Rohan Ingleton looks at a recent VCAT case and the implication for landlords when determining whether to withhold consent to an assignment of the lease.
In brief: In June 2018, VCAT in AVC Operations Pty Ltd v Teley Pty Ltd [2018] VCAT 931 had to consider if a landlord had unreasonably withheld its consent to an assignment of the lease. Senior Member Riegler determined that the landlord had unreasonably withheld consent and was required to act "reasonably" in considering if the assignee had sufficient financial resources or business experience to comply with the lease.
What you need to know:
In considering if the tenant can assign the lease, the landlord can only consider the assignee's financial resources and business experience in assessing the assignee. A landlord is not entitled to consider other matters, such as the assets held by any guarantor. If the landlord unreasonably withholds its consent, a tenant may have an action against the landlord in damages if the sale of a business falls over because the landlord did not consent to assignment of the lease.
Background:
In the VCAT case mentioned above, the tenant wished to sell its licensed venue to the assignee. The landlord sought various financial information from both the tenant, including an assets and liability statement for the assignee company, its parent company and the directors of the assignee company, who were to be guarantors under the lease. Unsurprisingly, the directors did not hold any assets and the assignee required further funding in order to develop the licensed venue in accordance with its business plan.
So you are aware, the lease was governed by the Retail Leases Act 2003 (Vic) (RLA). Senior Member Riegler determined that the " clear intent of s 60 of the RLA is to restrict the circumstances by which a landlord can refuse to consent to an assignment of a lease. It confined consideration to whether the proposed assignee would not have sufficient financial resources or business experience to meet its obligations under the lease."
Conclusion:
In considering consent to an assignment of the lease by a tenant, a landlord can seek financial details of any guarantor or parent company. However, the landlord can only refuse consent based upon section 60 of the RLA, namely whether the assignee has the financial resources or business experience to meet the obligations under the lease. In this respect, the landlord must act reasonably and other considerations are not relevant.
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. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.
