It’s a familiar phone call for many landlords: the tenant is planning to sell their business, and the buyer wants to take over the lease. At first glance, it might seem straightforward. But lease assignments come with legal implications, and as a landlord, it’s important to know where you stand both in terms of your rights and your obligations.
Let’s say your tenant has found a buyer for their retail business. They’ve agreed on terms, and they now come to you for consent to assign the lease. You’re under some pressure; no one wants to be the reason a sale falls through. But you’re also entitled to make sure the new tenant is a suitable replacement.
When can you withhold consent?
Under Victorian law, you can’t simply say “no” because you don’t like change. The law sets out specific reasons for which it would be reasonable to withhold consent. If the proposed assignee wants to use the premises in a way that isn’t allowed under the lease, that’s a valid reason to say no. If you believe they don’t have the financial resources or the business experience to take on the lease responsibly, that’s another legitimate reason.
Or if the tenant hasn’t followed the process set out in the lease (for example, hasn’t given proper notice, or hasn’t complied with your reasonable procedural requirements), you might have grounds to delay or refuse consent until that’s fixed.
There’s one particular situation in which the law gives you an extra layer of protection. If the tenant is assigning the lease as part of selling an ongoing business at the premises, they are supposed to give the incoming party at least three years of business records (or however long they’ve been trading, if less). If that hasn’t happened, again, you may be within your rights to refuse.
Requirement to act reasonably
Here’s where it gets important: if none of those situations apply, and everything else checks out, you can’t withhold consent just because you’d prefer a different tenant or want to renegotiate the lease. The law expects landlords to act reasonably, and that means assessing the actual proposal on its merits, not holding out for a better offer or using the assignment as leverage.
Of course, consent doesn’t mean giving up all control. It’s reasonable to ask for information about the incoming tenant’s business plan, financial background, and proposed use. It’s also fair to request a personal guarantee if your lease allows for it though some landlords choose to be flexible, especially if the business is well-established and the assignee looks solid.
Releasing the outgoing tenant
Once consent is given and the assignment goes ahead, the outgoing tenant may be released from further liability under the lease. That release depends on the tenant following the proper assignment process and providing correct disclosure. As a landlord, it’s in your interest to ensure this process is documented clearly. If it’s not handled correctly, the former tenant might stay on the hook, which could be useful from a recovery point of view, but it also complicates future dealings.
One issue that sometimes catches landlords off guard is the make-good question. The outgoing tenant might want the incoming tenant to accept the premises “as-is,” especially if they’re buying the fit-out. But unless the lease or a formal agreement says otherwise, you may still be entitled to insist on reinstatement to the original condition or at least on repairs for any damage caused. It’s worth addressing this upfront so all parties know where they stand.
Allow enough time
There are also timing considerations. Assignments take time. You need enough information to assess the new tenant properly, and the tenant needs time to prepare and deliver disclosure. It’s a good idea to respond promptly and in writing so the parties know what’s required to move forward. And if you do decide to refuse consent, you need to be able to explain why, and how your reasons fit within the legal grounds.
At the end of the day, lease assignments are part of the lifecycle of any commercial property. They don’t have to be painful, but they do need care. As a landlord, your goal is to ensure that whoever steps into the premises is capable, compliant, and a good fit for your property. By understanding your rights and acting reasonably, you can protect your interests without stalling a genuine business deal.
If your tenant has told you they plan to sell and assign the lease, Flint is available to help you review the proposal, understand your rights, and respond with confidence.