It’s easy to overlook assignment of the lease when buying a business. Business owners mistakenly assume that if the business is changing hands, so to will the lease agreement. This is not, however, the case.
A lease assignment is a process where one business transfers its existing lease to another. The existing tenant must obtain consent from the landlord. This is a formal process, and the landlord can refuse to provide consent in certain situations.
If you are purchasing a business, it’s important to secure the assignment of the lease to avoid uncertainty about the location from which you will operate. After all, no new business owner wants to find themselves in a position where they have to deal with unexpected relocation costs.
This article will explain the importance of securing a lease assignment when purchasing a new business, focusing on the assignment process for retail leases.
How are Leases Assigned?
State-based legislation governs the process to assign retail leases. Generally, the existing tenant will make an application in writing to the landlord to assign the lease. The landlord will then respond to the request within a specific timeframe. In some states, like NSW, if the landlord fails to respond within a 28 day period, it is automatically taken that the landlord has approved the assignment.
On the other hand, in other jurisdictions such as Queensland, if the landlord fails to respond with a one-month timeframe, a ‘retail tenancy dispute’ will arise. This dispute is then referred to the Queensland Civil and Administrative Appeal Tribunal.
In most states, retail lease legislation protects tenants and prospective purchasers by prohibiting landlords from unreasonably withholding consent to a lease assignment.
When Can a Landlord Refuse an Assignment?
Under most retail legislation, a landlord cannot unreasonably refuse consent. Securing an assignment of the lease when purchasing a business may then seem less crucial.
Purchasers should know the ‘reasonable’ grounds on which a landlord can refuse an assignment. We set these out in the table below.
|State||Reasons for Refusal|
Purchasers should secure an assignment of the lease to ensure the stability of the business’ operations. Generally, landlords cannot refuse consent to an assignment unless it is on reasonable grounds as permitted by the relevant retail legislation and lease terms. It’s important you have a commercial leasing lawyer review the lease to ensure you understand any restrictions placed on the assignment that may affect your decision to purchase the business. If you have any questions, get in touch on 1300 544 755.
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