When a Tenant wishes to sell his or her business or cease trading, and there is a retail lease in place, it is crucial that that lease be dealt with. It is possible to surrender a lease (however this may incur a penalty) or, more commonly, to assign a lease.
Assignment of Retail Leases
This article focuses on Retail Leases, which are governed by the Retail Leases Act 1994 (NSW) (Act). The process to assign a lease under the Act is similar for commercial leases, however, the requirements of the Act do not need to be met.
Step One – Permission from the Landlord
The existing tenant (existing Lessee/ Assignor) and new tenant (new Lessee/ Assignee) must obtain the Landlord’s permission to assign a lease.
The Landlord may require that the new Lessee provide references and details of their financial circumstances in order to approve the proposed transfer.
Step Two – Disclosure Statements
To assign a lease, the Assignor must request an updated copy of the Landlord’s Disclosure Statement to provide to the Assignee.
The Assignor must also prepare an Assignor’s Disclosure Statement and provide it to the Assignee and the Landlord at least 7 days before the proposed assignment. Note the time frame of at least 7 days is crucial as if this time frame is not met, the Assignor may remain liable under the Lease.
Step Three – Assignee must provide information to Landlord
Following on from Step One, the Assignee must provide all requested documentation to the Landlord to confirm their financial standing and suitability as a tenant. Such documentation would generally include the business experience of the Assignee.
Further, the Assignee must provide details of any representations (promises) made by the Assignor or the Landlord which induced them to enter into the lease, if any.
As part of the process to assign a lease, these documents must be served on the Landlord in accordance with section 81A of the Act, which deals with service of documents.
Step Four – Landlord to Respond
The landlord must respond to the request to assign a lease within 28 days from the date all the information is received (or the assignment is deemed to have taken place).
The Act only allows the landlord to refuse a request to assign a lease in the following five situations:
- If the use of the shop/ premises is to change;
- If the Assignee has less business skills than the proposed Assignor;
- If the Assignee has less money than the proposed Assignor;
- If the Assignor has not complied with the procedure for obtaining consent to the assignment as set out in this document; or
- If the shop is airside at Sydney (Kingsford Smith) Airport and the landlord has the right to refuse assignment under Section 80E of the Act.
If you require assistance to assign a lease under the Retail Leases Act 1994, get in touch with LegalVision’s experienced leasing legal team at 1300 544 755. Our Client Care team will provide you with legal guidance on what you may need going forward, along with a free legal health check and a fixed-fee quote.