What Happens to Your Lease When You Sell Your Business?

For anyone who has operated and sold a business, they would know that it is a two-step process: selling the business assets and assigning the lease for the premises. The procedure for assigning the lease involves seeking the lessor’s consent. It’s important to understand the process and your rights whether you are the party assigning the lease (assignor) or buying the business and taking over the lease.

Assigning the Lease: What You Should Know

Before entering into the Sale of Business Contract, you should inform the lessor in writing of the proposed sale and provide the lessor with the information required as stated in your lease under the assignment provision. State-based retail legislation governs a retail lease and the lessor cannot unreasonably withhold consent if you provide the requisite paperwork concerning the new tenant’s financial standing and business experience. The landlord must also give the incoming tenant a copy of the disclosure statement that they received at the time of entering into the lease or request an updated disclosure statement from the lessor to provide the assignee/incoming tenant.

Taking Over the Lease: What You Should Know

If you are purchasing a business, you must ensure that the term of the lease for the premises is long enough for you to carry on the business. It may be worth requesting to extend the term of the lease when you are seeking the lessor’s consent to the assignment of lease. The lessor, however, is not obliged to change the lease condition or duration (but it is worth a try). With an assignment of lease, you are taking on the lease agreement on an “as is” basis with little or no scope for any changes to the documents. Consequently, you would hope that the current tenant/business owner has already done all the hard work of negotiation for you!

The Lessor’s Obligations in an Assignment of Lease Process

In Victoria and New South Wales, the Lessor must deal expeditiously with a request for an assignment. This means that the lessor is deemed to have consented if the lessor has not given written consent or withholds consent within 28 days of being requested to do so. In QLD, there is no timeframe for the lessor’s consent. A lessor may withhold consent to an assignment if the assignee proposes to change the shop’s use or if the new tenant’s financial resources or retailing skills are inferior to that of the assignor/existing tenant.

Key Takeaways

Assigning a lease is a formal process that goes hand in hand with selling or purchasing a business and often both transactions are done simultaneously to ensure a seamless changeover for both parties. If you would like assistance with an assignment of lease or have any questions about your sale or purchase transaction, get in touch with our experienced commercial leasing lawyers on 1300 544 755.