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Lessor disclosure at the time of the assignment of a lease

Assignments of lease demand particular responsibilities on both the lessor and lessee. Bound by their lease, legislation and the common law, the parties to the assignment must perform specific tasks within a determined time frame. With particular regard to the lessor’s disclosure statement the question of responsibility is a tricky one.

In the case of an assignment of lease, from an existing lessee to a proposed assignee, more often than not the approval of the lessor must be sought. Most retail leases will include clauses which outline the responsibilities of the lessor, the proposed assignee and the lessee in regard to obtaining consent to assignment of lease. The retail legislation (when it applies) overrides any lease clause and all jurisdictions address assignment: Business Tenancies (Fair Dealings) Act NT Clause 55; Retail Leases Act 1994 NSW Clause 41; and Retail Leases Act 2003 VIC Clause 61. When the retail legislation applies all new lessees must be supplied with the lessor’s disclosure statement. However the case of an assignment of lease, is the proposed assignee entitled to the lessor’s disclosure statement and if so who is to provide it?

The recent changes to the Retail Leases Act 1994 NSW (July 2017) have impacted the area of assignment of lease in a number of ways.  Not least of all is the provision of the lessor disclosure statement to the proposed assignee. Section 41 has been amended to provide that the lessor must, if requested by the lessee, provide an up to date disclosure statement within 14 days of the request.

Further amendments made by way of insertion of clause 41A, provided that at least seven days prior to the date of assignment of lease, the lessee must supply the proposed assignee with the lessor’s disclosure statement, the lessee’s disclosure statement and disclosure confirmation, in order to be released from further financial responsibilities under the lease.

The lessee must supply the proposed assignee with an up to date lessor’s disclosure statement, which would comprise the disclosure statement provided to the lessee, and updates provided to the lessee by the lessor. If not provided by the lessor, it is sufficient for the Act that the lessee supplies a disclosure statement, which reflects updates to the disclosure statement to the best of their ability.

According to s61(5) of the Retail Leases Act 2003 Vic, the lessor is under an obligation to provide the lessee an up to date disclosure statement with 14 days of the lessee’s request. If the lessor does not comply with the lessee’s request as set out in this clause they will be guilty of an offence and liable to a fine.

Further to that the Act also provides that the lessee is under an obligation to provide the proposed assignee with the disclosure statement (s 61(3)), and if there have been any further changes to the disclosure statement, that the lessee is aware of, they must inform the proposed assignee.

In accordance with the Business Tenancies (Fair Dealings) Act NT, section 56, the lessee must provide the proposed assignee with:

  • the lessor’s disclosure statement provided in accordance with the lease;
  • the most recent lessor disclosure statement; and
  • details of any changes which the lessee could reasonably be aware of.

The lessee is entitled to request the lessor to provide a relevant disclosure statement and the lessor must do so within 14 days of the request.

Though it is the lessee’s general responsibility to provide the proposed assignee with the lessor’s responsibilities to provide up to date disclosure statements, if requested, are subject to time restrictions, which all parties would be wise to be aware of. In particular the lessor must be that they must provide an updated disclosure statement within 14 days of the lessee’s request. This can be very tight if the lessor has new information to disclose.

The retail legislation encourages disclosure. If there was something (either relating to the centre or the particular lessee’s business) that would affect the business conducted by the proposed assignee, that was known at the time when updated disclosure was required, but was not disclosed, the assignee will look to the assignor and lessor for relief. Usually the lessor would be a preferred defendant. A failure to disclose, when the opportunity was there, and when it was an obligation, will expose the lessor to future claims, if the assignee were to suffer a loss.

Andrina Lum, Lawyer

Paul Carroll, Partner

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