A tenant’s liability under the lease doesn’t go away after the business is sold and the buyer has taken over the lease. If the buyer defaults under the lease after settlement, the landlord can sue the buyer and the seller for the rent (and more).
Retail shop tenants/sellers can obtain a special release under Section 50A of the Retail Shop Leases Act (“RSLA”) if they supply the right paperwork at the right time/s.
The recent changes to the RSLA (commencing 25 November 2016) made improvements to Section 50A in that:-
(a) the release now only requires the seller (“Assignor”) to get its paperwork right (previously the buyer/assignee and the landlord also needed to do so); and
(b) the guarantors to the lease now also benefit from the release from liability.
On the down side, it is now commercially harder for Assignors to “get their paperwork right” because Section 22B requires (among other things) that the Assignor must give the buyer a disclosure statement and a copy of the lease at least 7 days before the buyer signs the business sale contract.
The 7-days can be shortened by “waiver notice” from the buyer, however the key issue is the need to give these materials before the buyer signs the business sale contract.
From what we have seen so far, not all business brokers and their clients are accustomed to handling this extra paperwork before contract-formation so some sellers/guarantors are missing out on their liability release.
The relevant 25 November 2016 RSLA changes apply to leases entered into before that date.
There are many other tasks for Assignors to perform correctly to comply with Section 22B in order to obtain their release. An experienced property lawyer can assist a seller/Assignor with this process and the release can be obtained if the pre-contract disclosure “horse has not bolted”.
Article by Julian Creagh, Associate, Wilson Lawyers.
Important Notice: This publication is provided as general information only and should not be considered or relied upon as legal advice. The law is complex and you should always obtain specific legal advice about your circumstances from a qualified legal practitioner. If you require legal advice, please contact our office to see how we can help.