Assignment of Lease – What landlords need to know

Dean Claughton

When a tenant approaches you to assign their lease, your first port of call should be the terms and conditions contained in the lease itself.  The lease should set out how an application is to be made for consent and conditions to be satisfied – including additional requirements such as further security or guarantees.  The lease will usually set out whether the assigning party and their guarantors (if any) are to be released upon assignment.

If the lease is governed by the Retail Leases Act 1994 (for New South Wales) (“the Act”), the landlord and the tenant need to review the key sections of the Act dealing with assignments as follows:

1. Section 39, which sets out the reasons for a landlord withholding consent if:
 
          (a) the incoming tenant proposes to change the permitted use;

(b) the incoming tenant has inferior resources to the current tenant; and

(c) the consent procedure set out under clause 41 of the Act has not been complied with.

2. Section 41, which sets out the procedure for obtaining consent to the assignment in the following manner:

(a) consent must be asked for in writing;

(b) the assignor (current tenant) or the assignee must provide the lessor with financial information and business experience of the assignee;

(c) the assignor must give a copy of the disclosure statement to the assignee, together with details of any changes that may be relevant; and

(d) if the lessor has not notified the assignor as to whether they are consenting or not within the prescribed time, then the lease is deemed to be assigned.

3. Section 41A, which releases assignors and guarantors on assignment, provided that the assignor has given the assignee and the landlord a copy of an assignor’s disclosure statement within the prescribed time.

In my experience, landlords will consider 1(b) and 2(b) by asking for financial statements (that show assets and liabilities, and profit and loss where relevant), bank statements, references and even Police checks.  The landlord should consider this information carefully and should seek the advice of an expert in understanding or interpreting this financial information.

Having obtained, in principle, consent to an assignment of lease, the landlord will usually make final consent conditional upon the parties signing a Deed of Consent to Assignment of Lease and registrable Transfer of Lease.  There may need to be a Variation of Lease also signed (if the parties agree on changes to the lease or if the assignment requires alterations such as deletion of outgoing guarantors). 

If a tenant approaches you seeking to assign the lease, it is essential to obtain legal advice to ensure the process is smooth and efficient.

If you need further advice on an assignment of lease please contact our experienced property lawyer:

Dean Claughton, Lawyer
Phone: +61 2 9895 9276
Email:
dclaughton@colemangreig.com.au