Assignment and subletting are the two ways a commercial tenant transfers its leased space to another party. An assignment transfers the tenant's entire remaining interest to a new tenant. A sublease transfers part of the space or term, with the original tenant becoming a landlord to the subtenant. Both usually require landlord consent.
How Does Assignment and Subletting Work?
Assignment and subletting work through a transfer clause that fixes what the tenant may hand off and on what consent. In an assignment the tenant conveys its whole remaining leasehold and exits, though it often stays secondarily liable. In a sublease the tenant keeps its lease, carves out space or time, and collects rent from a subtenant.
The distinction turns on privity. Per practitioner guidance from Nolo and Hellmuth & Johnson, an assignment puts the assignee into direct privity of estate with the landlord, while a sublease creates a new landlord-tenant relationship between the original tenant, now a sublandlord, and the subtenant, with no direct link between subtenant and the master landlord. The subtenant pays the sublandlord, not the building owner.
Feature | Assignment | Sublease |
Interest transferred | Entire remaining term | Part of space or term |
Original tenant's role | Exits, often stays secondarily liable | Becomes sublandlord |
Who the new party pays | The landlord directly | The original tenant |
Privity with landlord | Yes, privity of estate | No, only through master lease |
Typical use | Business sale, full exit | Downsizing, temporary excess space |
Why Assignment and Subletting Matters
Assignment and subletting matter because they determine whether a tenant can exit or shrink an obligation without a default, and whether a landlord controls who occupies the building. The transfer clause is where flexibility and control are negotiated, and its consent standard decides most disputes when a tenant wants out.
The consent standard is the pivot. In the landmark decision Kendall v. Ernest Pestana, Inc. (40 Cal.3d 488, 1985), the California Supreme Court held that where a commercial lease requires landlord consent to assign, that consent may be withheld only on a commercially reasonable objection, not arbitrarily. Many leases now state consent will not be unreasonably withheld. Courts in jurisdictions such as Washington, DC have held it unreasonable to withhold consent solely to extract a rent increase, though a lease may still grant the landlord a recapture right to reclaim the space instead.
Example
Assignment and subletting produce different outcomes on the same exit. A tenant leases 10,000 square feet at $30.00 per square foot with 4 years left, an annual base rent of $300,000. It no longer needs the space and finds a replacement occupant willing to pay market, now $34.00 per square foot.
Path | Structure | Original tenant result |
Assignment | New tenant takes all 10,000 sq ft for the full 4 years, pays landlord directly | Exits; typically stays secondarily liable if assignee defaults |
Sublease | Original tenant subleases 10,000 sq ft at $34.00, still owes landlord $30.00 | Stays on the master lease; keeps the $4.00 per sq ft spread, $40,000 per year |
If the lease lets the tenant capture the sublease profit, the $4.00 per square foot spread on 10,000 square feet is $40,000 per year, or $160,000 over the 4 remaining years. Many leases require that profit be shared with or paid to the landlord, so the tenant must read the transfer clause before assuming the upside is theirs.
Variations and Edge Cases
Assignment and subletting bend around the consent language, the profit split, and events that trigger the clause without a voluntary deal. A permitted-transfer carve-out, a deemed assignment on a change of control, or a recapture right can each change who decides and who profits. The variants below show where the standard transfer provision shifts.
Variant | Treatment |
Sole discretion consent | Landlord may refuse for any reason; heavily landlord-favored |
Reasonable consent | Landlord must have a commercially reasonable objection to refuse |
Recapture right | Landlord may terminate the lease instead of consenting to the transfer |
Profit sharing | Sublease rent above the tenant's rent is split with or paid to the landlord |
Permitted transfer | Assignment to an affiliate or successor allowed without consent |
Deemed assignment | A change of control or entity sale treated as an assignment requiring consent |
Assignment and Subletting vs Renewal Option
Assignment and subletting are often confused with a renewal option, but they move in opposite directions. Assignment and subletting let a tenant hand off space it no longer wants during the existing term. A renewal option lets a tenant keep space it does want by extending the term past expiration.
One provision reduces the tenant's footprint or exposure; the other locks it in. A tenant subleasing excess space is shedding obligation. A tenant exercising a renewal option is committing to more of it. Both are flexibility tools in the same lease, but a transfer clause is about getting out and a renewal option is about staying.
Frequently Asked Questions
What is the difference between assignment and subletting a commercial lease?An assignment transfers the tenant's entire remaining lease interest to a new tenant who then deals directly with the landlord. A sublease transfers part of the space or term, and the original tenant stays on the master lease as a sublandlord collecting rent from the subtenant.
Does an assignment release the original tenant from liability?Usually not. Unless the lease or a separate release states otherwise, the original tenant typically remains secondarily liable after an assignment, meaning the landlord can pursue it if the assignee defaults. A negotiated release is required to fully exit the obligation.
Can a landlord refuse consent to an assignment?It depends on the consent standard. Under a sole discretion clause a landlord may refuse for any reason. Under a reasonable consent clause, as adopted in Kendall v. Ernest Pestana, the landlord may withhold consent only on a commercially reasonable objection, not to extract a rent increase.
Related Terms
Renewal Option
Estoppel Certificate
Co-Tenancy Clause
Lease Abstract
Exclusive Use Clause