In 2006 the Retail Shop Leases Act (Act) was amended to provide that an assignor would be released from liability for any breach of the lease by an assignee after the assignment date (statutory release).

However, the assignor is only entitled to a statutory release if:

  • the lease was entered into on or after 3 April 2006; AND
  • the assignor gave the prospective assignee a disclosure statement at least 7 days before asking the lessor to consent to the assignment; AND
  • the prospective assignee gave a disclosure statement to the assignor before the lessor was asked to consent to the assignment; AND
  • the lessor gave the prospective assignee a disclosure statement and a copy of the lease at least 7 days before the lessor consented to the assignment; AND
  • the prospective assignee gave the lessor a disclosure statement before the lessor consented to the assignment; AND
  • none of the disclosure statements referred to above are 'defective'.

The Act makes no mention of a statutory release for the assignor's guarantors.

Is a lessor obliged to give a release to an assignor?

Generally, the answer is "No". Most leases state that an assignor and any guarantor will continue to be bound by the lease after an assignment. Consequently, there is no contractual requirement for a lessor to release an assignor (contractual release).

In addition, the Act does not require a lessor to give an assignor a contractual release. The question as to whether an assignor is entitled to a statutory release is a matter of law having regard to whether the 6 requirements mentioned above have been satisfied. If this statutory release exists then it will override the wording of the lease or any consent to assignment documents.

What should a lessor do if an assignor or guarantor asks for a contractual release?

As there is no legal obligation to give a contractual release, the lessor's decision is purely commercial in nature.

The lessor's decision should not be based on the assumption that the assignor is already entitled to a statutory release. At the time of consenting to an assignment it is unlikely that a lessor will be in a position to be satisfied that all the disclosure statements have been given and none of them are defective.

If a lessor does elect to grant an assignor a contractual release then careful drafting of the release clause is called for to ensure that the assignor remains 'on the hook' for obligations under the lease up to the assignment date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.