assignment of lease retail shop leases act

Assignment Of A Lease

Changes under the retail shop leases act.

Are you fully aware of your disclosure obligations under the Retail Shop Leases Act 1994 ?

If you are buying or selling a retail business with a lease, or if you are a landlord involved in such a transaction, it’s important that you are aware of your disclosure responsibilities under the Retail Shop Leases Act 1994 (the Act) . There have been recent changes to the Act so even if you are familiar, this article is a good opportunity to refresh your knowledge.

As a starting point, it may be helpful to review the meaning of some terms under the Act.

• Assignor: A tenant who transfers their lease to someone else, e.g. when selling a business.
• Assignee: A prospective tenant who takes over an existing lease from an existing tenant, e.g. when buying a business.
• Lessor or Landlord: The owner of the leased premises.

Assignor Disclosure Obligations

When the lease assignment is in connection with the sale of a retail business by the assignor to the assignee, the assignor must give the assignee an assignor disclosure statement as well as a copy of the current lease at least 7 days before the earlier of:

• The day on which the assignee enters into the business sale contract; or
• The day the lessor is asked to consent to the assignment.

Please be aware that this is a recent change to the legislation . Previously the requirement was to provide the assignor disclosure statement 7 days before the lessor was asked to consent to the assignment.

It is now possible for the assignee to waive the 7 day period with a waiver notice, provided they have already been given a copy of the assignor disclosure statement and a copy of the current lease

The assignor must also give the lessor a copy of the assignor disclosure statement given to the assignee on the day the lessor is asked to consent to the assignment. The lessor must respond to the request for the assignment of the lease within one month and failure to do so will result in the assignor having the right to bring a retail tenancy dispute before the Queensland Civil and Administrative Tribunal (QCAT).

Assignee Disclosure Obligations

The prospective assignee must give an assignee disclosure statement to the assignor before the lessor is asked to consent to the assignment.

The prospective assignee must also give an assignee disclosure statement to the lessor before the assignment is entered into.

For the purposes of the Act, an assignment is deemed to be entered into on the earlier of:

• The date by which the deed of assignment is signed by landlord, tenant and assignee.
• The date the assignee, with the consent of the landlord, takes possession of the premises

Lessor Disclosure Obligations

The lessor must give the prospective assignee a lessor disclosure statement as well as a copy of the lease at least 7 days before an assignment of a retail shop lease is entered into.

It is possible for the assignee to waive this requirement for a 7 day with a waiver notice and a legal advice report , provided they are given a copy of the lessor disclosure statement and a copy of the lease.

Failure by any party to provide a required disclosure statement

If a disclosing party fails to comply with the disclosure requirements then a retail tenancy dispute will exist between the parties. Unlike a situation of failure to provide a disclosure statement upon the commencement of a new lease, here there is no automatic right to terminate the assignment.

If it is within 2 months after the assignment is entered into, the party that should have received the disclosure statement can apply to QCAT for an order that the document is provided.

Should you wish to discuss in more detail how your business may be affected, please do not hesitate to contact our office and speak to one of our commercial lawyers .

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41 Procedure for obtaining consent to assignment

(a) A request for the lessor's consent to an assignment of the lease must be made by the lessee in writing.

(b) The lessee must provide the lessor with such information as the lessor may reasonably require to be satisfied that the financial resources and retailing skills of the proposed assignee are not inferior to those of the lessee .

(c) The lessee must provide the proposed assignee with an "updated lessor's disclosure statement" (comprising a copy of the lessor's disclosure statement given to the lessee in respect of the lease together with details of any changes that have occurred in respect of the information contained in that disclosure statement since it was given to the lessee).

(d) For the purpose of enabling the lessee to provide the proposed assignee with the required updated lessor's disclosure statement , the lessor must provide the lessee with an updated lessor's disclosure statement within 14 days after being requested to do so by the lessee .

(e) If the lessor fails to provide the updated lessor's disclosure statement , it is sufficient compliance with the requirement to provide the proposed assignee with an updated lessor's disclosure statement if the lessee instead provides a lessor's disclosure statement completed by the lessee to the best of the lessee's knowledge (but with information as to current outgoings in place of information as to estimated outgoings).

(f) The lessor must deal expeditiously with a request for consent to assignment of the lease .

(g) The lessor has 28 days (the "decision period" ) to decide whether to consent or to refuse consent to assignment. The decision period starts from when the request for consent was made by the lessee or from when the lessee has complied with the requirements of this section (whichever is later).

(h) The lessor is taken to have consented to assignment if the lessee has complied with this section and the lessor has not, within the decision period, given notice in writing to the lessee either consenting or withholding consent to assignment.

