Landlord consent disputes: Assignment of Lease
Most leases will require Landlord consent before a Tenant can assign its lease. If you wish to sell your business then obtaining that Landlord consent is a precondition to a contract of sale. Landlord consent disputes particularly arise in respect to assignments of lease. Tenant’s that we speak to in the course of acting as a Tenant Representative are either:
- uncertain of what their rights are; or
- presume that the Landlord can refuse to provide its consent.
In this article we examine a Landlord obligations in connection with consent and the circumstances where a Landlord maybe able to lawfully withhold its consent to an assignment of lease.
As a principle, Tenant’s have a right to deal with their business and assign their lease. Generally the law protects a Tenant’s rights to participate freely in the market should it wish to sell its business. Liberty Leasing works with Tenant’s in a commercial capacity to prepare applications for Landlord consent. However, we also help Tenants navigate and resolve Landlord consent disputes. We’ve set out some of that practical insight below.
The Lease Terms
When considering Landlord consent disputes, both the drafting of the lease and any legislative provisions are relevant. A lease can contain a blanket prohibition on a Tenant’s right to assign its interest in the lease. This provision would be considered valid provided that the Tenant consented (i.e. entering into the lease). The standard position though is that the Tenant may assign its lease provided that it first obtains the Landlord’s consent. Hopefully the assignment provision also states that the Landlord’s consent cannot be unreasonably withheld. A reasonableness provision is particularly important for States or Territories which don’t have legislation expressly imposing a reasonableness obligation on the Landlord.
The drafting of a lease may also provide that the Landlord must consent provided that the proposed new Tenant (or assignee) meets certain conditions. This is usually a requirement for the assignee to be of the same, or superior:
- commercial reputation;
- financial standing; and
- business acumen.
The provisions surrounding Landlord consent vary across the retail legislation in each State and Territory. In Queensland, the retail legislation doesn’t compel a Landlord to give consent (but see below regarding reasonableness requirement). However, they do have an obligation to either give or withhold consent within 1 month of receiving a consent request . If a response is not given within 1 month then a retail tenancy dispute exists and the matter can be referred to QCAT.
The retail legislation differs in Victoria, South Australia, Tasmania and the Northern Territory. In these States/Territory the legislation either sets out the circumstances upon which a Landlord:
- must consent; or
- can withhold consent.
For the most part, these conditions relate to:
- maintaining the permitted use under the lease;
- the standing of the proposed assignee; and
- compliance with the Landlord’s reasonable conditions; and
- compliance with the procedural guidelines of the retail legislation.
The retail legislation differs again in the Australian Capital Territory, which has a provision similar to Queensland. However rather than giving rise to a leasing dispute if the Landlord fails to provide a response to the request for consent with 1 month, the ACT will deem the Landlord’s consent to have been given.
The discrepancies above illustrates the requirement for a national standard across the retail legislation. Members of Liberty Leasing have previously supported the Shopping Centre Councils submissions to Federal Government on this topic. If you are interested in reading those submissions, you can view them here. Note that legislation changes occurred since that date and some steps taken toward harmonisation.
In any event, and regardless of the State or Territory that a retail tenancy is situated, the provisions are all going toward protecting a Tenant’s right to deal with its own business. This is a principle consideration when considering Landlord consent disputes in either retail and commercial lease assignments. The Landlord shouldn’t be granted a right to withhold consent to a Tenant dealing with its asset unless there are reasonable grounds to do so.
Landlord Consent to Assignment: Reasonableness application to Queensland Commercial and Retail Tenancies
In Queensland, the Property Law Act 1974 states that a Landlord can not unreasonably withheld its consent. Note: applicable to retail tenancies in Queensland.
What does ‘such consent not to be unreasonable withheld’ mean?
If you have a Landlord consent dispute, it will be your obligation to prove that the Landlord has acted unreasonably in withholding its consent.
When we are assessing whether it’s unreasonable we need to consider the purpose of the protection that the Landlord is being afforded at law. The law is concerned with allowing a Landlord to protect its asset. More specifically, the law is safeguarding the Landlord from its premises being used or occupied in a manner which is either undesirable or risky. That being said, a Landlord is not entitled to have the totality of its interests protected.
Example: Unreasonably withholding consent
Tenant A wishes to assign to Tenant B. Tenant B already occupies a shop, on a yearly lease, at the Centre. Over the last 5 years, Tenant B has elected to renew the lease. The Landlord withheld its consent because the shop leased by Tenant B would be hard to re-lease once Tenant B vacated and moved into the shop occupied by Tenant A.
In the example above, the basis of the Landlord’s withholding consent has no relationship to the subject matter of the lease. The Landlord is seeking to protect its financial interest in a lease unrelated to Tenant A. Many would argue that this was unreasonable.
Example: Reasonably withholding consent
A Corporation and its directors guarantee the obligations of Tenant A under its lease. Tenant B proposes to take the lease without any guarantors.
Here it would be reasonable for the Landlord to withhold its consent because it would hold less security under the lease. Additionally, this would be a material variation from the current terms of the lease. Likewise, it would be reasonable for a Landlord to withhold its consent if the proposed assignee carried on a business inconsistent with the permitted use under the lease.
Determining the grounds on which it is reasonable for a Landlord to withhold its consent also depends on the specific drafting of the lease. For example, if a Landlord withheld consent on the basis that the Tenant refused to enter into a deed of covenant and the lease did not specifically require the parties to enter into such a document, then arguably that would be considered unreasonable.
Resolving Landlord consent disputes requires an expert analytical view on the substantive facts for each matter. Liberty Leasing have a wealth of experience in settling these matters in a non-litigious manner. It saves you time, money and the business relationship with your Landlord.
If you need assistance in resolving a Landlord consent dispute, you can contact us on (07) 3359 8273 or book an appointment online here.