Hidden risks: A guide to assignment of lease timeframes for landlords in the ACT and NSW
Assignments of lease are common, but even experienced landlords might be caught by surprise by the strict timeframes legislation imposes for responding to a request for assignment. The process for dealing with a request for consent to the assignment of a lease contains many potential pitfalls for a landlord, and failure to address such a request properly can have dire consequences.
Assignments of Lease in the ACT
A tenant wishing to assign its lease under the Leases (Commercial and Retail) Act 2001 (ACT) (LCRA) must first provide a disclosure statement to the prospective assignee and then make a request in writing for the landlord’s consent to the assignment.
Once the tenant has requested consent, the landlord has 14 days to request further information. The LCRA limits the information that can be requested, however it includes information about the financial standing of the assignee and/or guarantor, a certificate of occupancy for the premises, information about the business skills of the prospective assignee, information about the proposed use of the premises by the assignee and references relating to the ability of the prospective assignee to operate the business on the premises.
The landlord must respond to the tenant’s request by either providing or withholding consent within 28 days after receiving the request, or within 21 days of receiving any information requested. If the landlord does not provide a response within that timeframe, the landlord is deemed to have consented to the assignment.
A landlord can only withhold consent to an assignment of the lease where it is reasonable in all the circumstances to do so. There are certain grounds where refusal is taken to be reasonable, such as if the proposed use of the premises is for a purpose not allowed under the lease or if the proposed use of the premises will not be compatible with other tenants in the building or if the existing tenant is in breach, but otherwise the landlord has the burden of proving it was reasonable. The reasonableness of a decision to withhold consent can be difficult to determine. Under the LCRA a landlord may recover the legal costs of making the decision about whether to consent, so it is worth seeking professional advice.
Assignment of Leases in NSW
In NSW the governing legislation is the Retail Leases Act 1994 (NSW) (RLA). The request for landlord consent must be made in writing and the tenant must first provide the assignee with an up to date disclosure statement.
The tenant must also provide the landlord with such information as the landlord may reasonably require about the finances and retail skills of the assignee. Unlike the ACT however, there are not clear timeframes for seeking and providing this information.
The landlord must deal with a request “expeditiously” and if the landlord has not responded within 28 days, the landlord is deemed to have given consent.
A landlord may, in the provisions of the lease, reserve the right to refuse to consent to the tenant assigning the lease. However, absent of any specific provision in the lease, a landlord may only withhold consent in specific circumstances, including if the assignee proposes to change the use of the premises, has inferior finances or retail skills to the tenant, or the tenant has not complied with the legislated process for assignment, including providing requested information.
Disputes often arise in the course of a request for consent to assignment of a lease, particularly over whether information has been requested in time, whether adequate information has been provided, and whether the request for information conforms to the legislation. If a landlord mistakenly believed it was waiting on further information on the proposed assignee and failed to respond to the tenant’s request within 28 days, the landlord would be deemed to have consented to the assignment. In such a situation, not only would the landlord have a new tenant it may not have wanted, but the lease will no longer be enforceable against the original tenant should any issues arise (s.103 LCRA and s.41A RLA).
The key lesson is being aware of timeframes for responding to requests for assignment of a lease and understanding the complexity surrounding requests for further information and grounds for refusal. Correctly responding to a request for consent to assignment of a lease is a process that requires expert guidance. Failure to respond in the correct time period can result in a landlord being deemed to have consented to a transfer. In order to reduce the risk, landlords should contact their legal advisors as soon as they receive a request for assignment.
If you require expert advice in your commercial leasing matters, contact BAL Lawyers.