Catherine Hallgath, Partner, Mills Oakley Lawyers
An assignment of a lease is when the tenant under that lease transfers its interest in the lease (as tenant) to another entity.
A tenant’s right to assign the lease will be contained in the lease document, except if the lease is a lease of premises governed by retail tenancy legislation. In these circumstances, the tenant’s right to assign the lease will be largely governed by the retail tenancy legislation.
If a lease specifically allows a tenant to assign the lease, then the lease is also likely to specify the conditions a tenant must satisfy in order to assign the lease, and also the assignment process.
If a lease is silent about whether or not a tenant is entitled to assign the lease and the lease is not governed by retail tenancy legislation, then the tenant is entitled to assign the lease without the landlord’s consent as it is not a breach of the lease.
An assignment of lease is different from the grant of a sublease. If a tenant grants a sublease, the lease to the tenant remains in place and the tenant is still primarily responsible to the landlord under the tenant's lease (even if the subtenant's actions cause a breach of the lease). The sublease is a lease granted by the tenant to the subtenant of all or part of the premises leased to the tenant. See Sublease.
Consent to assignment not to be unreasonably withheld by landlord
Generally a landlord will not be entitled to unreasonably refuse consent to an assignment of lease. The lease is likely to specify the conditions that must be satisfied and procedure the tenant must follow in order to request the landlord's consent. See Consent to assignment not to be unreasonably withheld by landlord.
Procedure for obtaining consent to assignment
The procedure the tenant must follow to request the landlord's consent to the assignment will be contained in the lease. It is critical that it is the tenant and not the proposed assignee that makes the request for the landlord's consent. See Procedure for obtaining consent to an assignment.
Information that can be required by the landlord from the assignee
A landlord is entitled to request the tenant to provide information in relation to the assignee to enable the landlord to determine whether or not the proposed assignee is able to satisfy the requirements of an acceptable assignee (as defined by the lease).
An exception to this is if a lease specifically provides that the landlord may not refuse consent to a certain type of assignment, for example to a company that is a related entity to the tenant in accordance with the provisions of the Corporations Act 2001 (Cth). See Information that can be required by the landlord from the assignee.
Practical issues
There are a number of practical issues that, if addressed properly on an assignment of lease, will prevent issues arising at the end of a lease, for example:
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negotiating for the return of the existing tenant's bank guarantee on assignment;
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obtaining a report on the condition of the premises as at the lease commencement date; and
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determining who owns the contents of the premises.
See Practical issues.
Change in shareholding/beneficial ownership of a tenant where tenant is a company
A sale of shares in a tenant company may result in a change in the entity or people who control the tenant. A share sale of this nature is likely to be treated as an assignment of the lease and require the tenant to follow the procedure specified in the lease for an assignment of lease. See Change in shareholding/beneficial ownership of a tenant where tenant is a company.
Retail tenancy legislation: limitations on the landlord’s ability to withhold consent to assignment
Retail tenancy legislation often limits the circumstances in which a landlord is entitled to withhold consent to the circumstances specified in the relevant legislation. See Retail tenancy legislation: limitations on the landlord’s ability to withhold consent to assignment.
Retail tenancy legislation: procedure for obtaining consent to assignment
Retail tenancy legislation in some jurisdictions specifies the procedure the tenant must follow and implies this procedure in the lease. In those jurisdictions, any conflicting procedures contained in the lease will not apply. See Retail tenancy legislation: procedure for obtaining consent to assignment.
Retail tenancy legislation: landlord’s consent to assignment deemed to be given
In the majority of jurisdictions, a landlord is deemed to have consented to a tenant's request to assign a retail tenancy lease if it does not provide a written consent or withholding of consent within the time period specified in the relevant legislation. See Retail tenancy legislation: landlord’s consent to assignment deemed to be given.
Retail tenancy legislation: release of assignor and guarantor
The majority of jurisdictions provide a method by which an assignor and the assignor's guarantor can obtain a release from obligations under the lease after the assignment of lease. The nature and the extent of the release varies between jurisdictions as does the procedure which must be followed to obtain it. See Retail tenancy legislation: release of assignor and guarantor.