If you are a tenant of a commercial or retail lease and want to end a lease early, there are three primary options available:
- surrender the lease
- assign the lease, or
- sublease to a new tenant.
Each option has its own advantages and disadvantages (summarised below).
|Surrender the lease||Lease relationship ends, providing certainty for all parties.||Tenant may need to pay the landlord for the remaining term of the lease.|
|Assign the lease||The lease is assigned to a new tenant and removes the liability of the outgoing tenant from the assignment date.||If the deed of assignment does not correctly transfer all liability, the outgoing tenant can remain liable under the lease.|
|Sublease to a new tenant||The original tenant controls the lease and so can ‘retake’ possession of the premises at any time.||As the sublessor, you are still liable to the landlord for the term of the lease. The sublessor is still responsible for ‘making good’ unless the subtenant is responsible for this under the sublease.|
This article focuses on assigning a lease and the various state-based retail lease provisions that apply.
In all states, a tenant must request the assignment in writing. A landlord cannot unreasonably refuse a request to sign the lease.
Under Victoria’s Retail Leases Act 2003 (Vic), the outgoing tenant must provide:
- The landlord with any information reasonably required to make a decision to allow an assignment. Information may include financial information and any business references from the proposed new tenant demonstrating their business experience and ability.
- The new tenant a copy of the original disclosure statement and disclose any change.
The landlord must then provide a response to the outgoing tenant within 28 days of the request, and can only withhold consent if:
- there is a change to the permitted use;
- the proposed new tenant does not have sufficient financial resources or business experience;
- the existing tenant has not complied with assignment provisions of the lease; or
- the existing tenant has not provided the proposed new tenant with business records from the previous three years (if the new tenant is to take over the business as a going concern).
If the landlord does not respond within 28 days, they are considered to have consented to the assignment.
New South Wales
Under the Retail Leases Act 1994 (NSW), the outgoing tenant must provide:
- The proposed new tenant with a copy of:
- the original landlord’s disclosure statement, and
- an assignor’s disclosure statement (this must be done at least seven days before the assignment takes effect).
- The landlord with any information reasonably required on the financial standing and business experience of the new tenant, as well as a copy of the assignor’s disclosure statement.
Upon receiving this information, the landlord must provide the outgoing tenant with a response within 28 days. A tenant can take a landlord’s failure to respond as consent. The landlord can withhold consent if the proposed new tenant either:
- changes the permitted use, or
- has inferior financial resources or business experience to the existing tenant.
The landlord can also withhold consent if the existing tenant has not complied with assignment procedures set out in the lease or the Act. In NSW, the landlord also has the discretion to refuse consent to grant a sublease, licence or possession to the whole or part of the shop under the Act.
Under the Retail Shop Leases Act 1994 (QLD), the landlord can provide or withhold consent to assign the lease within 30 days of the outgoing tenant’s request.
The Act does not specify under what conditions the landlord can withhold consent. It does, however, specify that a landlord cannot:
- impose any new obligations that are unreasonable, or
- withdraw any existing rights from the new tenant.
If the landlord does not provide a response within 30 days, then a retail tenancy dispute may arise between the existing tenant and landlord.
Australian Capital Territory
The Leases (Commercial and Retail) Act 2001 (ACT) regulates retail leasing in the Australian Capital Territory (ACT). Under the Act, the landlord can withhold consent to a sublease or assignment where it is reasonable.
However, in the ACT, if the landlord makes a request for further information within 14 days of the tenant’s request to assign, they then have an extra 21 days from the date of the request to provide the tenant with a response.
The Commercial Tenancy (Retail Shops) Agreement Act 1985 provides that the landlord cannot withhold consent to a requested assignment unless on reasonable grounds. The landlord must provide a response within 28 days of the tenant’s request.
The Act also specifies that the landlord cannot recover any money that the new tenant owes from the existing tenant. Any term in s lease that says the landlord can recover money from the existing tenant or guarantor will be void.
Tasmania’s Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 specifically sets out circumstances where a landlord can reject a request for assignment.
The Tasmanian legislation also specifies what information a landlord can require a potential tenant to provide, including:
- information about financial standing (for company and guarantors),
- relevant business skills,
- proposed use of premises and two references.
Tasmania provides the shortest time frame – 21 days – for the landlord to respond to a request for assignment.
Similarly to NSW, the Retail and Commercial Leases Act 1995 (SA) sets out when a landlord can refuse consent, with the addition that the landlord can refuse if the new tenant’s retailing skills are inferior to the existing tenant.
The Act also specifies that a landlord cannot accept a premium for an assignment (i.e., key money). Additionally, the outgoing tenant must provide a disclosure statement to the proposed new tenant and the landlord, ensuring that it is not false or misleading.
The Act also expressly provides that a landlord may refuse at their absolute discretion any consent relating to subleasing, licensing, concession or possession of the premises. A landlord has 42 days to respond to a request for assignment.
Under the Business Tenancies (Fair Dealings) Act, the landlord has 42 days to respond to a request for a proposed assignment. The outgoing tenant must also provide the new tenant with a copy of the disclosure statement or request that the landlord provides an updated disclosure statement. The Northern Territory Act also provides for similar reasons to the New South Wales Act as to when a landlord can withhold consent.
When assigning a lease, tenants should consider the following:
- Is the lease commercial or retail? If a retail lease, then the relevant state legislation will apply.
- All assignment requests to landlords must be in writing with any supporting documentation.
- If a landlord does not respond within the time frame set out under the relevant legislation, this can be taken as consent in certain states.
- Finally, while the right to assign is afforded to all tenants in all states, subleasing can be subject to the landlord’s absolute discretion, as can surrender of a lease.
If you have any questions or need any help assigning your lease, get in touch with our specialist leasing lawyers on 1300 544 755.
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