Procedure

The procedure for assigning a lease is usually set out in the “assignment” section of the lease. However all provisions in the lease must be read subject to Part 7 of the Retail Leases Act 2003 which sets out the minimum standards for assigning a lease.

Providing the proposed tenant with a disclosure statement and other documents 

Section 61 of the Retail Leases Act 2003 sets out the procedure for obtaining consent to the assignment of the lease.  Section 61 provides that before the tenant seeks the consent of the landlord, the tenant must give the proposed tenant a copy of the disclosure statement that the tenant received from the landlord when he/she entered into the lease.  If any of the details of the disclosure statement have changed of which the tenant is aware, or could be reasonably expected to be aware, the tenant is required also to disclose these details to the proposed tenant.  There is a penalty of up to 10 penalty units if the tenant fails to provide the proposed tenant with this information (see section 61(3)). 

To undertake this requirement, the tenant may ask the landlord to give the tenant a new disclosure statement that is no more than 3 months old from the date of the request.  If the landlord receives such request, the landlord must provide the new disclosure statement within 14 days.  If the landlord fails to do so within 14 days of the request, the tenant is not required to provide the proposed tenant with a disclosure statement, as specified in section 61(3).  There is a penalty of up to 10 penalty units if the landlord fails to oblige the tenant's request to provide an updated disclosure statement (see section 61(3) and (5)). 

Note, if the assignment involves the sale of a business and the premises will continue to be used in the same way, there are different disclosure requirements.  The requirements specified by section 61(5A) of the Act are:
• that the disclosure statement given to the proposed tenant is to be in the same form as prescribed by the Retail Leases Regulations 2003 (although the layout does not need to be the same as the prescribed disclosure statement); and
• a copy of the disclosure statement must also be given to the landlord.

If the tenant has given the landlord and the proposed tenant a new disclosure statement as set out in section 61(5), and providing the disclosure statement does not contain any information that is false, misleading or materially incomplete, the tenant (and any guarantors that the tenant may have) will be released from any obligations under the lease or to pay to the landlord any money in respect of amounts payable by the proposed tenant (see section 62).

Note this release of liability does not apply to tenants where the assignment does not involve the sale of a business.

In addition, where the assignment involves the sale of a business the tenant must also provide the proposed tenant with business records of the last 3 years (or such shorter period as the tenant has carried on the business at the premises).  See section 60(1)(d) of the Act.

Tenant’s request to the landlord 

Section 61 of the Retail Leases Act 2003 specifies that the tenant’s request must be in writing, and accompanied by such information the landlord reasonably requires about the financial resources and business experience of the proposed tenant.

Timeframe for the landlord to deal with the request for consent 

Pursuant to section 61(6) of the Retail Leases Act 2003, once the tenant’s request for consent to assignment has been received by the landlord, the landlord must provide the tenant with a response expeditiously.  In any event, consent will be deemed accepted by the landlord if:
• the tenant has complied with its obligations under section 61 (ie. to put the request in writing, provide the requested documents to prove the proposed financial stability, and provide the proposed tenant (and the landlord, if the assignment involves a sale of business) with the relevant disclosure statement); and
• the landlord has not provided the tenant with a written notice that the landlord has consented or withheld its consent to the assignment within 28 days of the tenant’s request.

When the landlord can withhold consent to the assignment

Section 60 sets out the reasons by which the landlord is entitled to withhold consent.  This section overrides any other reasons specified in the lease.  The reasons are:
• the proposed tenant proposes to use the premises in a way that is not permitted under the lease (for example the proposed tenant wishes to use the premises as a restaurant when the permitted use under the lease is a sports store);
• the landlord considers that the proposed tenant does not have the financial resources or business experience to meet the obligations under the lease (for example the proposed tenant is a first time fashion retailer who would be replacing a fashion retailer which has over 300 stores);
• the tenant has not complied with the reasonable assignment provisions of the lease (these may include, for example, any of the steps involved in the procedure for obtaining the landlord’s consent to assignment set out in section 61 (see above)); and
• where the assignment involves the sale of a business the tenant has not provided the proposed tenant with business records of the last 3 years (see above).

If you have any further questions about assignment of a retail lease, contact the VSBC on (03) 9651 9316.