Assignment vs sublease: an assignment hands your whole lease to a new tenant, while a sublease lets you rent your space to someone else while you stay on the lease. At Tenant CS, we sit on the tenant's side of these deals, and the difference matters most when you need to get out of a lease early.

Most tenants don't think about either option until the business outgrows its space, or shrinks out of it, partway through a lease. By then, what you can do depends on the words already in your lease. That's why it pays to understand both before you sign.

What's the difference between an assignment and a sublease?

A lease assignment transfers your entire interest in the lease to a new tenant, who deals directly with the landlord from then on. A sublease is a separate agreement in which you become the landlord to a subtenant, while your own lease with the landlord stays in place. (New to some of these terms? Our commercial real estate terminology guide covers the basics.)

Here's how the two compare side by side:

• Who the landlord deals with: with an assignment, the new tenant (the assignee). With a sublease, still you. The subtenant deals with you, not the landlord.
• How much space: an assignment covers the whole premises. A sublease can cover all of it or just part.
• How long: an assignment runs for the rest of the lease term. A sublease can run for all or part of the remaining term, but it can't go past the end of your own lease.
• Your ongoing liability: after an assignment, you may still be liable unless the lease or the landlord releases you. With a sublease, you stay fully liable to the landlord for rent and every other obligation.
• Landlord consent: most commercial leases require it for both.
• Best for: an assignment suits a clean, permanent exit. A sublease suits shedding surplus space or covering costs for a period.

What is a lease assignment?

Assignment of lease means transferring your interest in the lease to another business, which takes over as the tenant for the rest of the term.

When assignment makes sense

• You want out of the whole premises for good.
• Your lease has terms another tenant would happily take on, such as a competitive rent or a quality fit-out.
• You've found an incoming tenant with solid financials, which is what the landlord will want to see.

The catch: you may still be liable

Many tenants assume an assignment ends their responsibility. Not necessarily. Depending on your lease and the state or territory your premises are in, you may remain liable if the new tenant defaults, and any guarantees you've given may stay in place until they're formally released. Confirm whether you're released from future liability before you sign anything, and get your own legal advice.

Assignment can also cost you upfront. You'll need the landlord's consent, and if your rent is above what the market would pay today, you may need to offer the incoming tenant an incentive to take the lease on.

Tenant tip: Ask for a release clause when you first negotiate your lease, so that once an approved assignee takes over, you and your guarantors are released from future obligations. It's far easier to win at the negotiating table than at exit time.

What is a sublease?

A sublease is an agreement where you, the existing tenant, lease all or part of your premises to a subtenant. You become their landlord, but your lease with the head landlord doesn't change.

In practice, you collect rent from the subtenant and keep paying rent to your landlord. If the subtenant stops paying or damages the space, you're still the one responsible to the landlord.

When subleasing makes sense

• You need a partial or temporary saving, such as surplus space after downsizing.
• An assignment isn't practical, but your lease permits subleasing.
• Your lease has onerous terms that an incoming tenant wouldn't accept.

The risks of subleasing

• You stay liable for the whole lease, including your make-good obligations at the end.
• You rely on the subtenant to pay you on time, every time.
• You'll rarely recover your full rent, so model conservative scenarios rather than assume the space will pay for itself.

For the step-by-step process, costs and a worked example, see our guide to how a commercial sublease works.

Why you should negotiate assignment and sublease rights before you sign

Your right to assign or sublet comes down to what your lease says. Most commercial leases require landlord consent for either, and landlords prefer to keep their options open. The time to negotiate is before you sign, when you have the most leverage. Ideally, raise it at the heads of agreement stage, when the key terms are agreed before the lease itself is drafted.

Want to know a secret? The landlord's agent is focused on getting the deal done, not on the assignment clause you might need in year four. That's exactly why it's often negotiable. We generally advise tenants to push for:

• A clause requiring the landlord not to unreasonably withhold or delay consent.
• A clear list of what the landlord can ask for when assessing an incoming tenant or subtenant, such as financials, references and guarantees.
• A release from future liability for you and your guarantors once an assignment is approved.
• The right to sublease part of the premises, not only the whole.
• Clarity on what the landlord can charge you for processing a consent request.

These sit alongside the 40+ points you can negotiate in a commercial lease, and they're part of what to do before signing a commercial lease.

Other ways out of a commercial lease

Assignment and subleasing aren't your only exit strategies:

Break clause

A break clause sets out when and how you can end the lease early, usually with notice and sometimes a fee. Most landlords are reluctant to include one, so it's worth pushing for if you know your business could change shape during the term.

Surrender

A surrender is an agreement with your landlord to end the lease early, often in exchange for a payment or for finding a replacement tenant with similar financial strength. It's a negotiation, not a right.

Negotiating a settlement

If your business is closing and no assignment, sublease or surrender is possible, you may need to negotiate a financial settlement with your landlord or remain liable for costs under the lease. The financial exposure can be significant, which is why protecting yourself upfront matters.

Tenant tip: Assignments and subleases get harder as your lease runs down, because incoming businesses want time in the space. If you think you'll need to exit, start the conversation early rather than waiting for your lease expiry.

For a fuller rundown, see our guide to how to break a commercial lease.

How Tenant CS helps

We exclusively represent tenants, never landlords. Whether you're negotiating assignment and sublease rights into a new lease, looking for an incoming tenant or subtenant, or working out the best way to exit your current lease, our team handles the lease negotiation so your interests are protected. Most businesses negotiate a lease every 3 to 5 years, while the landlord's agent does it every week. We help balance the playing field.

Book a call with us today to see how we can help you.

You may also like

• How A Commercial Sublease Works: Process, Costs, Pros And Cons For Tenants
• "Breaking Up Is Never Easy:" Five Ways To Break A Commercial Lease
• Commercial Lease Negotiation: Did You Know There Are 40+ Points To Negotiate?
• Commercial Make Goods: How To Avoid Landlord Disputes
• Common Commercial Real Estate Terminology: A Handy Guide For Tenants