Authorization to Assign Leasehold Rights

Authorization to Assign Leasehold Rights

In Iran’s legal system, particularly under the 1977 Law on Landlord and Tenant Relations, a tenant is not treated as a mere occupier after the contractual lease term expires. In such cases, due to years of commercial activity in the premises, the tenant may acquire a legally recognized proprietary interest known as the “business goodwill right” (often referred to as the right of business, trade, or profession). This right is recognized as an independent financial right and limits the landlord’s ability to evict the tenant without payment of the legally recognized entitlement.

If, for personal or economic reasons, the tenant intends to assign the benefits of the leased premises to another person, the landlord may object or refuse to cooperate. In these circumstances, Iranian law provides an important legal mechanism for the tenant: filing a claim for authorization to assign leasehold rights. Through this action, the tenant may request that the court issue a court order authorizing the transfer of the lease benefits to a third party when the landlord withholds their cooperation. This remedy both safeguards the tenant’s accrued rights and prevents legal deadlock, because it neither forces the landlord to accept the tenant’s conditions outside the legal framework nor leaves the tenant without a lawful path to protect the value of established commercial interests.

Article 10 of the 1977 Landlord and Tenant Relations Law

Article 10 of the 1977 Law provides that the tenant does not have the right to assign the lease benefits to a third party unless the landlord has expressly granted such permission in the lease agreement. This provision is central to maintaining balance between landlord and tenant and helps prevent potential misuse of the landlord’s property rights.

Nevertheless, tenants may encounter circumstances in which continuing business activity in the premises is no longer feasible, including bankruptcy, illness, migration, or a change in professional field. In these situations, the tenant cannot lawfully assign the lease benefits without the landlord’s consent and may remain in a state of uncertainty. For this reason, the legislature, particularly through subsequent provisions such as Article 19, permits the tenant to apply to the court and, upon establishing the relevant conditions, request judicial authorization to assign the lease benefits. Accordingly, Article 10 should not be viewed solely as a barrier, but also as the starting point of a legal process in which both the landlord’s interests and the tenant’s ability to preserve and realize part of the accrued value are protected. The filing of such a claim, however, requires satisfaction of specific conditions, which are explained below.

How to File a Claim for Authorization to Assign Leasehold Rights

To file a claim for authorization to assign leasehold rights, the tenant must first confirm that the premises constitute a commercial property governed by the 1977 Law. This is commonly determined by examining the lease agreement’s date and the commercial nature of the premises.

Where the property is used for commercial purposes, and the lease falls under the scope of the 1977 regime, the tenant benefits from rights associated with business goodwill.

If the landlord opposes assignment, the tenant may file a petition seeking “a judgment authorizing the assignment of the lease benefits to a third party” against the landlord before the competent court where the property is located. The tenant should submit supporting documents, including the lease agreement, business license, rent payment receipts, and evidence of the inability to continue operations.

The tenant should also clarify whether a specific transferee has been identified, as in certain jurisdictions, the identification of the intended transferee may be relevant. After reviewing the evidence and hearing both parties, the court may issue a judgment granting authorization. Such judgment functions as a legal permit to formalize the assignment through an official deed before a notary public and does not operate as an enforceable order through execution mechanisms.

Legal Effect of the Judgment and the Time Limit for Implementation

A key point in claims for authorization to assign lease benefits is that the court’s judgment is declaratory rather than executory. In other words, the court grants permission for the transfer, but the judgment is not enforced through civil enforcement procedures as a direct order. The responsibility for completing the formal assignment rests with the tenant.

The tenant must complete the transfer by executing an official deed at a notary’s office no later than six months from the date the final judgment is served. If this period expires without the transfer being completed, the authorization becomes ineffective, and any renewed intention to assign would generally require filing a new claim. It should also be noted that during the proceedings, if the landlord declares readiness to pay the tenant’s business goodwill right in exchange for vacating the premises, the court may direct the process toward eviction conditioned upon payment, rather than authorization to assign. For these reasons, careful legal assessment and a well-planned litigation strategy are strongly recommended, taking into account the lease terms, the duration of possession, market conditions, and the landlord’s likely response. Delay or negligence in implementing the judgment may result in the loss of accrued rights.

The Role of Business Goodwill in Claims for Authorization to Assign

Business goodwill under the 1977 Law is a foundational concept in disputes involving commercial leases. It reflects the value created through the tenant’s sustained commercial activity in a particular location, including customer attraction, reputation, and enhanced commercial utility. Unlike classical concepts that place ownership at the center, the 1977 Law recognizes a form of protectable economic interest for the tenant based on commercial benefit.

In claims for authorization to assign, business goodwill is the principal legal basis. The tenant argues that long-term use has created an inherent economic right to the lease benefits, and that if the landlord refuses consent, the court should grant authorization in its place.

