A "virtual assignment" is an arrangement under which all the economic benefits and burdens of a lease are transferred to a third party, but without any actual assignment of the leasehold interest.
The perceived benefit of a virtual assignment has historically been that it effectively enables the transfer of a lease to take place without having to wait for landlord's consent.
This device is normally used in large portfolio transactions, where there is not time to obtain all the landlords' consents prior to completion of the deal, or on deals where real estate is not the main asset.
A recent case however has decided that such an arrangement breaches the prohibition parting with possession of the premises that appears in the vast majority of modern leases.
** Update - The Court of Appeal has now overturned the decision of the lower Court in the above case and it would appear that for the moment virtual assignments are once again an option for tenants **
In any event, in the current climate, where landlords may be reluctant to issue proceedings for forfeiture, it remains to be seen whether a landlord faced with a virtual assignment will be able to demonstrate that it has suffered any loss to enable it to claim damages.
Steve Petty, Commercial Property Solicitor
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