Withholding consent to assignment of a retail premises lease

Under the Retail Leases Act 2003 (Vic) a landlord is only entitled to withhold consent to an assignment in the circumstances set out in s. 60(1), which says:

(1) A landlord is only entitled to withhold consent to the assignment of a retail premises lease if one or more of the following applies—

(a) the proposed assignee proposes to use the retail premises in a way that is not permitted under the lease;

(b) the landlord considers that the proposed assignee does not have sufficient financial resources or business experience to meet the obligations under the lease;

(c) the proposed assignor has not complied with reasonable assignment provisions of the lease;

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(d) the assignment is in connection with a lease of retail premises that will continue to be used for the carrying on of an ongoing business and the proposed assignor has not provided the proposed assignee with business records for the previous 3 years or such shorter period as the proposed assignor has carried on business at the retail premises.

Section 60(1) will prevail over any inconsistency in a retail premises lease (see s. 94 of the Act).

The Landlord must act reasonably when relying on s. 60(1)(b) and possibly when relying on the other provision of s. 60(1) (see AAMR at [45], cited in my blog entry on 20 May 2011).

What is reasonable or unreasonable will depend on the circumstances. For example:

1. generally, it is reasonable for a landlord to seek to prevent its premises being used in an undesirable way or by an undesirable tenant or assignee (see Le Coz v Innominata Pty Ltd [1999] VCAT 1598 at [22]);
2. a landlord is not entitled to prevent an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant or to the subject matter of the retail premises lease (see Le Coz at [22]); and
3. regard should be had to the purpose of the Act, which is to foster and protect small business and encourage innovation by the establishment of new small business (AAMR at [18]).

The landlord may be entitled to request more security from the proposed assignee if it considers that the proposed assignee does not have sufficient financial resources or business experience to meet the obligations under the lease. However, the additional security must be reasonable.

In Kamil Cafe Pty Ltd v Asian Pacific Building Corporation Pty Ltd [2005] VCAT 2264 the landlord withheld consent because the tenant had poor communication skills and lacked business experience and confidence. VCAT found that the tenant had some business experience and accounting training and that the particular business did not require strong communication skills from its owner to be successful. Consequently, the landlord had unreasonably withheld its consent to the assignment of the lease.

In AAMR, a company controlled by the same family as the proposed assignee had been placed into liquidation, but the family had paid the creditors and the Liquidator’s fees and expenses and had the winding up order annulled. While the group of companies had clearly been under financial stress, the Tribunal found that the tenant had the financial resources to operate the business at the leased premises.