(i) The regulations may prescribe a period that is to replace the period of 28 days as the decision period in this section.

Assignment of a Lease - Retail Shop Leases Act

If you are buying or selling a retail business with a lease, or if you are a landlord involved in a business sale by one of your tenants it is important you are aware of your disclosure responsibilities under the Retail Shop Lease Act (“the Act”). 

Assignor Disclosure Obligations

When the lease assignment is in connection with the sale of a retail business by the assignor to the assignee, the assignor must give the assignee an assignor disclosure statement as well as a copy of the current lease at least 7 days before the earlier of:

• The day or which the assignee enters into the business sale contract, or
• The day the lessor is asked to consent to the assignment.

The disclosure obligation has changed recently as a result of recent amendments to the Act.  Previously the requirement was to provide the assignor disclosure statement 7 days before the lessor was asked to consent to the assignment.

It is now possible for the assignee to waive the 7 days period with a waiver notice, provided they have already been given a copy of the assignor disclosure statement and a copy of the current lease.

The assignor must also give the lessor a copy of the assignor disclosure statement given to the assignee on the day the lessor is asked to consent to the assignment.  The lessor must respond to the request for the assignment of the lease within one month and failure to do so will result in the assignor having the right to bring a retail tenancy dispute before the Queensland Civil and Administrative Tribunal (QCAT).

Assignee Disclosure Obligations

The prospective assignee must give an assignee disclosure statement to the assignor before the lessor is asked to consent to the assignment.

The prospective assignee must also give an assignee disclosure statement to the lessor before the assignment is entered into.

For the purposes of the Act, an assignment is deemed to be entered into on the earlier of:

• The date by which the deed of assignment is signed by landlord, tenant and assignee.
• The date the assignee, with the consent of the landlord, takes possession of the premises.

Lessor Disclosure Obligations

The lessor must give the prospective assignee a lessor disclosure statement as well as a copy of the lease at lease 7 days before an assignment of a retail shop lease is entered into.

It is possible for the assignee to waive this requirement for a 7 day period with a waiver notice and a legal advice report, provided they are given a copy of the lessor disclosure statement and a copy of the lease.

Failure by any party to provide a required disclosure statement

If a disclosing party fails to comply with the disclosure requirements then a retail tenancy dispute may exist between the parties.  Unlike a situation of failure to provide a disclosure statement upon the commencement of a new lease, here there is no automatic right to terminate the assignment.

If it is within 2 months after the assignment is entered into, the party should have received the disclosure statement. 

We are happy to help with any retail or commercial leasing matter you may have.  Contact Geoff Neilsen ( [email protected] ) if we can be of assistance.

Disclaimer – Reliance on Content The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.

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Assigning a Retail Lease

Any “Retail Lease”, that is, a lease of a shop that falls under the provisions of the Retail Leases Act 1994 (usually being, but not limited to, a shop for carrying on the businesses which appear on the list set out in Schedule 1 of the Act) may be transferred or “assigned”. The most common circumstance in which a lease is assigned is when a business is sold and the sale contract includes a term requiring the vendor of the business to assign the lease to the purchaser of the business.

An assignment of a Retail Lease involves at least three parties, being:-

• The landlord, or “Lessor”, being the entity (be it a company, partnership or individual) which owns the shop.

• The outgoing tenant, or “Assignor”, the entity which currently holds the lease but wishes to assign it to a new tenant.

• The new, incoming tenant, or “Assignee”, the entity which wishes to take over the lease from the Assignor.

It is also quite usual to have further parties to an assignment of a Retail Lease, being any personal guarantors of the Assignor and any personal guarantors of the Assignee.

The assignment process can be governed both by terms of the Retail Leases Act (“the Act”) and by the terms of the lease itself. Noting, however, that where there is an inconsistency between the lease terms and the provisions of the Act may prevail, depending on the wording of the relevant section.

The first step is for the Assignor to obtain the Lessor’s consent to the assignment. Section 41 of the Act sets out the process the Assignor must follow. Note that these obligations are on the Assignor, being the party to the lease at that point in time and falling under the provisions of the Act. The Assignee would not (unless all parties agree) usually be dealing directly with the Lessor during this process. In short, the process to seek consent to assignment of the lease includes:-

a) The Assignor is to provide to the Assignee a copy of the disclosure statement issued by the Lessor to the Assignor when the lease was first entered (see s41(b) of the Act).

b) The Assignor is to provide to the Lessor a written request for consent to the proposed assignment, including information that is known as the “Assignor’s Disclosure” – see s41(a) of the Act and Schedule 2A.

