24 Jan Still liable under lease when business sold?
Do you lease premises for your business? Many business owners do not realize that when they sell their business and assign their lease, they may remain liable to the landlord for many years after the assignment. If the buyer (the new business owner) can’t pay the rent then the landlord may come looking for the previous tenant to cover the loss. Is that you?
Many leases actually provide that an assignment of the lease does not release the previous tenant from liability to the landlord.
Don’t despair! Read to the end of this article where we make reference to some legislation that may assist if you are a retail shop tenant.
In order to assign a lease a tenant must ask the landlord to consent to the assignment. Assignment without consent from the landlord, is a serious breach of the lease. The landlord will consent by having their lawyer provide a document. The document is sometimes called a Deed of Covenant or a Deed of Consent. This document needs to be read carefully.
If you are the tenant, make sure that the document does not reinforce the continuing liability of the tenant by confirming that the there is no release.
Even though there may be no obligation upon the landlord to provide a release some landlords will give a release. A release is just a piece of paper confirming that the outgoing tenant has no further liability. It is very unlikely that you will get this release if it is not asked for. Your lawyer must request a release.
It is our policy to formally ask for a release regardless of the circumstances and regardless of our prediction as to how the landlord may respond.
If you are a retail shop lease tenant the Retail Shop Leases Act may also provide assistance.
The Act provides that if certain things happen during the assignment process then the Assignor must be released from their liability under the lease. In practice it is very difficult to comply with the requirements because of time constraints and because the release to some extent depends upon the actions of others but, if you are determined to get a release then this may be the answer. We suggest that you read section 50A of the Act.
We have found that some landlords who might otherwise have resisted a request for a release, will agree, when it is pointed out that by following the process set out in section 50A a release is mandatory.