The legislative assumption is that business goodwill exists independently of ownership of the property itself, and therefore, the landlord cannot rely solely on ownership to prevent the tenant’s lawful realization of that financial interest. This right also affects valuation considerations in the context of a transfer and must be carefully assessed.

The Role of Judicial Practice in Shaping Authorization Claims

Despite the passage of decades since enactment, the 1977 Law has interpretive ambiguities that have been clarified through judicial practice and advisory opinions. One disputed issue is whether the tenant may assign to any person, or whether the court should approve a specific transferee. In some decisions and advisory views, it is considered preferable for the tenant to name the intended transferee in the petition. Another approach holds that the court should address only the permissibility of assignment in principle, leaving identification of the transferee to the formalization stage.

Judicial practice also indicates that if the tenant has already assigned the lease benefits informally with the landlord’s practical consent, a claim for authorization may be rejected because the transfer has already occurred and there is no remaining need for judicial permission. In addition, where courts find fault, misuse, or misconduct by the tenant, they may deny authorization even if the tenant has possessed the premises for a long period. Therefore, familiarity with current practice and the ability to analyze it are critical to successful litigation.

Authorization to Assign versus Involuntary Transfer and Settlement Devices

In Iran, the transfer of lease benefits may take different forms, each of which must be distinguished. One is an involuntary transfer, whereby, upon the tenant’s death, the lease benefits pass to the tenant’s legal heirs. In that scenario, no permission from the landlord or the court is generally required unless the lease was strictly personal to the deceased.

By contrast, authorization to assign concerns a voluntary transfer to a living third party who is not the tenant’s heir. Some tenants attempt to bypass transfer restrictions by using settlement agreements or purported partnership contracts that, in substance, hand over the lease benefits. If the landlord discovers such arrangements, they may initiate eviction proceedings.

Judicial authorization is the lawful and transparent route and is generally more defensible than informal devices such as settlement instruments or irrevocable powers of attorney.

The principal distinction is that authorization requires a court judgment, whereas alternative methods may expose the tenant to eviction if the landlord does not consent and instead invokes statutory grounds.

Conditions for Assignment Authorization under Article 19 of the 1977 Law

Under Article 19, where the lease agreement has removed the tenant’s right to assign, the restriction is not necessarily absolute. The tenant may apply to the competent court for authorization to assign to another person.

The key requirement is that the tenant establish that the landlord’s refusal lacks legitimate justification or that the assignment serves a reasonable and lawful interest of the tenant.

The court will first examine whether the lease expressly prohibited assignment, and then assess the fairness and legitimacy of the tenant’s request.

If the conditions are met, the court may issue a judgment authorizing assignment. Following the finality of the judgment, the tenant may formalize the transfer without the landlord’s renewed consent, thereby maintaining a balance between the landlord’s contractual autonomy and the tenant’s legitimate livelihood and financial interests.

Can a Tenant Bypass an Express Prohibition on Assignment?

Where the lease explicitly prohibits assignment, the tenant must first file a claim for authorization. The petition should present clear and reasonable grounds, such as professional relocation, family circumstances, or medical necessity. The tenant should also demonstrate that the landlord’s refusal is unjustified, for example, a refusal without legal basis or without any reasonable explanation.

A further important argument is the tenant’s legitimate interest, meaning that the transfer improves the tenant’s financial or personal situation without causing undue harm to the landlord. After filing, the court will summon the parties, evaluate the evidence, and, if persuaded, issue a judgment authorizing the assignment. The judgment substitutes for the landlord’s consent and enables the tenant to proceed with the formal transfer.

Procedure for Requesting Authorization under Article 19

To request authorization, the tenant should submit an appropriate petition to the civil court with jurisdiction over the property location. The petition must include the parties’ identification details, precise information about the leased premises, and the contractual clause restricting assignment.

The tenant should then provide two categories of justification: first, that the landlord is refusing without a legitimate reason; second, that the assignment is reasonable and lawful in light of the tenant’s circumstances. Supporting documents such as the lease agreement, prior correspondence with the landlord, and any other evidence should be attached.

Following registration, the court will hold a hearing, consider the parties’ statements and documents, and issue its decision. A final judgment authorizing assignment constitutes the tenant’s legal permission to transfer the lease benefits to a third party.

Economic and Financial Implications for Landlord and Tenant

A judgment authorizing assignment is not merely a legal outcome but also carries significant economic consequences. For the tenant, it provides an opportunity to realize the value created over years of commercial activity. The tenant may assign the business goodwill at a fair price to a new tenant and recover part of the investment, which is especially important for those planning a migration or a professional shift.

