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Thinking About Assigning Your Retail Shop Lease? Are You Aware Of Your Disclosure Obligations As The Assignor?

Friday, September 21, 2018

The Retail Shop Leases Act 1994 (“RSLA”) imposes strict disclosure processes and obligations that an assignor is required to comply with prior to assigning a retail shop lease.

A common example of when a lease assignment will occur is upon the sale of a retail business wherein the buyer of the business wishes to take over the existing lease.

Often a business sale contract will include a condition that the lease associated with the business premises is to be assigned from the outgoing lessee “assignor” to the incoming lessee “assignee”

Did You Know?

If an assignor does not correctly comply with its assignment disclosure obligations under the RSLA within the required time-frames then the assignor and guarantor (if any) may still be liable under the lease for any defaults of the assignee (yes, even after the lease assignment has occurred!).

As the assignor cannot control the future actions or defaults of the assignee, this poses significant risks to an assignor if not released from such liability.

So, how does an assignor comply with their assignment disclosure obligations under the RSLA?

The assignor must give the assignee a copy of the current lease and a compliant assignor disclosure statement before the earlier of the following:

  • at least seven days before the day that the assignee enters into the agreement to purchase the business (if the assignment is in connection with the sale of a retail business); or
  • at least seven days before the lessor (the owner of the premises) is asked to consent to the assignment.

It is therefore imperative if you are assigning a retail shop lease to ensure that you leave adequate time to comply with your disclosure obligations under the RSLA.

What If An Assignor Does Not Have Time To Comply?

This may occur when the assignment of the lease is urgent.

There is a provision in the RSLA that allows the assignee to provide a waiver notice to the assignor.

The waiver notice must state (amongst other things) that the assignee agrees to waive the assignor’s obligation to provide the assignor disclosure statement and a copy of the current lease by the required disclosure dates under the RSLA.

It is important for an assignor to note that regardless of this waiver notice, the assignor is still required to provide the assignee with a copy of the current lease and the assignor disclosure statement before the lessor is asked to consent to the assignment or before the day in which the assignee enters into the agreement to purchase the business (as the context dictates).

It should also be noted that an assignee is not obligated to provide a waiver notice.

Further Disclosure Obligations

The assignor must also receive an assignee disclosure statement from the assignee before the lessor is asked to consent to the assignment.

The assignor must provide a copy of the assignor disclosure statement (as provided to the assignee) to the lessor on the day that the lessor is asked to consent to the assignment.

Other Important Considerations

In addition to the RSLA requirements, the lease itself may contain assignment provisions and processes that will need to be complied with.

The RSLA also contains strict disclosure obligations for an assignee and landlord that will need to be considered when assigning a retail shop lease.

If you are a party to an assignment in any capacity, then we recommend that you obtain legal advice prior to commencing any steps in the assignment process.

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