Lease assignments can either run smoothly, or they can be frustrating and costly processes for landlords, tenants and assignees.
So how can you make your life easier?
Consider these tips for a smoother lease assignment process:
Tip 1: Read the assignment clauses of the lease carefully
This one sounds obvious – but it is an important starting point that tenants sometimes miss. If a tenant is considering seeking the landlord’s consent to an assignment of the lease, read the clauses in the lease about assignments carefully.
The assignment clause often sets out:
As a preliminary step, tenants should ask the assignee to commence compiling the financial information and references required under the lease assignment clause.
Tip 2: Ask about the landlord’s assignment application process early
Experienced landlords often have an application form to complete and an internal application process for proposed lease assignments. Tenants should ask the landlord (or the landlord’s property manager) about what the landlord’s application process involves, and whether the landlord has an application form that needs to be completed. The application form will often also set out the information the landlord needs from the assignee, in order to process the application.
Usually leases provide that tenants are responsible for the landlord’s costs of a proposed assignment, whether or not the assignment proceeds. Tenants may want to enquire about the landlord’s estimated costs (including the landlord’s legal fees), when asking about the landlord’s application process.
Experienced landlords often request a meeting with the proposed assignee before any formal application for consent to assignment is processed.
Tip 3: Consider any Retail Shop Leases Act 1994 (Qld) disclosure obligations before formally seeking the landlord’s consent
If the lease is a retail shop lease under the Retail Shop Leases Act 1994 (Qld), the tenant has an obligation to give the assignee a disclosure statement and a copy of the current lease (assignor disclosure statement), at least 7 days before the earlier of:
The assignee also has an obligation to give an assignee disclosure statement to the tenant, before the landlord is asked to consent to the assignment.[ii]
When asking the landlord to consent to the assignment, the tenant must give a copy of the assignor disclosure statement to the landlord.[iii]
If a tenant is unsure about whether or not the existing lease is a retail shop lease under the Retail Shop Leases Act 1994 (Qld), the tenant should seek legal advice early.
Tip 4: Formally ask for the landlord’s consent to the proposed assignment
The tenant should formally seek the landlord’s consent to the proposed assignment. The request should be made in the way the lease requires, which is usually in writing, addressed to the landlord or the landlord’s property manager.
To ensure a streamlined process, this formal request for consent to assignment should attach:
Tip 5: Allow time for the landlord to consider the application
Tenants often enter into business sale agreements with a proposed assignee that do not factor in sufficient time for seeking and obtaining the landlord’s consent to the assignment.
Leases often include clauses that say the landlord must be allowed a certain number of days to consider an assignment application, once the tenant and assignee have provided all information required to process the application. Tenants should factor this timeframe into any business sale contract with the assignee.
If the lease is a retail shop lease under the Retail Shop Leases Act 1994 (Qld), and if the landlord has not decided the application for consent to assignment within one month after the application was made and full particulars of the proposed assignment were given to the landlord, a retail tenancy dispute exists under the Retail Shop Leases Act 1994 (Qld). In those circumstances, either party may apply to the Queensland Civil and Administration Tribunal for resolution of the dispute.
Tip 6: If a retail shop lease, allow sufficient time for further disclosure under the Retail Shop Leases Act 1994 (Qld)
If the landlord decides that it will consent to the assignment, and the lease is a retail shop lease under the Retail Shop Leases Act 1994 (Qld), there are additional disclosure obligations to comply with before the assignment of lease is entered into. Namely:
Tip 7: The assignee should arrange the lease security and insurances early
Once the landlord has confirmed it will consent to the assignment (which is often subject to certain conditions), the landlord or its lawyers will then usually prepare a draft deed of consent to assignment of the lease.
The draft deed will set out the conditions precedent to the landlord’s consent. The conditions precedent often include:
Failure by the tenant and assignee to satisfy each of the conditions precedent in the deed of consent to assignment could mean that the landlord’s consent to the assignment has not been obtained. This could hold up settlement of the sale of the business by the tenant to the assignee, or cause the business sale to fall over.
Avoid some of the headaches associated with lease assignments by following the above tips!
Author: Katie Miller
[i] Section 22B(1) Retail Shop Leases Act 1994 (Qld)
[ii] Section 22B(2) Retail Shop Leases Act 1994 (Qld)
[iii] Section 22B(3) Retail Shop Leases Act 1994 (Qld)
[iv] Section 22C(1) Retail Shop Leases Act 1994 (Qld)
[v] Section 22C(3) Retail Shop Leases Act 1994 (Qld)
Katie Miller, Partner
T: +61 7 3135 0606
T: +61 3 9321 9866
T: +61 2 8083 0459
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.
Published by Katie Miller