02/11/2011

In most leases you as the tenant have the right to assign the lease with the landlord’s consent. Often the lease terms specify that the landlord has to “approve” the proposed assignee. Typically this requires you proving to the landlord that the proposed assignee is “respectable, responsible, financially secure and capable of complying with the obligations of the lease”, or words to a similar effect.

What this means in practice is that the landlord has no obligation to provide consent if you do not follow the procedures specified in the lease or fail to provide information about the financial status and business experience of the proposed assignee as required by the landlord.

The chain of communication should be between you and the landlord, namely, you must follow the notice procedures in the lease and make a formal request in writing to them for consent to the assignment. While the proposed assignee is responsible for providing the business and financial information about themselves, you have the obligation to forward this on to the landlord and you should not rely on or ask them to do this for you.

It is also important to know that the landlord, as the lessor, has the right to withhold consent under the NSW Retail Leases Act if the proposed assignee has financial resources or retailing skills that are inferior to yours as the current tenant.

Generally landlords will consent to the lease assignment if the proposed new tenant puts up the necessary bank / director guarantee and has some relevant business experience.

However, a review of some case law showed that the NSW Courts will support a landlord’s decision to refuse consent if the proposed purchaser’s retailing skills were not sufficiently similar to those of the current tenant. This means that if the proposed tenant has considerable business experience but no experience in say running a shop, restaurant or licenced hotel as the case may be, your landlord may be justified in withholding their consent to the assignment. This may in turn, stifle your attempt to sell the business.

So know the terms of your lease, follow the procedures that are specified in it and importantly, be aware that your landlord could refuse your request if the proposed buyer does not have the necessary retailing skills.

If you have any questions in relation to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.