For the landlord, however, the judgment may be concerning because it reduces control over the choice of occupant and introduces a new tenant without a prior direct agreement. The landlord may, during the proceedings, offer to pay the business goodwill right and seek eviction instead, thereby preventing assignment. Although this option can be costly, it may serve the landlord’s long-term objectives, particularly if redevelopment or a different leasing strategy is contemplated. In any economic assessment, both parties should carefully consider short- and long-term interests. The valuation of business goodwill should reflect local custom, the nature of the activity, and the duration of operations to minimize conflict.

Who Pays the Expert Fee for Valuation of Business Goodwill?

In disputes involving authorization to assign and in cases that may lead to payment of business goodwill, valuation often becomes important. Courts typically refer the matter to an official expert to estimate the value. As a general procedural principle, the party requesting expert examination bears the initial cost, unless the court orders otherwise, or unless counterclaims or objections shift responsibility.

In authorization claims, because the tenant as claimant usually seeks permission rather than valuation, expert valuation may not be necessary in the ordinary course. However, if the dispute evolves into a pathway where valuation is required, for example, if eviction with payment is pursued, the cost is commonly borne by the party requesting that valuation. If the tenant specifically requests expert assessment to establish a particular value, the tenant would ordinarily be responsible for the expert fee.

Are Tax Certificates or Local Affidavits Required to Prove Business History?

A key issue in authorization claims and related disputes is proving the continuity and duration of business activity in the leased premises. Tax certificates, local affidavits, utility bills, rent receipts, and business licenses may all serve as evidence. Under the 1977 Law and prevailing practice, a business license or tax registration is not strictly mandatory, but it can greatly facilitate proof of long-standing commercial activity.

Many older tenants, particularly in traditional marketplaces, may lack formal licensing or tax records. In such cases, local affidavits, older lease documents, and utility bills may be accepted as supporting indicators. Where duration is disputed, the judge may order a local investigation or hear witness testimony. If the tenant can provide income tax records or a tax clearance certificate, that evidence is typically highly persuasive.

The Role of Contractual Conditions in Prohibiting or Allowing Assignment

In many leases, the parties agree that the tenant may not assign the lease benefits without the landlord’s written consent. Although such a clause appears restrictive, under the 1977 framework, it may not operate as an absolute barrier, because the tenant may still seek judicial authorization upon establishing legitimate grounds.

That said, if the lease includes stronger provisions, such as automatic termination upon assignment or immediate vacating obligations, courts may consider them, particularly where the tenant has proceeded with an assignment without lawful permission. Therefore, while contractual conditions do not necessarily prevent issuance of an authorization judgment, they remain a material factor in evaluating the tenant’s conduct and the court’s final assessment. Any lawyer or advisor involved should review the lease text carefully before initiating litigation or building a defense strategy.

How Lease Term and Duration of Possession Affect the Court’s Decision

The lease term and the tenant’s duration of possession are influential factors in the court’s evaluation. A tenant who has operated for years, invested in the premises, and established customer recognition typically holds a stronger position than a tenant with a short history. Although the 1977 Law does not define a minimum period, judicial practice often treats long possession as supporting the reasonableness of authorization.

The nature of the lease term also matters. A long-term lease with consistent rent payment indicates stability and good faith. By contrast, where the lease is short, and the tenant seeks assignment precisely at expiration, the court may scrutinize the request more closely. Additionally, evidence that the tenant abandoned the premises, left it inactive, or unlawfully placed it in another’s control may weigh against authorization. Ultimately, both the length and quality of possession can be decisive.

Landlord Defenses against Authorization Claims

Although the 1977 Law provides meaningful protection for tenants, landlords may raise defenses that can prevent authorization. A primary defense is breach of the lease terms, particularly if the tenant has already transferred control without consent. In such cases, the landlord may rely on that breach and seek eviction.

Another defense is proving tenant misconduct, such as unauthorized change of use, property damage, or illegal activity on the premises. The landlord may also argue a persistent delay in rent payment or non-compliance with contractual obligations, which can be treated as a lack of good faith. Additionally, the landlord may claim genuine personal need for the premises for themselves or close family, subject to proof. Finally, the landlord may propose payment of the tenant’s business goodwill in exchange for vacating, thereby preventing assignment.

Authorization in Endowment Properties and Government Land

Claims for authorization can be more complex for endowment properties and land owned by the state. For endowment properties, it must be determined whether they are specific or general endowments. In either case, the trustee or the Endowment Organization may act as landlord, and assignment of lease benefits usually requires formal approval from the relevant authority. Even where a court issues authorization, practical implementation may remain subject to endowment rules and approvals.

For government land leased under specific frameworks, such as arrangements involving municipalities or governmental agencies, assignment is commonly prohibited without the agency’s consent, and the relationship may be governed by special regulations rather than general lease principles. Accordingly, any contemplated assignment should be preceded by careful review of ownership documents, the governing legal regime, and the applicable administrative rules. Neglecting these issues may lead to dismissal of the claim or exposure to eviction risk.

Frequently Asked Questions about Authorization to Assign Leasehold Rights