Implementing a complex process of lease transfer can be a challenging task. As a tenant, it is important to understand the process and legal requirements for transferring a leasehold interest. With the right knowledge and guidance, you can smoothly transfer your leasehold interest while protecting your rights. In this article, we will explore the key steps and legal requirements to ensure a successful lease transfer.

What is a Lease Transfer?

A lease transfer involves the transfer of the remaining lease interest from the current leaseholder (the assignor) to a new party (the assignee). This is distinct from an early termination of the lease agreement. When a lease is assigned or transferred, the new tenant takes over the remaining term of the lease, inheriting all the rights and obligations outlined in the original lease agreement, unless agreed otherwise by the landlord, the current tenant, and the new tenant.

Contractual Requirement for Lease Transfer

Under Cambodian law, a lease with a term of less than 15 years cannot be transferred unless the parties have agreed otherwise. For a perpetual lease, which refers to a long-term lease of immovable property for 15 to 50 years, the lease may be assigned (Article 252 of the Civil Code) unless the lease agreement restricts such transfer.

The issue may arise when the lease agreement is silent on the transfer of the lease. It is advisable for the tenant to carefully review the lease agreement before engaging in any transactions with a third party. It is prudent for the tenant to proactively discuss the lease transfer with the landlord. Obtaining the landlord’s explicit consent can help eliminate the risk of the landlord disputing the transfer at a later stage.

Additionally, tenant should formally document the lease transfer. It is important for the tenant to ensure that the key terms and conditions are clearly set forth in a written agreement. Tenants should also account for any financial considerations, such as transfer fees or security deposit handling. Careful planning for the costs involved is essential for a smooth negotiation of the lease transfer.

Legal Requirement for the Lease Transfer

For the assignment or alteration of a perpetual lease to be enforceable against third parties, it must be registered in accordance with the relevant laws and regulations. In this regard, it is advisable for the tenant to register the assignment of the perpetual lease with the competent cadastral office where the leased property is located. This registration process is necessary to ensure the transfer of a perpetual lease is perfected and can be asserted against third parties.

For the registration process, the assignment agreement must be made in the Khmer language, along with any other required application documents. Given the potential unfamiliarity of the cadastral land office with the registration process for the assignment or transfer of a perpetual lease, it is recommended that the tenant discuss the process with the relevant land office beforehand. It is also advisable for the tenant to seek the landlord’s cooperation in this process. This includes providing the necessary supporting documents and signing the required application, with the landlord’s consent to the transfer of the lease.

Tax Implication

The transfer of a lease may be subject to certain tax implications, which can depend on factors such as whether the consideration aligns with the fair market value, the availability of comprehensive documentation or justification, and whether the transaction is between related or unrelated parties. In such cases, it is advisable for tenants to seek professional tax advice to determine the most appropriate approach, as separating the asset transfer from the lease transfer may be recommended from a tax perspective.

Any Alternative to Transferring a Lease?

The assignment of the lease agreement allows the tenant to fully transfer the remaining leasehold interest to a new tenant, providing a clean break and eliminating the tenant’s ongoing liability. However, tenants may have alternative options beyond a full leasehold assignment. One such alternative is a sublease, which enables the tenant to lease the property to a subtenant while retaining the leasehold interest. The need for the landlord’s consent to a sublease should be determined by examining the provisions in the main lease agreement.

When negotiating the initial lease, tenants should consider incorporating flexibility around exit strategies like assignment or sublease, as this can streamline the process should the need arise in the future. Regardless of the approach taken, tenants should thoroughly review the lease terms and seek expert legal and tax advice to minimize potential risks.

For additional information, please contact our legal expert HUOY Tongkin or NEM Ratana.

The content shared here is for informational purposes only and should not be interpreted as a legal advice. Legal matters can be complex and may vary based on individual circumstances. For personalized guidance on specific legal issues, we recommend consulting with our qualified legal professionals.