Tag | lessor
Article by Chris Drayton, Makinson d’ Apice Lawyers
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.
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.
Article by Mary Digiglio, Swaab Attorneys
Retail landlords now have new disclosure obligations and also need to be aware of proposed changes under the Retail Leases Amendment Bill (2011).
New disclosure obligations for retail landlords
As from 1 January 2011, a new form of landlord disclosure statement was introduced across the eastern seaboard states. This new form of disclosure statement must now be provided for all retail leases entered into on or after 1 January 2011. It requires landlords to include more detailed information not previously required. A template of the new form of landlord disclosure statement can be downloaded from the website of NSW Fair Trading.
Retail Leases Amendment Bill 2011
On 10 January 2011, the NSW Government released an exposure draft of the Retail Leases Amendment Bill 2011. If enacted in its current form, it would result in a number of significant changes to landlords’ responsibilities in retail lease matters. The Bill is intended to address a number of criticisms of the Retail Leases Act 1994 (NSW) and correct what is perceived as a power imbalance between larger landlords and small retail tenants.
A summary of the key proposed changes is set out below.
Further disclosure requirements for the landlord (s11)
The tenant may require the landlord to provide an updated disclosure statement before the tenant exercises an option for a further term.
Undisclosed outgoings (s12)
The tenant will not be required to contribute to outgoings that are not disclosed in the disclosure statement. This poses a challenge for landlords of new shopping centres, who may not be aware of all of the outgoings likely to be incurred over the life of the lease at the time of issuing the disclosure statement.
Mandatory registration of retail shop lease (s15)
Retail leases of three years or more will be required to be registered on the title of the premises or building in which the premises are located. A summary statement will need to be prepared and included. This is intended to make comparable lease information publicly available to tenants, who will then be able to obtain details of other registered leases.
Claiming on bank guarantees (s16)
The Director General will be entitled to publish guidelines in relation to the claiming on bank guarantees held by the landlord as security for the tenant complying with its obligations under the lease.
Prohibition of passing land tax on to tenants (s26)
To bring NSW in line with the retail provisions in relation to land tax in Victoria and Queensland, the landlord will be prohibited from passing on land tax to the tenant as a recoverable outgoing.
Increased notice period (s33)
The current requirement for the landlord to give the tenant two months’ notice of any alteration or refurbishment that may adversely affect the tenant’s business will be increased to six months.
Relocation of the tenant (s34A)
In the event that the landlord invokes the relocation clause, alternative premises which are offered to the tenant must be of reasonable comparable commercial value to the existing premises leased by the tenant. If the landlord does not offer appropriate premises and the tenant terminates the lease, the tenant is entitled to claim depreciated fit out costs from the landlord as compensation.
The landlord cannot require a tenant to make any repairs or improvements after the landlord has given the tenant a notice of termination on grounds of demolition.
Promotion levy (s56)
The tenant is entitled to a refund of contributions towards shopping centre advertising and promotion that remains unspent at the end of the lease.
Administrative Decisions Tribunal (ADT, s73)
The monetary limit of the ADT will increase to $750,000 (from $400,000).
Summary – Future of the Retail Leases Amendment Bill is currently unclear
The Bill is only in draft form and significant amendments could be made to it before it is enacted. It is also possible that opposition to the Bill will prevent it from being enacted altogether.
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.