Usually the Assignee will have already reviewed the terms of the lease and found them acceptable (for example, if the assignment is pursuant to a sale of business a copy of the lease will be attached to the sale contract). As the lease is being assigned, the Assignee will be taking the lease as-is. There is some scope for amendment of the lease, but is entirely dependent upon the agreement of the Lessor. The Lessor has no obligation to agree to any amendment to the lease.

Further, the Assignor may wish to avail itself of the protection afforded by s41A of the Act, which provides that if the Assignor also provides the documents set out in a) and b) above to the Assignee at least seven days before the assignment is effected, then the Assignor and any guarantor of the Assignor is not liable to the Lessor to pay any money due from the Assignee to the Lessor after the date of the Assignment.

The Lessor does not have to accept an Assignee if that Assignee would not be a good tenant. Section 39 of the Act sets out the only grounds on which a Lessor can refuse consent.

If the Lessor consents the usual next step is for the Lessor to prepare a Deed of Assignment of Lease (obviously, if the Lessor does not consent the process stops there). A Deed of Assignment is not strictly required under the Act. However, it is usual practice for a Lessor to insist on this document, as it formalises the transaction and can deal with any matters that the Act does not deal with. For example, a Deed of Assignment might have a express terms providing:-

i. that the Assignor and its guarantor/s (if any) will remain liable to the Lessor in the event that the Assignee does not pay any sums owing to the Lessor during the course of the Assigned lease. Section 41A, as set out above, overrides any such provision in a Deed of Assignment, but it is common practice for Lessors to include such a provision, as it will be effective it the Assignor does not comply properly with s41A.

ii. alternatively, that the Assignor and any guarantors are expressly released from any further liability under the lease.

iii. for any amendments to the lease agreed between the Lessor and Assignee (alternatively, this can be done by way of a further Deed of Amendment).

iv. personal guarantees for the Assignee. In this case the guarantors of the Assignee will also be parties to the Deed.

Once consent is given by the Lessor and the Deed of Assignment is entered, all that remains is to formalise the assignment, by way of stamping and lodging with the Land and Property Information the transfer of lease form.

Alternative

An alternative to the assignment process set out above is for the outgoing tenant to simply surrender the current lease and have the incoming tenant take a new lease. Unlike the right conferred on an Assignor to be able to assign a lease in accordance with s39, 41 etc of the Act there is no right to compel a Lessor to agree to accept a surrender of lease and enter a new lease with the incoming tenant. However, if all parties agree, this process can be quicker and cheaper than the assignment process set out above – particularly noting that no Assignor disclosure is required nor any Deed of Assignment.

If you are taking over a lease or wishing to assign your lease then get in touch with one of our business lawyers to see how we can assist by contacting your nearest Prime Lawyers office.

We have offices in Sydney, Parramatta, Chatswood, Sutherland and Wollongong.

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When We All Understand the Assignment: Assigning a Retail Shop Lease as Part of a Commercial Business Sale

Posted in: Business Law , Commercial Lease

An easily overlooked element of a commercial business sale is that of assigning the existing lease, which is key in enabling the buyer to continue operating the business in the same premises where the seller currently resides. While the steps involved, in assigning the existing lease, may be relatively straightforward the time and effort in meeting the legislated disclosure requirements can become a hefty hurdle when approached haphazardly.

Under the Retail Shop Leases Act 1994 (Qld) (‘The Act’) , there are a multitude of time specific disclosure requirements to be undertaken by the seller (Lessee/Assignor), the buyer (Prospective Tenant/Assignee), and the landlord (Lessor) to ensure the assignment is binding. A failure of any party to meet these disclosure requirements within the specified time periods may result in an unenforceable agreement, entitling the Buyer or Landlord to terminate the assignment of lease, leaving the Seller high, dry and in breach of the sale contract.

With adherence to these disclosure details and time frames required under all retail shop leases (defined in section 5A of The Act ), it is highly advantageous for all retail business owners to have at least a basic understanding of what is expected when seeking an assignment of your lease.

Generally speaking, when entering into a retail shop lease, the key questions and considerations made by a business owner typically focus on matters that directly impact the daily operations and profitability of their business, such as:

• onboarding costs of bond, prepayment of rent, solicitors, insurances, fit-out, etc
• day to day costs of rent, outgoings, maintenance (including air-conditioning servicing), etc
• The length of the lease period and whether further options are available;
• Any building covenants or restrictions on use of the premise; and
• Consideration of instances where a ‘force majeure event’ such as Covid-19, or extensive damage to the property, as evidenced by the recent floods, results in it becoming unusable for the initially leased purpose.

While all of these elements are at the core of what could make or break a business’ success in a leased space, an important aspect that can be easily overlooked by a new Lessee are the steps required in assigning a lease when the time comes to sell their business.

