Lease vs Sublease vs Assignment of Lease: What’s the Difference?

A property lease is when a landlord (the person who owns the property) agrees to let a tenant (the person renting) use the property in exchange for rent. From a lease, two more types of agreements can happen: a sublease and an assignment. Here’s what each one means:

What is a Sublease?

Under the Australian Capital Territory’s leasehold system, most land in Canberra is held under Crown Leases. When a Crown Lessee (landlord) grants a lease to a tenant, this creates a sublease arrangement due to the underlying Crown Lease structure. This system is unique to the ACT and affects how property interests are created and transferred.

A sublease occurs when the original tenant (called the sublessor) enters into an agreement to rent out all or part of the property to another party (called the subtenant). Under Australian law and standard commercial lease terms, the landlord’s prior written consent is generally required, and such consent must not be unreasonably withheld if the lease contains this qualification. The subtenant then uses the space for part or all of the remaining lease period. The original tenant remains responsible to the landlord for paying rent and taking care of the property.

People do this if they want to save money temporarily, for example, if they are leaving town and don’t want to leave the space empty. Some also rent out holiday homes when they’re away to earn extra money.

It’s important to remember that the original tenant is still responsible to the landlord. If the subtenant doesn’t pay rent or damages the property, the landlord can hold the original tenant responsible.

What is an Assignment of Lease?

An assignment is when the original tenant transfers the entire lease to someone else. The new person (the assignee) then takes over the full responsibility of the lease. Unless explicitly released by the landlord in writing, the original tenant may remain secondarily liable under the lease even after assignment. The original tenant’s continued liability will depend on the terms of the original lease, the assignment agreement, and whether the landlord has provided an express release of liability.

Many people do this when they want to move, change their business, or sell their lease rights without facing legal penalties for ending the lease early.

What are the Challenges?

Both subleasing and assigning a lease can be complicated. They involve legal agreements between three parties: the landlord, the original tenant, and the new tenant or subtenant. The landlord’s prior written consent is typically required for any sublease or assignment pursuant to the terms of the original lease. Landlords may consider various factors including the proposed tenant’s creditworthiness, business reputation, and intended use of the property.

Creating these agreements can be tricky and might require legal help from a property lawyer to ensure everything is done correctly, including handling security deposits, responsibilities, and ending the agreement if needed.

If you have any questions about what kind of lease is right for your property matter, please do not hesitate to contact me. I am here to help.

DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.