18 December 2023
18 December 2023
When circumstances arise requiring a change in the parties of a lease agreement, understanding the procedures is important to protect the rights of all parties concerned. Whether due to changes in property ownership, the need for a tenant to transfer their lease or sublet the property, or other factors, the process of changing the involved parties in a lease agreement demands careful consideration and adherence to legal requirements. In this guide, you will learn the steps involved in changing either the landlord or the tenant in a lease agreement and the reasons for the same.
Note that the landlord may also be referred to as the lessor and the tenant is also referred to as the lessee.
The change of the landlord may arise due to one or more reasons which are outlined below. The existing lease agreement (which may either be residential or commercial) should first be reviewed to understand any specific clauses related to the assignment or transfer of the lease. Look for the provisions in the agreement that outline the requirements that come with the change of landlords. For instance, if there is a clause relating to the change in ownership of the leased property, then the current landlord is required to ensure that the tenant will follow the same. Another example is if the change in ownership requires the deposit of a new security deposit or to transfer the same, the tenant also has to adhere to that specific obligation.
The current landlord needs to communicate with the tenant regarding the change in the ownership and management of the leased property. The current landlord must explain the reasons for the change which may include but are not limited to the following:
It is worth noting that with the aforementioned reasons for the change of landlord, the tenant is commonly notified of the same and the tenant needs to be reminded that he is still protected by the terms and conditions of the existing lease agreement regardless of the change or modification in the ownership of the leased property. In any case, the steps mentioned below should be observed to protect the interests of both parties.
The tenant must know who the new landlord will be. This could be an individual or a company. The current landlord must ensure that the new landlord is willing to accept the responsibilities outlined in the lease. But as mentioned in the previous section, the tenant is protected by the existing lease agreement so long as the same is still in effect.
The tenant generally has no right to object to the change of ownership of the leased property, unless there is a provision in the lease agreement that allows this. In any case, if the tenant does not want to rent under the new landlord, he can arrange for the termination of the lease agreement if allowed under the lease agreement or if approved by the current landowner.
A written agreement may be made between the current landlord, the new landlord, and the tenant. This agreement should clearly outline the terms of the lease assignment, including the effective date of the change, the responsibilities of the new landlord, and any other relevant details. A Contract Assignment Agreement may be used for the current landlord to assign the duties and responsibilities under the lease agreement to the new landlord.
It must be noted that even with the absence of a Contract Assignment Agreement or some other agreement, the new landlord continues to be bound by the existing lease agreement.
If there is a transfer of ownership of the leased property whether by sale, donation, inheritance, or some other legal mode of transferring ownership, the current landlord must ensure that the title is transferred in the name of the new landlord and submit the necessary documents for registration before the Register of Deeds. The common requirements to validly register the transfer of ownership are as follows:
Generally, the lease agreement reflects the latest intent of the parties with respect to the terms and conditions of the agreement. However, there are certain instances where the parties want to change the terms and conditions thereon, for this purpose, a Lease Amendment Agreement may be used to update the terms and conditions in the existing lease agreement. Copies of these documents must be kept on file by the parties so that they can revisit them when they encounter disputes. An example of a change or update in the lease agreement is the change of a tenant.
Changing a tenant may be done through an assignment of lease or a sublease. Assigning a lease and subleasing are two different arrangements in the context of a lease agreement, and they involve distinct legal and practical implications. The key differences between an assignment and a sublease are as follows:
These may appear to be the same kind of agreement in that they change the person who makes use of the property but they have key differences which will be explained in the succeeding paragraphs.
In a sublease, the original tenant remains responsible for the obligations stated in the original lease agreement. The new tenant, known as the sublessee, pays rent and complies with the terms of the sublease, but the original tenant is still ultimately responsible to the landlord. The sublessee does not have a direct relationship with the landlord. Instead, they deal with the original tenant (sublessor) who, in turn, deals with the landlord.
The sublessor is still bound by the terms and conditions in the original lease agreement, and more often than not, the sublessee does not deal with the original lessor directly.
More importantly, the landlord's consent is generally required if the property is being subleased, regardless of whether this is included in the agreement. The landlord being the property owner ultimately has the right to reject the sublease if the sublessee is not qualified, for this purpose a Landlord's Letter Denying a Sublease may be used.
An Assignment of Lease Agreement by the Lessee is an agreement entered into by two persons, called the assignor and the assignee. With this agreement, the assignor who is the lessee of a real property, assigns or transfers the lease of the property such as land or building in favor of the assignee. The assignee will then become the new lessee of the real property for the unexpired portion of the lease agreement. The unexpired portion pertains to the remaining period of time the lease agreement applies and within which the assignee can use the leased property.
There is essentially a new tenant in this case compared to a sublease where the original lessor's position is left unchanged. Generally, the new lessee or the assignee will be bound by the original lease agreement except when the landlord requires an entirely new lease agreement. Further, since there is a new lessee, the former lessee will be released from any responsibility imposed on the original lease agreement unless the lessor requires otherwise.
Note that since the relationship of the parties in a sublease does not change in that the sublessor is essentially still a lessee of the lessor, the lessee's position prior to the sublease can be reverted back, meaning to say, the lessee can still use the property after the sublease has ended. Comparing this with the assignment, the lessee's position can no longer revert back because there is already a new lessee.
The landlord's approval is crucial for the tenant change to be valid and binding between the parties. The absence of the landlord's approval can result in the invalidity of the sublease or assignment. The approval may be obtained in the following manner depending on whether the change is due to a sublease or an assignment:
Similar to all kinds of contracts, consent is vital for an agreement to be perfected. In the same way, since the owner of the property is the landlord, he has the final say as to whether there will be a sublease or an assignment. In both cases, the landlord's consent should be obtained
For purposes of a sublease, a formal letter called Letter to Request the Landlord to Sublease a Property may be used. If the landlord approves the sublease then a Landlord's Consent to Sublease may be used to formalize the agreement.
If the property is residential, a separate agreement between the tenant who will become the sublessor, and the sublessee may be in the form of a Residential Sublease Agreement.
For assignment, an Assignment of Lease Agreement by the Lessee may be used to effect the assignment of the lease. This also requires the consent of the lessor.
The change of a landlord can take place for different reasons such as the sale of the property leased, inheritance or donation of the property of the landlord in favor of another. Foreclosure may also be another reason for the change of the landlord. In such cases, it is important to make sure that the change of the landlord must be done through legal means and proper registration before the relevent government offices is done, likewise, it is important that the tenants must be notified of the change so long as they are paying their rent and are tenants in good standing.
The change in the tenant may be done through sublease and assignment. While both may appear to be the same, their differences must be noted: namely, in sublease, the existence of the original lease agreement still subsists, while in assignment, the original lease agreement may no longer apply. Further, in sublease, the original tenant is still responsible for the application of the terms and conditions of the original lease agreement, while in assignment, the old tenant is no longer bound. It must be remembered that while these two types of the change of tenant are not the same, both of them require the consent of the lessor as he is the owner of the property.