Lease renewal – transfer of lease

Last week I wrote about creating a new retail tenancies lease and some of the issues related to that so today we discuss lease renewal and transfer.

Lease renewal – You have been in retail business for the first term of your lease and the lease needs to be renewed. The Retail Leases Act 2003 (the Act) is the Law and in particular sections 26, 27 and 28 apply.

The Law Institute of Victoria commercial lease provides in clause 12 that the tenant must give notice of renewal to the landlord between the period 6 to 3 months before the lease expires.

Under the Law the landlord must give to the tenant a fresh disclosure statement in accordance with schedule 3 of the Act. This statement is not the same as the original disclosure statement and you can view those details here http://www.vsbc.vic.gov.au/who-we-help/retail-tenants-landlords/disclosure-statements/

If the landlord fails with this statement within the period 21 days before the lease expires the tenant can cease paying rent after giving the legal notice contained in that provision. See section 26.

The problem for the tenant arises if it does not give the notice to the landlord within the time limit. It is then a matter for the landlord to consider whether to grant a new lease on new terms or ask the tenant to leave. So the lesson here is to be vigilant with respect to the last 6 months’ period of your lease. If in doubt get some advice. It is important.

Transfer of lease – The nest issue that you may face will be when you want to sell your business and as a result the new purchaser may want to have the lease transferred into their name and to take over the lease from you. This is called a transfer of lease. You now find yourself with a buyer for your business and you have not paid much attention to your lease. You want to have the lease transferred to the purchaser and before that happens you must go back to your lease document and see what terms and conditions apply.

Clause 4 of the LIV Lease would apply and you will need to seek the landlords consent. There are a number of pre-conditions to this consent some of which are:

  • The tenant must have complied with the terms of the lease
  • To provide the landlord with details about the purchaser’s financial resources and business experience, and;
  • Remedy any breach of the lease by the tenant

If there are guarantees to your lease, then new guarantees will be required. The liability of the original tenant under the guarantee will usually remain until the lease is renewed with the new tenant.

Then on top of all that you need to have prepared the transfer of lease documentation and provide to the purchaser a fresh disclosure statement. This is a schedule 4 statement, see above hyperlink.

Finally, a short statement about the landlords Bank. If the property that is being rented has a mortgage with the landlord, then a tenant MUST ensure that the landlords bank formally provides a letter of consent to the lease. The same applies to the purchaser before they enter into possession. If the consent is not obtained and the landlord defaults on its mortgage then the tenant can be asked to leave as the tenant has no rights to possession as against the bank without that consent. A very ugly position that’s for sure.

Remember leasing for business is complex, get advice before mistakes arise.