Most retail lease tenancies are on the basis that the lessee will occupy the premises for a specified period (known as the “term” of the lease). Potential lessees will need to commit to occupying the premises for the term, and this may leave them concerned about the possible ramifications if their business is not successful or if they can no longer afford to operate from the premises. Below, we look at the retail leasing provisions in New South Wales under the Retail Leasing Act 1994 (NSW) (‘the Act’) and the protections a lessee will have in case they can no longer continue operating from a premises. In particular, we look at how a lessee can assign a retail lease.
What is an Assignment Clause?
Most retail lease agreements will include an assignment clause. An assignment means the lessee will transfer the lease to another party. The lessee will usually have to find an appropriate tenant, and it will in most cases require the approval of the lessor. All lessees should review the lease thoroughly to understand their obligations for assigning the lease.
What Does the Retail Leasing Act 1994 (NSW) Say?
The lessor cannot withhold consent for the assignment of a retail lease unless any of the factors in section 39 of the Act apply. This includes when:
- The proposed lessee wants to change the permitted use of the shop;
- The proposed lessee has inferior financial resources or retail skills than the current lessee; and
- The current lessee has not followed the correct procedure to obtain consent for the assignment of the lease (discussed below).
These factors limit the criteria that a lessor can use to withhold consent to an assignment. If the lessor does not reply in writing to a lessee’s request to assign the lease within 28 days from when the request was sent, the lessor is said to have approved the assignment.
What is the Correct Procedure to Obtain Consent?
Section 41 of the Act contains the correct procedure for obtaining consent from the lessor. In summary, the lessee must send the request in writing with information about the proposed lessee including their experience and financial standing. The lessee is responsible for providing the proposed lessee with a copy of a disclosure statement which includes details such as rent, outgoings, term, etc.
Subleasing and Mortgaging
Subleasing, licensing and mortgaging differ as it is in the lessor’s absolute discretion whether they will provide this right to the lessee. You will need to review the terms of the lease to determine whether this right exists.
Although most lessees are required to commit to a period to remain an occupant of the lease, the Act provides certain protections to allow for assignment. These protections include limiting the lessor’s rights in denying consent to an assignment. In circumstances where the lessee can no longer occupy the premises, the lessee should make efforts to follow the correct procedure in the Act and in the lease to find an appropriate new tenant for the premises.
If you have any questions or need assistance with your retail lease, get in touch with our retail leasing lawyers on 1300 544 755 or fill out the form on this page.