Assignment clauses become important in instances when a NNN tenant puts up the underlying business for transfer, or the business is extinguished. If the tenant’s guarantor can assign the lease to another entity whose credit is not stellar, it will impact the value of the Landlord’s net lease triple net property dramatically since the Assignment clause in essence acts like an unconditional opt-out clause for a tenant!
Before agreeing to an assignment on an NNN lease, NNN Landlords must confirm the new tenant is under the prior or better corporate guarantee. A diminished corporate guarantor/guarantee is a sureshot dimunition of the net lease investment’s value. Obtain credit check, financials and personal guarantees. The NNN triple net lease landlord and owner will have to negotiate on each and every aspect of the assignment clause on sale of the tenant business. A net lease Landlord must ensure when assigning the lease to a new tenant-operator that both parties – current tenant and prior guarantor – remain on the hook for the post-assignment business.
The Assignment clause implies transferring rights under the lease to another tenant/entity. A new tenant entity has possession after assignment, but both parties, Landlord and prior tenant, are still responsible for the obligations under the lease Assignments are very common especially when a tenant operation is sold to a new entity.
Written consent to any assignment clause is compulsory, albeit most NNN leases include such language from the get-go. Special mention needs to be made of the fact that wording of the Assignment and Sublease language is critical, especially when a net lease Landlord negotiates a brand new NNN lease with a tenant. The legal standards around NNN leases may vary by state but most legal jurisdictions will allow assignment of lease contracts. In other words, having experienced local counsel on retainer is key to determine the specific nature of the language in the Assignment clause that best serves a net lease triple net Landlord’s interest.
Now in the case a NNN tenant finds another tenant to occupy a portion of the net lease investment property, the ensuing total valuation of such a sub-leased NNN property will naturally arise from including the potential and strength of this new tenancy. For example, a local chinese takeout with 5 locations is not as solid as a nationwide franchise QSR like McDonald’s as a tenant. The triple net property Landlord must ensure that the assignment clause provides elasticity for screening out low-credit tenants or sub-tenants.
One of the strongest Assignment rights awarded to a tenant occurs when the tenant has the right to purchase the property before any other entity – Right of First Refusal – in the event the Landlord/Owner wishes to dispose of the NNN property. If a net lease investor is purchasing a property with an existing right of first refusal – the incoming Landlord will need to obtain a waiver from the tenant before transfer of the underlying NNN property is concluded. This variant of the Assignment clause gives tenants incredible leverage and usually appears towards the end of an NNN lease. Call your expert brokers at the Triple Net Investment Group to take advantage of their deep skill and expertise in vetting suitable buy/sell candidate NNN investments for “easy to digest” Assignment clauses.
