Legal Updates

A lessor is not entitled to demand monetary compensation as a condition for assigning the lease agreement to an alternative tenant

February 26, 2019

A business lessor demanded, as precondition for change of lessees prior to the end of the rental period that the alternative lessee will agree to a 15% increase of rental fee and also doubling the amount of the guarantees.  In addition, the lessor demanded compensations from the departing lessee of ILS 40,000.

The Court enabled the lessor to demand change of the lease terms due to the different character of the new lessee but cancelled the demand for compensation from the original lessee. A lessee is not entitled to assign its rights to hold and use the property to another, except with the lessor's consent.  However, the lessor’s refusal is limited to reasonable grounds and terms. There is no place for a demand to compensation just because the lessor learns that the lessee wishes to exit the agreement due to a wish to use an opportunity to sell the business. It is not the lessor’s business what were the lessee’s reasons for leaving the property as long as the purpose of the rental agreement continues to exist by the alternative tenant and its economic interest is met. Unlike the monetary compensation, placing conditions regarding the increase in rental fees and doubling the amount of the guarantees constitutes a fair and reasonable ground that guarantees the lessor's rights and ostensible risks regarding the alternative tenant's credibility.