If you’re nearing the end of your lease, thinking of selling your business, or simply ready to move on, you might be wondering how you get out of a retail lease without being stuck with it for years to come.
The answer usually involves assigning your lease. On paper, it sounds pretty straightforward: you transfer the lease to someone else, and they take over your obligations. But in practice, there are a few legal hoops to jump through, and if you don’t get it right, you could still be on the hook long after you’ve handed over the keys.
Landlord’s consent is key
First things first: landlord consent. Almost every retail lease in Victoria requires the tenant to obtain the landlord’s written consent before assigning the lease. While landlords do have a say in who takes over, they’re not allowed to withhold consent without a valid reason.
So what counts as a valid reason? If the new tenant plans to use the premises for something that isn’t allowed under the lease, that’s fair grounds for refusal. Same goes if the incoming tenant doesn’t have the financial backing or business experience to reasonably take on the lease obligations. The landlord can also say no if you, as the current tenant, haven’t followed the reasonable steps set out in the lease about how assignments should be handled.
One lesser-known situation is where the business being transferred is an ongoing one, like if you’re selling your shop and the new tenant is picking up where you left off. In that case, you need to hand over your business records for the last 3 years (or however long you’ve been operating, if it’s less than that). If you don’t, the landlord might have the right to block the deal.
Disclosure to the new tenant
Assuming you clear those hurdles, the next step is making sure the new tenant gets the proper disclosure. That means handing over a copy of your lease and the most recent disclosure statement you received from the landlord. While the law doesn’t demand that the new tenant sign a receipt for these documents, it’s a smart move to get it in writing. That way, there’s a paper trail confirming everything was done properly.
Now here’s the common trap: even after the lease is assigned, you might still be liable if the new tenant defaults unless you’ve ticked a few important boxes. Your release from future liability kicks in automatically under the law, but only if you’ve followed the rules. That includes:
- Getting landlord consent
- Properly disclosing the lease and business details
- Making sure the information provided isn’t misleading or incomplete
Once all that’s done, your obligations under the lease end. You’re no longer responsible if the new tenant stops paying rent, causes damage, or breaches the terms of the lease.
Be cautious with guarantees…
Some landlords might still ask you to guarantee the new tenant’s performance or keep you on as a fallback. Be cautious here, signing anything along those lines can undo all the work you’ve done to exit cleanly. If your goal is to walk away completely, don’t agree to anything that ropes you back in.
Tidy up before you go
Don’t overlook the condition of the premises. Even if the lease is successfully assigned, you might still have to deal with make-good requirements. That could include repainting, removing signage, or returning the space to its original state. If the new tenant is happy to take it as-is, and the landlord agrees, great. If not, you’ll need to sort it out before you go. Best to discuss this up front so there are no surprises.
Can’t assign the Lease? Subleasing might work instead
If the assignment doesn’t go through, you might consider subleasing instead. But remember a sublease doesn’t release you from the original lease. You’d still be responsible if the subtenant breaches any terms. It can work in the short term, but it’s not a clean exit.
So what should you do?
Plan ahead and get the legal advice you need. Give yourself time, be open with your landlord, and document everything. If you’re selling the business, make the lease assignment part of the sale negotiations. And whatever you do, get it in writing.
Assigning a retail lease doesn’t have to be complicated, but it does require a careful approach. Done right, you get to walk away with peace of mind. Done poorly, you could end up dealing with issues that aren’t yours anymore.
Need Help with a Lease Assignment?
At Flint Lawyers, we regularly assist tenants and business owners with lease assignments, subleases, business sales, and landlord negotiations. Whether you’re planning an exit, reviewing your lease obligations, or navigating landlord consent, we can guide you through the process and help protect your interests every step of the way. Get in touch with our team to discuss how we can support you.
Disclaimer
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The information on our website is general and is not legal advice. We put lots of work into making our content insightful but it may not apply to your personal circumstances. We’re more than happy to help with your individual issues – just reach out.