The assignment (or transfer) of a retail premises lease is the transfer of lease from a current tenant to a new tenant.

The VSBC can help you understand your position regarding assigning (or transferring) a lease, and your rights and obligations during the process.

The procedure for assigning a lease is usually set out in the ‘assignment’ section of the lease.

However, all provisions in the lease are subject to Part 7 of the Retail Leases Act 2003 (the Act), which sets out the minimum standards for assigning a lease.

Current tenant obligations

Under Section 61 of the Act, before the current tenant seeks consent of the landlord, they must:

  • give the proposed tenant a copy of the Disclosure Statement that they received from the landlord when they first entered into the lease;
  • disclose any changes that they know of to the Disclosure Statement to the proposed tenants.

Requesting consent from the landlord

Section 61 of the Act specifies that the tenant’s request must be in writing. It must be accompanied by information about the financial resources and business experience of the proposed tenant.

The timings and process for a tenant to request consent from a landlord are:

  • The current tenant asks the landlord to give the new tenant a new Disclosure Statement that is no more than three months old from the date of the request.
  • If the landlord receives this request, the landlord must provide the new Disclosure Statement within 14 days.
  • If the landlord fails to do so within 14 days of the request, the tenant is not required to provide the proposed tenant with a Disclosure Statement, as specified in section 61(3).

Reasons a landlord can withhold consent

Section 60 sets out the reasons for a landlord to withhold consent when assigning a lease. This section overrides any other reasons specified in the lease. The reasons are:

  • The proposed tenant wants to use the premises in a way that is not permitted under the lease. For example, the proposed tenant wishes to use the premises as a restaurant when the permitted use under the lease is a sports store.
  • The landlord considers that the proposed tenant does not have the financial resources or business experience to meet the obligations under the lease. For example, the proposed tenant is a first time fashion retailer who would be replacing a fashion retailer that has more than 300 stores.
  • The tenant has not complied with the reasonable assignment provisions of the lease. For example, these may include any of the steps involved in the procedure for obtaining the landlord’s consent to assignment set out in section 61.
  • Where the assignment involves the sale of a business, the tenant has not provided the proposed tenant with business records for the past three years.

Continuation and sale of existing businesses

If the assignment involves the continuation of an existing business, there are different disclosure requirements. The release of liability applies only to tenants where the assignment involves the continuation of an existing business.

The requirements specified by section 61(5A) of the Act are:

  • The Disclosure Statement given to the proposed tenant is to be in the same form as prescribed by the Retail Leases Regulations 2003 (although the layout does not need to be the same as the prescribed Disclosure Statement).
  • A copy of the Disclosure Statement must also be given to the landlord.

The tenant (and any guarantors they may have) will be released from any obligations under the lease and will not be obliged to pay the landlord any money in respect to amounts payable by the proposed tenant (see section 62), if the:

  • tenant has given the landlord and the proposed tenant a new Disclosure Statement as set out in section 61(5A);
  • Disclosure Statement does not contain any information that is false, misleading or materially incomplete.

In addition, where the assignment involves the sale of a business the tenant must also provide the proposed tenant with business records of the last three years (or such shorter period as the tenant has carried on the business at the premises); see section 60(1)(d) of the Act.

Timings

Section 61(6) of the Act specifies that once the tenant’s request for consent to assignment has been received by the landlord, the landlord must provide the tenant with a response in an efficient manner.

In any event, consent will be deemed accepted by the landlord if:

  • The tenant has complied with their obligations under section 61 (i.e. to put the request in writing, provide the requested documents to prove the proposed financial stability, and provide the proposed tenant (and the landlord, if the assignment involves a sale of business) with the relevant Disclosure Statement); and
  • The landlord has not provided the tenant with a written notice that the landlord has consented or withheld its consent to the assignment within 28 days of the tenant’s request.

VCAT decisions – assignment

Decisions handed down by the Victorian Civil and Administrative Tribunal (VCAT) regarding assignment of a retail lease include:

Other decisions can be found on the Australian Legal Information Institute (AustLII) website.

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