Assignment Is a Business Term: Negotiating Transfer Rights in the LOI

In commercial leasing, the letter of intent typically addresses business points such as rent, term, and tenant improvement allowances, but often says little or nothing about a tenant’s right to assign or transfer the lease, even where the landlord intends for tenant to have no such rights. Both sides tend to treat lease assignment provisions as a legal issue to sort out later. It is not. Transfer rights directly impact credit, control, and long-term risk allocation, which are issues just as economic as base rent.

Why the Issue Becomes Harder Later

By the time the first lease draft circulates, the parties are eager to sign and leverage has shifted. What should have been a business discussion becomes a legal negotiation, even though the assignment provision has a significant financial impact on both landlords and tenants. When assignment and release concepts are not addressed in the LOI, the negotiation that follows is often compressed and reactive.

What the LOI Should Address on Transfer Rights

The LOI should, at a minimum, outline the framework for permitted transfers, including whether assignments to affiliates, successors by merger, or purchasers of substantially all assets will require consent, and whether a change of control will be treated as an assignment. These are not drafting details to be filled in later. They determine whether a tenant can restructure, raise capital, or sell the business, and they shape how the landlord underwrites the transaction.

Release Expectations Should Be Clear Up Front

Release terms deserve equal attention. Tenants frequently assume that a transfer to a creditworthy assignee results in a release. Many landlords assume that the original tenant remains liable through the end of the term. This disconnect is avoidable. The parties should establish at the outset whether release will be automatic upon satisfaction of defined net worth thresholds, conditioned on performance for a stated period, or unavailable altogether.

Do Not Overlook Guaranty Requirements

LOIs are also often silent on guaranty requirements, including the identification of the guarantor, burn-off provisions, or liability cap concepts. These are material risk allocation decisions that should not first appear in redlines.

Why Early Clarity Benefits Both Parties

For tenants, if exit strategy and capital flexibility matter, the assignment framework and release criteria belong in the LOI. For landlords, defining transfer parameters early protects credit expectations and reduces the likelihood of protracted lease negotiations. Addressing these principles at the outset reduces uncertainty, shortens the lease process, and avoids disputes that arise from unspoken assumptions.

A Lowndes commercial leasing attorney can review the LOI before it is finalized to address assignment and release concerns and close any other gaps before the parties reach the drafting stage.  

For guidance on transfer rights or assistance reviewing your LOI, contact Nicole Leath at nicole.leath@lowndes-law.com.