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Summary – Lessors and lessees need to
have a clear understanding of their rights and obligations under
the lease when it comes to a proposed assignment by a lessee of its
interest in the lease. If the lease is subject to the provisions of
the Retail Leases Act 1994 (NSW)
("Act"), the rights and obligations
stated in the lease are subject to the provisions of the Act.
The Supreme Court of NSW recently considered whether a transfer
of lease between joint tenant lessees required the consent of the
landlord.
The same case also considered whether the consent to transfer
was reasonably withheld. The relevant lease was a retail lease
which was caught by the Act.
Was consent required?
In this matter there were two individuals as lessees and they
held the lease as joint tenants. The purported transfer of the
lease was by one joint tenant lessee to the other.
Clause 3.8 of the lease mirrored the provisions of Sections 39
& 41 of the Act and in particular noted that the lessee was not
to assign or transfer the lease without the written consent of the
lessor.
It was argued that consent to the transfer was not required as
the transferor and the transferee were joint tenants and
accordingly, the transfer was not in truth a transfer or assignment
but a release by the outgoing tenant of his interest as joint
tenant in the lease.
Rejecting this view, the Court held that the expression
'assign' where used in Section 41 of the Act and in clause
3.8 of the Lease includes a "transfer of the legal estate from
A and B to A alone in a situation where 'one joint tenant drops
out' ".
Accordingly, if a lease requires landlord consent be obtained to
any transfer of the lessee's interest in the lease, then a
transfer of lease between joint tenant lessees requires landlord
consent.
Was consent unreasonably withheld?
As a result of Section 39 of the Act (mirrored in clause 3.8(b)
of the lease), the lessor was only entitled to withhold consent to
the transfer on the grounds set out therein.
On the facts of the case it was held that the lessor had
reasonably required and requested information concerning the
continuing lessee's financial standing and (in breach of
Section 41(1) of the Act and clause 3.8(c) of the lease) this was
not provided. The Court found that the lessor had not unreasonably
withheld consent.
The right to assign a lease and the procedure to be followed in
order to effect the assignment and the issue whether the consent of
the lessor is required are important aspects of leasing which
require careful consideration by lessees and lessors.
Practical tip
If a lessee is intending to sell its business and needs to
transfer the lease, it should provide the lessor with a reasonable
time to consider the request for consent and provide at the one
time all relevant information the lessor needs in order to consider
the application for consent.
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