We are often approached by landlord clients who are faced with the following tricky decision: Should I consent to a lease assignment (transfer) at my commercial property in circumstances where the proposed new tenant has few assets and little business experience?
It is a stressful decision, particularly where the current tenant looks to be in financial trouble itself. A complicating factor for landlords is the restricting nature of section 60 of the Retail Leases Act 2003 (Vic), a provision which is similarly replicated in other States.
The recent Victorian Civil and Administrative Tribunal decision in AVC Operations Pty Ltd v Teley Pty Ltd (Building and Property) [2018] VCAT 931 considered the extent to which a landlord can reasonably refuse consent under section 60.
In that case, the proposed assignee was a corporate entity which had been incorporated specifically to operate a pub at the premises and the landlord had refused consent on the basis that, given the limited trading history, the new tenant could not demonstrate that it had the financial resources or experience to meet the lease obligations. This was despite the persons behind the new tenant having significant hospitality experience with other venues and offering up a significant security deposit.
In finding that the landlord had unreasonably refused consent, Senior Member Riegler noted that:
“…I am unable to find that it was open for the Landlord to reasonably consider that Wheatland Toorak [the proposed new tenant] did not have sufficient financial resources to meet the obligations under the lease. In forming that view, I accept that ‘financial resources’ may also comprise financial backing from associated entities or individuals.”
The decision potentially poses a further difficulty for landlords in evaluating new tenants and it may well be that, at least in Victoria, landlords may need to sometimes disregard the current assets and/or experience of proposed assignees and take a more holistic view in considering whether to consent.
In such circumstances, landlords may need to be more circumspect in shoring up other security arrangements (such as personal guarantees and security deposits) to ensure they have enough comfort in taking on a new tenant.
If you have concerns about a proposed new tenant at your premises, or require assistance with Leases generally, contact Rankin Business Lawyers for practical and on-point advice.
Joseph Carneli, Senior Associate
