Transferring your lease
How to transfer your lease
When you want to transfer your retail lease or sell your business, it’s important to follow the process set out in the Retail Leases Act 1994 (the Act).
Transferring a lease is known as assigning a lease. The tenant (lessee) is the assignor of the lease and the proposed new tenant is the assignee.
You must ask the landlord in writing for consent to transfer (assign) the lease.
When transferring a lease to a new tenant, these documents are required:
- lessor’s disclosure statement
- lessee’s disclosure statement
- assignor’s disclosure statement.
The assignor’s disclosure statement, which the selling tenant gives to the proposed new tenant and the landlord, advises whether there are any outstanding notices or encumbrances on the shop, the lease or the fixtures and fittings. It also includes whether any rent benefits the landlord has given to the selling tenant and information on the trading performance of the shop.
The landlord must respond to the request for transfer (assignment) within 28 days from the date they receive all the information. If they don’t respond, the assignment may be deemed to have taken place if you have followed the process properly, the use of the shop isn’t changing and the proposed tenant's financial standing and experience is similar to yours.
The full procedure for getting consent to a transfer is set out in section 41 of the Act.
Steps to take
This is a brief summary of the steps you must take when assigning a lease.
- Get an updated copy of the lessor’s (landlord’s) disclosure statement. If you have not been given as updated disclosure statement during the lease, ask the landlord, in writing, to give you one. If it isn’t provided within 14 calendar days, you may update the statement to the best of your knowledge (with information on current outgoings instead of estimated outgoings).
- Give the lessor’s disclosure statement to the proposed tenant.
- Collect the following information from the proposed tenant:
- their name and contact details
- documents showing their financial standing, and
- their business experience.
- Write a paragraph describing how the proposed tenant’s financial standing and experience relates to yours.
- Give a copy of the assignor’s (tenant’s) disclosure statement to the proposed tenant (and to the landlord) at least seven clear days before the assignment if you want to be protected from ongoing liability under the lease.
- Write to the landlord to request their written consent to the assigning of the lease.
Provide the information listed in steps 3 to 6, to the landlord by:
- delivering it personally to the landlord or the landlord’s agent;
- leaving it at, or posting it to, the last known residential or business address of the landlord in or outside NSW,
- delivering it as set out in section 81A of the Act.
Documents to collect
The following are checklists of the documents you need to write or collect when you are proposing to assign (transfer) your retail lease. Make sure you give yourself enough time to collect all of them.
Documents for the proposed tenant:
- updated copy of the lessor’s (landlord’s) disclosure statement
- assignor’s (tenant’s) disclosure statement
- assignor’s signed statement certifying that they have provided the required information to the assignee.
Documents for the landlord:
- letter requesting assignment
- proposed tenant’s contact details
- documents showing the proposed tenant’s financial standing
- statement of proposed tenant’s business experience
- statement of how the proposed tenant’s financial standing and experience compares to yours
- assignor’s disclosure statement
- assignor’s signed statement certifying that they have provided the required information to the assignee
- assignee’s signed acknowledgement of receipt of the required information from the assignor.
Problems transferring your lease?
When a tenant wants to sell their business, particularly a retail shop, the transfer (assignment) of the lease may be critical.
The lease protects your right as the tenant – and the right of any buyer – to operate from that premises. If you don’t have very long to go on the fixed term, or if the landlord won’t agree to transfer the lease, this could impact on the price you can get for your business and perhaps prevent the sale altogether.
As a tenant, you aren’t likely to have a right to sell to absolutely anyone. However, the landlord will most likely have an obligation to permit the transfer as long as they aren’t left short.
The first place to look for any rights and obligations to do with the transfer of your commercial lease is the lease itself.
You may find in the lease, or from talking to your legal advisors, that the landlord can’t 'unreasonably refuse' your request to assign the lease.
The landlord may be concerned that the new tenant won’t be able to sustain the lease for the rest of the term.
If you’re selling because the business is not going so well, then the landlord might be hoping that a new tenant can turn the business around. However, there’s still a risk they won’t be able to, and the landlord won’t want to let you out of the lease entirely – they may want you to guarantee the buyer’s performance as the new tenant.
Even if your business is doing well, the landlord may not want to take the risk that the new tenant won’t be as successful as you’ve been and could fall behind in the rent or go broke before the fixed term expires.
Make it easy for the landlord to agree
There are some standard ways to handle these issues and gain the support of the landlord:
- make sure the proposed new tenant’s business skills and financial resources are the same as or better than yours
- agree to leave a security deposit or bank guarantee in place (as well as the new tenant providing further security)
- agree to leave personal guarantees in place (in addition to any guarantee by the new tenant)
- agree to commit to performance obligations yourself if the new tenant is not able to meet the lease requirements.
A lease transfer is often accompanied by a three-way 'deed of assignment'. This deed can cover all of the details that will bind you as the assignor (the person selling the business and transferring the lease), the new tenant as the assignee (the person buying the business and taking over the lease) and the landlord.
Retail leases covered by the Act
Retail leases covered by the Retail Leases Act 1994 (the Act), can follow the process outlined above. However, there are a couple of important points that may be relevant.
You can force the landlord to give permission within a certain time after you have provided proof that the proposed tenant has the same or better retailing skills and financial resources as you have.
The proposed tenant must have the same or better skills and resources. The landlord does not have to accept someone who is not as reliable as the current tenant.
As long as you follow the process in the Act, you can, as the assignor (the person selling the business and transferring the lease), end your responsibility for the lease after the assignment. This means that you don’t have to provide security and you don’t have to pay for anything the new tenant fails to pay for after they take over. However, you must follow the process in the Act to get this indemnity.
Who pays for transferring a lease to a new tenant?
The transfer, or assignment, of a lease is initiated by the tenant when they want to sell their business, particularly a retail shop.
The landlord may charge you a reasonable amount to meet their legal and other expenses incurred by agreeing to your request to transfer your lease. The landlord cannot charge you a fee simply for giving their consent.
The tenant has a right to ask the landlord for evidence of their expenses. You don’t have to pay the expenses until the landlord gives you the evidence.
The landlord’s costs are not considered to be key money because the landlord is not benefiting from the transfer.
Seeking or accepting the payment of key-money when consenting to the transfer of a retail shop lease is prohibited under the Retail Leases Act 1994 (the Act).
The full procedure for obtaining the landlord’s consent to a lease transfer (assignment) is set out in section 41 of the Act.
For help with your retail lease issues, contact us.