Lease Assignments: Corporate Tenants – Don’t Be Caught Out

When a tenant enters into an agreement with a landlord to lease commercial or retail premises, the lease will usually contain a requirement that during the term of the lease, if the tenant wishes to assign their interest in that lease to a third party, they must first obtain the appropriate consent from the landlord before they can make the assignment of the lease.

What a lot of tenants do not now know is that a lease will also usually contain a clause that provides that if the tenant is a company, any change to the shareholding of the company may be deemed an assignment of the lease. An example of this would be if one shareholder acquired shares from another shareholder of the company, in turn providing the acquiring shareholder with greater voting rights, therefore control of the company.

What are the implications for you?
It all depends on how the clause is worded and every lease is different. However, at a minimum (and particularly if you have a difficult landlord / tenant relationship) there is a potential basis for dispute, and possibly grounds for termination by the Landlord – which could have significant adverse impacts for your business.

What you need to do
When such changes to the shareholding of the company occur, it is the tenant’s responsibility to ensure that they advise the landlord of these changes to obtain the appropriate consent from the landlord for such assignment to avoid being held in breach of their obligations under the lease.

Not all leases are the same and tenants should receive advice from their lawyers as to the interpretation of such clause if it exists in their lease.

For more information
Should you be interested in finding out more about this, please contact us on +617 3223 6100.

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