent from you.
• Loss of control. Once the lease is assigned, you generally have no further say in how the space is used or managed.
• Landlord consent and conditions. Landlords often scrutinize assignments more closely than subleases because they create a new direct tenant relationship, so expect a landlord to conduct similar due diligence as when qualifying the original tenant.
• You cannot assign only part of your space. An assignment normally transfers your entire leasehold interest.

Should you Sublease or Assign Your Commercial Lease?

If you want flexibility or only need to offload part of your space temporarily, subleasing is usually the better fit.

If you are exiting for good and can negotiate a full release of liability, assignment is typically cleaner.

If liability is your biggest concern, once you are able to identify a viable pathway of assignment or sublease (depending on the person to takeover all or part of the space), your lawyer should help in identifying sources of potential liability and seeking to limit them to the extent possible.

Whether you are negotiating a new lease or trying to get out of an existing one, the right strategy depends on your business goals, your lease terms, and the landlord’s requirements. Reviewing and understanding the lease provisions surrounding a sublease or assignment before you sign can mean the difference between a smooth transition and a long, costly problem.

If you are a tenant considering a sublease or assignment, or a landlord asked to consent to one, our business law team can review the lease with you.