Often, when purchasing a business, a lease will already be in place for the premises from where the business is conducted. Various online, home-based, or roaming businesses may not need premises.
Where a lease is essential to the business, the contract will, typically, require the existing tenant (vendor) to arrange for the assignment of the lease to the new proposed tenant. In fact, the contract will usually be conditional upon the lease being transferred.
In such case, the landlord must consent to the transfer of the lease to the new proposed tenant, otherwise, the contract will come to an end.
The onus is, typically and legally, on the vendor to contact the landlord and instigate the transfer process. However, the transfer process will require the purchaser to provide various information to be forwarded to the landlord so that the landlord may assess the new, proposed tenant.
It is, of course, in the interests of the purchaser to provide accurate and informative information and to create a compelling case as to why the landlord should agree to the transfer of lease (to a person otherwise unknown to the landlord). The landlord is not, typically, compelled to agree to transfer the lease to a lesser-quality tenant. As such, a purchaser should not take this process lightly and should mount the best case they can in presenting themselves to the landlord as a viable alternative. If the landlord can be convinced that the landlord will, actually, be better off with the new tenant rather than the old, that is even better. The landlord will usually convey their consent and, in due course, execute the transfer of lease that will, most usually, be prepared by the lawyer for the purchaser.
However, if the landlord is not so convinced about the new tenant, they may reject that person or, alternatively, consent subject to changes to the lease being made. For example, the landlord might say “I consent to the new tenant but only if the security bond is increased from an amount equivalent to, say, 3 months to, say 6 months’ rent”.
On occasions, the purchaser might make it a condition of the contract that they will only proceed if the lease is transferred to them as well as being amended. A typical amendment is for the term to be increased or options for further terms added. Of course, a landlord who is planning on bulldozing and redeveloping the site in the future is unlikely to agree to such an amendment and is, of course, not obliged to agree.
In short, the negotiation process around the lease transfer can be complicated and having the right advice can make a world of difference.
DISCLOSURE STATEMENT
A disclosure statement is a document that a landlord must give to a tenant when entering or renewing a lease (that falls under the Retail Leases Act 2003 (“the Act”). It provides essential lease information for the tenant to review and enables the tenant to understand the key features of the lease.
The landlord must give the tenant a disclosure statement and a copy of the proposed lease no later than 14 days before a lease is entered into. For a lease renewal, the landlord must give the tenant the disclosure statement no later than 21 days before the end of the lease and it must set out any amendments to the previous disclosure statement.
If a disclosure statement is not provided to the tenant, then the tenant must give written notice that they have not been given the disclosure statement. If such notice is given and the tenant still does not receive the disclosure statement, then the tenant may withhold payment of rent or give written notice of termination pursuant to section 17 of the Act 2003.
Further, a prudent vendor of a business will also provide the incoming tenant (purchaser) with a further form of the disclosure statement (which we will produce for vendor clients).
Ideally and in addition, a purchaser will be provided with copies of the most recent disclosure statement.
IN SUMMARY
With the right professional team around you and the proper checks and balances in place, you give yourself the best chance possible for success in a transaction such as this.
Andrews Crosthwaite Lawyers regularly accept instructions in the purchase and sale of businesses. Contact us on 03 9450 9400 to speak with one of our lawyers.
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