There are many reasons for a tenant to decide they want out of a lease agreement; it could be a matter or preference or because of things that are beyond their control. Some of the most common reasons include:
(a) the business being sold
(b) the need for a bigger (or smaller) space
(c) issues with the neighbours (or even the landlord)
(d) job loss or relocation
(e) separation or divorce and discontinuance or transfer of business to ex-partner
Whatever the reason may be, the original tenant can’t just up and leave the property (without heavy recourse) without following proper procedure. Read on to learn more about how to properly assign your retail and/or residential leases in Victoria.
What does assignment of lease mean?
To assign a lease means what it says–the lessee or tenant finds and transfers their interest in leased premises to a new person or entity. The incoming tenant would then assume all the rights and responsibilities of the original tenant under the existing lease agreement. Be careful, though; this doesn’t always mean that the current tenant is released from all their obligations.
How do you assign a lease?
Assignment of Retail Leases
Generally, assignment of lease provisions will be set out in the lease agreement. That needs to be followed in addition to the Retail Lease Act 2003 (VIC). In most circumstances, Part 7 (assignment and termination of retail lease) will provide you a direction as to how to assign a retail lease.
Section 61 of the Act deals with procedures for obtaining consent to an assignment of lease. These include:
(a) the current tenant’s request for a transfer of the lease must be in writing
(b) information about the financial resources and business experience of the proposed tenant
Give the prospective tenant an updated copy of a disclosure statement.
To request consent from a landlord to transfer the lease:
- the current tenant asks the landlord to give the new tenant a new disclosure statement that is no more than three months old from the date of the request
- if the landlord receives this request, the landlord must provide the new disclosure statement within 14 days
The outgoing tenant must provide to the incoming tenant a copy of the disclosure statement from their landlord when they entered into the lease. The document should be updated with details of any changes that have taken place that is no more than three months old from the date of the request.
Obtain the consent of the landlord.
Under section 60 of the Act, the landlord cannot withhold consent to a transfer unless one or more of the following circumstances applies:
(a) the proposed tenant suggests using the property in a way that is not permitted under the lease agreement;
(b) the landlord considers the proposed tenant does not have sufficient financial resources or business experience to meet the obligations under the lease;
(c) the original tenant has not complied with the reasonable assignment terms of the lease;
(d) the original tenant failed to provide the proposed tenant with business records for the past three (3) years or such shorter period as the business has been operating
The landlord should deal with the request for consent expeditiously and will be considered to have approved the assignment if:
(a) the current tenant has complied with the procedure; and
(b) the landlord has not given written notice consenting or refusing consent within 28 days after the tenant made the request.
Who pays for assignment of lease?
Under Section 51 of the Act, a landlord is allowed to claim from the tenant reasonable legal or other expenses in relation to an assignment of a lease or sub-lease. This may include reasonable expenses relating to the negotiation, preparation, or execution of the lease, obtaining the consent of a mortgagee to the lease, or the landlord’s compliance with the Act. The tenant’s liability for costs is all based on the presumption that the assignment was requested by the tenant himself.
Who prepares the assignment of lease?
Either party is able to prepare the assignment of lease agreement, but only the landlord and current tenant will know the disclosures about the property best.
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Other Frequently Asked Questions About Lease Assignments
1. Can you assign a portion of a lease?
There may be issues with this as it might create a new lease. Enquire further because this is not a straightforward answer!
2. Is it compulsory to register an assignment of lease?
No, as there is no requirement to register leases in Victoria.
3. Can a landlord increase the rent when assigning a lease?
An increase of the rent can potentially deem the assignment of lease as a new lease agreement. Therefore, yes, it has been done before but there will be rules that will apply to a new lease.
Need Assistance with Assignment of Lease?
Even in leasing arrangements, circumstances can change and your tenant might want to move on. In circumstances where another person is willing to take over an existing lease, the only way forward is an assignment of lease.
If you’re considering getting out of a lease early and/or transferring your interests to another party, getting in touch with a lawyer is highly recommended so that you can spot potential risks and identify alternatives at the outset. For assistance in all kinds of leasing matters, contact TNS Lawyers on 03 9052 3214 or fill out the contact form below.
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