Consent to Assignment of Retail Leases
When seeking a transfer or assignment of a retail lease, the most important part of the process is obtaining consent to the transfer or assignment from the landlord. In Victoria, section 60 of the Retail Leases Act 2003 (“the Act”) sets out four scenarios where the landlord is entitled to withhold consent. One of the most common grounds entitling the landlord to withhold its consent is where the landlord considers that the proposed assignee does not have sufficient financial resources or business experience to meet the obligations under the lease.
The question then becomes what information should be provided by the tenant to the landlord in relation to the proposed assignee’s financial resources and business experience.
What information is relevant or required?
In Lockrey v Historic Houses Trust of New South Wales  NSWCA 249, a recent decision by the New South Wales Court of Appeal, some useful guidelines in relation to this question were given. The key points to note are:
- the tenant is only required to provide information as requested by the landlord; and
- the information requested must be specifically identified and reasonably required for the question of consent.
In this case, the Court considered the landlord’s request for “verifiable information regarding [the proposed assignee’s] financial standing” was neither specific enough nor reasonably required in relation to the proposed assignee’s financial standing.
While this is not a Victorian decision, it is likely that the Victorian courts will consider the reasoning in this case.
Things for the landlords to remember
When requesting information, landlords should take care to avoid “broad” or “catch-all” requests concerning the proposed assignee’s financial resources or business experience.
A landlord can only withhold consent if the landlord is not satisfied that the proposed assignee has sufficient financial resources or business experience to meet the tenant’s obligations under the lease.
It should be noted that the retail lease legislation in New South Wales and Victoria requires the landlord to notify the tenant in writing within 28 days of the initial request in relation to whether the landlord is consenting or withholding its consent to the proposed assignment of lease.
Things for the tenants to note
While this decision gives some clarity as to what a landlord can request, tenants should bear in mind that there are other grounds in Victoria (as well as in other States and Territory) where a landlord may refuse a request for consent to a proposed assignment of lease.
Section 60 of the Act also provides that the landlord may refuse consent in the following situations:
- where the proposed assignee proposes to use the retail premises in a way not permitted under the lease;
- where the proposed assignor has not complied with reasonable assignment provisions of the lease; or
- where the assignment is in connection with a lease of premises that will continue to be used for the carrying on of an ongoing business and the proposed assignor has not provided the proposed assignee with business records for the previous 3 years or such shorter period as the proposed assignor has carried on the business.
In particular, tenants should be aware that the test of “reasonableness” only applies to one of the grounds for refusing consent. For the other three grounds, the landlord may refuse consent without any reference to “reasonableness”.