Transfer of a retail leases premises

The transfer, or assignment of a retail premises lease from a current tenant, or assignor to a new tenant, or assignee is known as a transfer.

The procedure for transferring a lease is set out in the Retail Leases Act 2003 (the Act) and is usually in the ‘assignment’ section of the lease.

All provisions in the lease, however, are subject to Part 7 of the Act, which sets out the requirements for assigning a lease.

Current tenant obligations

Before the current tenant seeks consent of the landlord to transfer the lease, they must:

  • give the proposed tenant a copy of the disclosure statement they received from the landlord when they entered into the lease
  • disclose any changes to the disclosure statement that they know of to the proposed tenants. Failure to do this is an offence

Requesting consent from the landlord

The current tenant’s request for a transfer of the lease must be in writing. It must also include information about the financial resources and business experience of the proposed tenant.

To request consent from a landlord to transfer the lease:

  • 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.

Reasons a landlord can withhold consent

A landlord can withhold consent on the following grounds:

  • 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 the proposed tenant does not have sufficient financial resources or business experience to meet the obligations under the lease. For example, the proposed tenant is a first-time fashion retailer with no relevant experience who would be replacing a fashion retailer with more than 30 stores and many years of experience.
  • 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 (transfer).
  • Where the assignment involves the sale of an ongoing 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 disclosure statement given to the proposed tenant is to be in the same form as prescribed by the Retail Leases Regulations 2013 (although the layout does not need to be the same).
  • A copy of the disclosure statement must also be given to the landlord.

The tenant (and any guarantors) 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 if:

  • the tenant has given the landlord and the proposed tenant a new disclosure statement
  • the disclosure statement does not contain any information that is false, misleading or materially incomplete

Where the assignment involves the sale of a business the tenant must also provide the proposed tenant with business records for the last three years.

Timings

Once the landlord has received the tenant’s request to transfer the lease they must give the tenant a timely response.

The landlord is considered to have agreed to the transfer if:

  • The tenant has complied with their obligations (i.e. put the request in writing, provided the requested documents to prove the proposed financial stability, and provided the proposed tenant (and the landlord, in the case of the sale of an ongoing business) with the relevant disclosure statement)
  • The landlord has not provided the tenant with a written notice that the landlord has consented or withheld its consent within 28 days of the tenant’s request

Relevant case study

The situation: The current tenant, a private company, is selling its business on the condition that the lease is transferred to the purchaser upon settlement. The tenant’s company directors had personally guaranteed the tenant’s obligations under the existing lease.

As required under the Retail Leases Act 2003, the current tenant provided a copy of the disclosure statement to the proposed tenant and the landlord, seeking the landlord’s consent to the transfer. In doing so, the tenant and its guarantors were released from any of the proposed tenant’s obligations under the lease.

The proposed tenant is also a private company, but its directors do not have the same assets behind them as the current tenant. As such, the landlord refuses to consent to the assignment on the basis that the proposed tenant does not have sufficient financial resources to meet the obligations of the lease.

The process: The dispute is referred to the VSBC for mediation involving the three parties – the landlord, the current and the proposed tenant.

The resolution: Settlement is reached, with the landlord consenting to the assignment on the basis that the:

  • security deposit be increased from 1 months rent to 6 months rent, via a bank guarantee
  • current tenant agrees to pay the cost of preparing the bank guarantee, as the sale of business was based on an unchanged lease.

VCAT decisions – assignment

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

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

Getting started

You can speak to someone in person by calling us on 13 VSBC (138722) or emailing us with an enquiry.

 

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