This article explains how costs are usually allocated between the parties involved and, where possible, gives a general indication of the amounts that may be involved.
The assignor
The assignor is the existing tenant who wishes to transfer their interest in leased premises to a new tenant, known as the assignee.
In some circumstances, an assignor may be able to profit from assigning a lease. If rents are generally rising, but the lease provides for infrequent rent reviews or none at all, the lease may have added value because the rent remains below the market rate. The assignor may then realise this value by requiring the new tenant to pay a premium. This is especially likely if there are several prospective tenants interested in the premises.
Conversely, if the rent is high and there is little demand for the premises, an assignor or landlord may pay a reverse premium to the assignee to persuade them to take on the premises.
The assignor will also have to pay their own legal fees for the transaction. Depending on which party’s solicitors draft the Deed of Assignment, and how much revision and negotiation is needed, this could cost the assignor more than £1,000 on an hourly rate basis. To help keep fees down, it may be worth agreeing a lower fixed-fee arrangement in advance.
The assignee
In many cases, the assignee will have to pay a premium to the assignor. However, if the premises are less sought-after, they may sometimes receive a reverse premium instead.
The level of fees in relation to the Deed of Assignment itself is likely to be similar to those incurred by the assignor. However, the assignee will typically meet the landlord’s legal fees in addition to their own.
The landlord may also require a rent deposit as security, refundable at the end of the assignee’s tenancy, which will involve the preparation of a Rent Deposit Deed.
If the landlord requires all parties to sign a Licence to Assign, recording the conditions on which the landlord consents to the assignment, this could involve a further £600–£900 plus VAT. In some circumstances, an Authorised Guarantee Agreement may also be required, meaning the landlord’s legal fees could conceivably run to a significant four-figure sum.
A fee is payable to the Land Registry for registration of an assignment, but apart from some high-value cases, this is likely to be £20–£40.
Stamp Duty Land Tax, or the equivalent, is also payable on lease assignments, but only where the premium paid exceeds £150,000. A land transaction tax may be payable in Wales on premiums of over £40,000.
The landlord
As mentioned above, the assignee will typically meet the landlord’s legal fees, although depending on the circumstances, the landlord may agree to cover some of their own costs.
If the landlord is particularly keen to complete an assignment, they may also consider paying part or all of a reverse premium to the assignee.
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