KEY POINTS:
Q.I have an agreement prepared for the sale of my restaurant business.
The agreement is conditional on obtaining the landlord's consent to the assignment of my lease. The lease has a further four years to go and I would like to assign it to the purchaser.
So far, I have not contacted the landlord to discuss this potential assignment. I suspect that the landlord may withhold his consent as he does not view my purchaser favourably. Does the landlord have the right to withhold his consent and prevent the change in tenant?
My lease was originally prepared by the landlord's solicitor and my solicitor at the time advised me that it was standard form.
A. The first step is to check the terms of your lease relating to an assignment.
Most leases in New Zealand contain fairly standard assignment provisions. It is likely that your lease requires the consent of the landlord to be obtained to any assignment.
Therefore, it will be your obligation as tenant to obtain this consent.
Sections 225-228 of the Property Law Act 2007 set out a regime which applies to obtaining consent from a landlord for an assignment of a lease.
The landlord must not unreasonably withhold his consent to your assignment.
The landlord must consider your application for consent within a reasonable time (this is likely to depend on the nature and complexity of your lease) and either give consent or notify you that consent has been withheld.
In your case, the landlord would be entitled to seek information on the purchaser of the business, including such details as work experience (specifically relating to the restaurant industry), financial statements of assets and liabilities, and the character of the purchaser.
The landlord is entitled to refuse consent to the proposed assignment on the basis that the purchaser fails to meet the reasonable requirements (if the purchaser has no evidence of financial solvency).
Consent would be unreasonably withheld in circumstances where, as a condition of giving consent, the landlord requires you to pay additional rent or consideration, or if he imposes an unreasonable condition on you.
You should also be aware that your landlord is not entitled to refuse consent on the basis of the colour, race, ethnic or national origin of the purchaser.
Furthermore, consent must not be withheld because you are bankrupt or your company is in receivership or liquidation, or because the landlord wants to retain possession of the premises for himself or to lease it to some other person whom the landlord prefers.
You should note that the landlord is entitled to recover reasonablelegal costs or other expenses incurred in giving his consent, irrespective of whether the assignment proceeds.
If you were to suffer a loss due to the landlord's failure to comply with his obligation to not unreasonably withhold consent, you would be entitled to recover any amount paid (being additional rental or other consideration) and also recover damages from the landlord for failure to comply.
If the landlord does consent to the assignment, you will need to be aware the contract created by the lease between the landlord and you remains binding on you until the term of the original lease ends (unless, as a condition of the consent to the assignment, the landlord agrees to release your liability under the lease).
This means that the landlord can recover any damages from you or require you to remedy any defaults by the purchaser.
If you entered into the lease as a limited company, the landlord may have required you to provide a personal guarantee and, unless a release is obtained from the landlord, your guarantee will continue.
Each week, national law firm Simpson Grierson answers commercial property questions which can be emailed and headed "prime asset question". This week's question is answered by senior associate Daniel Kelleher and solicitor Andrew Fletcher, who can be contacted at daniel.kelleher@simpsongrierson.com and andrew.fletcher@simpsongrierson.com
The information contained in Prime Assets is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.
