Commercial leases

A sale of business often includes a transfer of the lease of the business premises. All of the considerations set out above in relation to the transfer of contracts apply to transfer of leases. However, some additional factors need to be considered.

Lessor’s consent

Almost all leases contain provisions covering transfers of the lease by the lessee. They usually state that the lessor’s consent is required, and often state that such consent shall not be unreasonably withheld.

In New South Wales, Victoria, Queensland and Western Australia, provisions to this effect are included in leases by statute, and in New South Wales and Queensland, the statutory provisions override any express provisions to the contrary.

In Tasmania, there is no statutory provision to this effect, except for retail leases.

In South Australia, a lessee can only seek to apply to the court for relief against forfeiture, where the lessor vexatiously or capriciously withholds its consent to a transfer: s 12(4), Landlord and Tenant Act 1936 (SA).

Retail leases

All states and territories have provisions facilitating the lessee’s right to assign a shop lease. In all states but Queensland, a lessor must consent to an assignment, except on very limited grounds set out in the relevant statutes.

Queensland gives no help to a lessee wishing to transfer a lease, other than invoking a dispute resolution procedure if the lessor refuses to consent.

Vendor’s continuing lease liability

At common law, the assignor of a lease remains liable, even for liability arising after assignment. The solutions are:

• • seek an indemnity from the purchaser;
• • seek a release from the lessor; and
• • negotiate to terminate the existing lease, and replace it with a new lease.

Lease guarantees and bonds

On a sale of business, the transfer of a lease does not automatically release the guarantors, or effect a refund of the bank guarantees or bond provided by the original lessee. This must be negotiated with the lessor, who has no legal obligation to agree.

Liability of vendors under retail leases legislation

All states and territories but Tasmania have provisions to the effect that assignment of a retail lease will release the assignor and the vendor’s guarantors.

See Commercial leases.