Understandably, the last thought on a new business owner’s and/or prospective lessee’s mind is related to selling the business. However, knowing in advance what is involved to transfer a lease may be the key to avoiding missteps, unexpected delays, and unnecessary costs impacting the business owner’s sale proceeds or even leading to the potential collapse of the contract of sale.

The steps, while easy enough to be managed with sufficient planning and time, when rushed can be time consuming and unexpectedly burdensome to an unprepared Lessee simply looking to get the best price from the sale of their business.

Disclosure Requirements under the Act

As required under the Act, the following disclosures need to be completed to assign a lease in Queensland:

• The Lessor must complete a “Lessor disclosure statement to Assignee”, which provides details of the Lease and other relevant tenancy details.

2. The Assignor must complete an “Assignor disclosure statement to Assignee”, which outlines details of the lease and other relevant tenancy details.

a. With it, the assignor must provide a copy of the Lease, and any amendments and/or previous assignments.

b. This disclosure is to be provided a minimum of 7 days prior to the Assignor requesting the Lessor’s consent to the assignment of the lease unless a waiver is provided.

3. The Assignee must complete an “Assignee disclosure statement to Assignor” which requires disclosure of relevant details of the Assignee to facilitate the Lessor’s assessment of whether they are a fit and proper lessee.

a. This disclosure must also be provided a minimum of 7 days prior to the Assignor requesting the Lessor’s consent to the assignment of lease.

4. The Assignee must complete an “Assignee disclosure statement to Lessor”. Part of this disclosure requires a duly executed Legal Advice Report and Financial Advice Report.

a. These two reports are to verify that the Assignee has received the relevant legal and financial advice prior to agreeing to consent to the assignment of the existing Lease.

b. It should be noted that these reports are not necessary for a “Major Lessee”, that being a Lessee / Assignee who is a lessee of 5 or more retail shops in Australia.

As noted above, in lieu of meeting the required 7-day minimum disclosure periods, a Waiver Notice (waiver) may be provided by the relevant party. In providing a waiver, a Non-Major Lessee must also produce a legal advice report verifying that they have received legal advice regarding the implications of their waiver.

Once all the above have been provided in accordance with the relevant time periods or accompanied by a waiver, a Deed of Assignment can be executed by all parties to the lease. This deed will generally outline the conditions upon which the buyer will be taking over the existing lease, including binding them to the existing lease in place of the assignor, as well as outlining the obligations of the assignor (if any) upon completion of the assignment.

Why go through the trouble?

Beyond being a legislative requirement to ensure the assignment is legally binding, a major benefit that results from adherence to The Act’s assignment disclosure requirements is brought about through section 50A. Section 50A releases an assignor (and any existing guarantor/s) from all liabilities or obligations that arise under the lease after the date of assignment, regardless of the terms contained within the Deed of Assignment. It is this specific section that makes all of the assignor’s efforts in adhering to the Act’s disclosure requirements worthwhile, as it effectively provides the assignor with a legislative release from all future lease liabilities post-assignment date.

While the extent of information required to meet the above disclosure requirements will differ depending on the parties involved, considerable time and resources will likely be exhausted in ensuring all elements of the above steps are met. Specifically, if a seller is not sufficiently prepared, the time required for parties to collect information, receive legal and financial advice, ensure all documents are duly formatted and executed and the eventual protracted correspondence between all parties, can easily result in key dates being missed or delayed, putting the entire business sale at risk of collapse.

Although an assignment of a lease may only be a small portion of a business sale, due to the number of steps requiring prudent action from all parties involved, there are ample opportunities for unexpected delays to occur. By knowing in advance what is required to complete these steps, a Seller can take early action to ensure all required information is prepared, easily accessible, and ready for production as soon as possible in the sale process.

If you are looking to buy or sell a business or are looking to enter into or renew a lease, our team can assist in ensuring you are prepared in advance and your interests are protected.

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39 Grounds on which consent to assignment can be withheld

(1) The lessor is entitled to withhold consent to the assignment of a retail shop lease in any of the following circumstances (and is not entitled to withhold that consent in any other circumstances)-- (a) if the proposed assignee proposes to change the use to which the shop is put,

(b) if the proposed assignee has financial resources or retailing skills that are inferior to those of the proposed assignor,

(c) if the lessee has not complied with section 41 (Procedure for obtaining consent to assignment),

(d) the circumstances set out in section 80E ,

(e) in the case of a retail shop lease that has been awarded by public tender, if the assignee fails to meet any criteria of the tender.

(2) This section does not preclude any right of the lessor to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with the consent, so long as the lessor has substantiated those expenses to the lessee at the request of the lessee .