Philip Skinner, Abe Schear and Seth Katz

Schear

From time to time, clients ask counsel about the pros and cons of using an assignment versus a sublease to effect transfers of possession and obligations with respect to leased premises. With about equal frequency, counsel is asked what the differences are between assignments and subleases, and “whether those differences really make a difference” after all is said and done.

While assignments and subleases are both means to achieving substantially similar ends, they do yield different legal and business results. The purpose of this article is to identify and discuss some of the similarities and distinctions between assignments and subleases, and to discuss some of the reasons to care about which to use.

Who is Involved?

Skinner

There are three primary parties affected by assignment and subletting transactions. Such parties include the owner/ landlord; the transferor (such as the tenant, who will be the assignor or the sublessor); and the transferee (the third party, who will be the assignee or sublessee). How each party is affected by the transaction and the end results of the transaction vary depending upon which party’s viewpoint you are considering and whether you choose to use an assignment or a sublease in the transaction.

What Interests are Involved?

Katz

Whether you are talking about an assignment or a sublease, the current tenant is the party that desires to transfer its interests in some manner. Such interests are primarily two-fold in nature: interests in, to and under its lease that are contractual in nature; and interests in the leased premises that are property interests that are possessory in nature. An assignment results in the transfer of the tenant’s contractual interests in its lease and its property interests in the leased premises. A sublease only results in the transfer of the tenant’s property interests in the leased premises, not its contractual interests in its lease.

Obviously, there are pros and cons to both assignments and subleases. As a result, there is no single simple or correct answer to the question of which vehicle to use when an existing tenant wants to get out of some space and cover some of its leasehold obligations. Depending upon whether you are the building owner/landlord, the tenant or the transferee, your questions, analysis, answers and resulting concerns will vary. Each transaction has to be analyzed on its own merits upon the terms and conditions of the existing lease, the identities, creditworthiness and relationships of the parties, and a host of other circumstances that vary from case to case. In addition, there are many different ways to craft an assignment’s or sublease’s legal and business provisions and terminology; and the impact upon each party can vary with the craftsmanship of the brokers and counsel involved in a given transaction.

Attorneys from Atlanta-based Arnall Golden & Gregory contributed to this article. Philip Skinner, partner, specializes in commercial real estate transactions, including leasing and brokerage; Abe Schear, partner, specializes in leasing; and Seth Katz, associate, specializes in commercial real estate transactions, including leasing.

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