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Retail Leases: Selling your business

Selling your business can be a tricky and stressful process. You will need to assign the lease to the purchaser, which requires the consent of your landlord. Assignments can be complicated and it’s best to employ a solicitor to assist you with the assignment of the lease and the sale of the business.

Here’s a quick Q&A to help you along the way:

Q: Can my landlord refuse to consent to the assignment of lease?

A: Under the Retail Leases Act 1994 a landlord can only withhold its consent to assignment of your lease in limited circumstances. If those circumstances don’t apply, the Landlord must consent – even if your lease says otherwise.

One of the grounds on which a landlord can refuse consent is that you haven’t complied with the Act’s procedure for getting their consent, so it’s essential that you do so.

Q: What is the Act’s procedure for obtaining consent?

A: Generally, the Act’s procedure can be summarised as follows:

  1. Prior to making the request to the landlord, give  an Assignor’s Disclosure Statement to the purchaser;
  2. Make the request to the landlord in writing; and
  3. Include with that request such information as the landlord may reasonably require concerning the financial standing and business experience of the purchaser.

Q: What if my landlord does not respond?

A: If they don’t respond within 4 weeks of receiving the required information, they are deemed to consent.

Q: After the lease is transferred to the purchaser, will I remain liable to the landlord for amounts that the purchaser fails to pay?

A: Provided you complied with the Act and gave both the landlord and the purchaser a copy of the Assignor’s Disclosure Statement more than 7 clear days before the lease is transferred to the purchaser, you will not be liable to the landlord for amounts the purchaser fails to pay. Many leases say that the tenant remains liable for the defaults of the new tenant, but the provisions of the Act overrule that requirement. Compliance is key.

Q: What should I do if the landlord unreasonably refuses to consent to the assignment?

A: These disputes are often difficult to resolve. Fortunately, the Act requires parties in dispute to mediate their differences before going to court.

The advantages of mediation are numerous and include the following:

  1. the outcome is not as uncertain and unpredictable as it is in litigation;
  2. the issues are resolved more efficiently and effectively without the delays usually associated with litigation;
  3. it is a less stressful and  less formal environment; and
  4. it is significantly cheaper than litigation.

It is obviously preferable to avoid a dispute in the first place and for that reason, it is recommended that you seek legal advice on the sale of your business.  Fishburn Watson O’Brien have dedicated and experienced commercial and leasing lawyers to assist you.

If you would like to discuss the sale of your business or any retail lease issues, please contact Dawn Smithyman on (02) 6650 7038.

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