Do tenants need to seek consent in commercial leases?
The nature of business often means that a tenant will sometimes seek to make changes to their leasing arrangements. The most common are requests for consent to assign their lease to another party or underlease part or all of their premises to another party. Sometimes a tenant may seek a variation to its lease to accommodate an assignment to an incoming tenant or simply as a result of a change in financial circumstances and business downturn.
In most circumstances, a lease will require a tenant to seek the landlord’s written consent to any such arrangements. In the case of an assignment or an underlease, the tenant’s request will likely need to include information to allow the landlord to properly consider the request such as the financial resources and business acumen of the proposed assignee or underlessee. Where the lease falls under the jurisdiction of the Leases (Commercial and Retail) Act 2001 (ACT), a landlord cannot unreasonably withhold its consent where such information is provided. It is common practice for a landlord to require a tenant (and the prospective third party) to enter into a deed to document the agreement and formally provide the consent of the landlord.
Tenants occasionally forget to inform the landlord that they have sold/assigned their lease or allowed an underlessee to take occupation of the premises. Unsurprisingly this puts them in a difficult legal position when the landlord becomes aware of the transition, however, at this point a third party is usually in possession of the premises and the tenant has vacated. The tenant will be deemed to have breached its lease obligations in failing to obtain landlord consent in accordance with the terms of the lease and the consequences can be quite serious as the landlord may purport to terminate the lease on the grounds that the tenant has abandoned the premises or repudiated the lease.
Both landlords and tenants need to be properly advised as to how a lease operates in such circumstances so that they are aware of when landlord consent is a requirement and avoid the risk (and the mess) of neglecting this critical process in leasing arrangements.
The bottom line is for a tenant to seek consent rather than forgiveness; it can save a lot of aggravation in the long run.
If you would like to discuss a commercial leasing issue, please contact our Property team.