Transferring a Lease to a New Business Owner
As part of the sale of a business the vendor and the purchaser have to decide if the purchaser wishes to have a transfer over the existing lease of the business premises or wishes to apply to the lessor for a new lease. If it is to be the transfer of an existing Lease then for commercial premises the lease itself will set out the requirements to be satisfied but in the case of retail shop premises it is the Retail Leases Act 1994 NSW which regulates the arrangements betweens the parties. Normally, for both types of leases, an application will have to be made to the lessor to approve the transfer of Lease and the lessor will have to be provided with satisfactory evidence as to the purchaser’s financial standing and business experience. Provided the lessor does give its consent in principle to the transfer then the lessor’s solicitors will prepare a Deed of Assignment of Lease between the lessor, the outgoing lessee and the incoming lessee formally consenting and assigning the rights and obligations under the lease to the incoming lessee. The Deed will also deal with other matters including payment of any moneys owing under the lease and whether or not the outgoing lessee is to be released from future liability under the lease. The Deed of Assignment of Lease normally becomes effective on the date of settlement of the sale of the business. In the case of retail premises the Retail Leases Act sets out a number of additional steps or matters including:
1. The lessee must request the lessor’s consent to the transfer in writing. However, before making such request the lessee must furnish the proposed lessee with a copy of any Lessor’s Disclosure Statement in respect of the lease given to the lessee together with details of any changes that occurred since;
2. The lessor is then entitled to request information it may reasonably require concerning the financial standing and business experience of the proposed incoming lessee. According to the recent NSW Court of Appeal decision of Lockrey v Historical Houses Trust of NSW the lessor can only request specific documents such as financial statements and tax returns for a specific period;
3. If the outgoing lessee (or any guarantor) wishes to be protected from ongoing liability under the lease it must give a copy of a Assignor’s Disclosure Statement to the incoming lessee and the lessor at least 7 clear days before the assignment becomes effective i.e. usually from the date of settlement of the sale of the business;
4. If the lessor does not deal with the request for consent to the transfer expeditiously there will be deemed consent if the lessor has not responded within 28 days after the request was made; and
5. The lessor is only entitled to refuse consent to the transfer of lease in certain circumstances which are normally:
(a) if the incoming lessee proposes to change the use of the shop;
(b) if the incoming lessee has financial resources or retailing skills inferior to those of the outgoing lessee; or
(c) if the outgoing lessee has not complied with the procedure to obtain consent to the transfer.