Commercial Property Tenant - selling their business, wants to transfer lease

We've just got notice from our property manager that our commercial property tenant has exchanged contracts of sale to sell their business, therefore needs to transfer their lease. The settlement date is yet to be decided. The current tenant has about 5 years left of a 10 year lease.

We have no idea about any of this so any comments would be greatly appreciated.

1. What info would the property manager need to get from the new tenant to make sure of the tenant's financially standing & business experience of the proposed new tenant? What do we as a landlord need to look out for and make sure about the new tenant's financial standing?

2. Would the lease be transferred or would it be sub-leased to the new tenant?

3. As the current tenants have signed a 10 year lease, I presume that they must be held liable for the whole term of the lease if the new tenant defaults on any payments. If that's the case, would we hold on to the current tenant's bank guarantee and also the new tenant's bank guarantee as security?

4. Does anyone have a few good lawyer recommendations who could handle this matter as according to the lease the lessee has to pay "with any consent the lessor's reasonable legal costs"? Previously we used Peter Thiel from John de Mestre & Co. for a dispute with the current tenant about some bills. Does anyone know or recommend them?

 

Talk to a suitably qualified solicitor

Check the lease but usually it says something along the lines of that the lessee will need the lessors approval to assign the lease but that the lessor cannot unreasonably withhold permission.
The PM should request what experience of the proposed assignee has and a statement of assets and liabilities. You want to make sure that the assignee has just as much experience or more in running a similar business and you also want to make sure that they are as financially secure as the assignor

Insist on a lease assignment, your aim here is to keep the assignor (or original tenant) on the hook for the responsibilities of the new tenant. It's no you who wants to transfer the lease after all and if the new tenant goes broke and does a runner it should not be up to you to incur the losses. The outgoing tenant will fight tooth and nail to be released from all further responsibilities.
Is it a retail lease?

If you can.

I can recommend

Sarah Newman / Associate / Accredited Specialist – Property Law
Bull, Son & Schmidt Lawyers
Level 7, 1 Chandos Street (cnr Christie Street)
St Leonards NSW 2065
PO Box 143, St Leonards NSW 1590
DX 3304 St Leonards
Tel: +61 (0)2 9439 5299
Fax: +61 (0)2 9439 6756
Website: www.bullson.com.au


or


Harbourside Legal Services Pty Limited
Abraham Ishkhanian
Suite 5, Level 14, 122 Arthur Street
North Sydney NSW 2060
Tel: 02 9955 6692 email: [email protected]
Website: www.hslegal.com.au

 

Yes, it says something similar to that in the lease, but it doesn't use the word "assign" but only talks about "transfer".

The property is a smallish Childcare Centre. Would the property manager be the one telling the current tenant on doing a "lease assignment" or wait until a lawyer is involved?

Thanks for your comments. Also interested to hear other people's comments on the 4 questions in the original post too

 

Most of the transfer of leases I get involved with I end up requesting all the relevant information from the current tenant and presenting it to the lessor and together we decide what to do and then consult the legal team to finalise it.

 

Hi "Superman",

Your rights and obligations arise from the Lease document, whether it is a retail lease or non-retail lease and the state.

We recommend that you attend your Solicitor with the Notice provided by the Tenant. The Solicitor will then request the standard documents and information required from the proposed new tenant. Once the documents and information is received, you will be able to make an informed decision on consenting or rejecting the request for transfer.

Best of luck!

 

The managing agent will be familiar with these issues and you need their involvement in addition to your solicitor who will handle the formalities once they are agreed in principle. I recently looked at buying a business and had to seek managing agent approval as part of the conditional offer process. Others had been knocked back preventing them buying the business and they were very specific about what they wanted. I cleared that obstacle but had to demonstrate business acumen, financial capacity as well as management experience and meet with the property managing agent.

The tenant should really have involved you earlier than this as there is no a "right" to transfer a lease. What happens if they find you DONT agree to the buyer as tenant. They may have a sale contract without premises ie they have a past criminal background or are a former bankrupt or have left a trail of other unpaid debts for leases they dont keep. Or they now they learn that a bond / guarantee of 6 months rent is required and they didnt allow for that in their finances ?

Your agent needs to do due diligence on the buyer and determine if they make a good tenant and attend to preliminary discussions so a lease agreement can be determined for the solicitor to prepare and settle. I would think you dont want any greater risk than you have now.

 

Thanks a lot to all who have commented. We've gotten in touch with our agent and they are getting the proposed new tenant to fill out a commercial tenancy application and once they have the info, they will forward us the info.

 

You're very welcome.
Whats a commercial tenancy application?

 

@thesuperman - yes Peter Theil is good. He's now a consultant at JdMestre as he's full time at Panthers. (His email address still works but better getting in contact with Warren in the office).

The existing security should continue to be held for the balance of the lease term in addition to new security bond.

Never presume or assume anything is in the lease.

Lessee is to bear all of your costs in relation to the assignment (legal, accountant advice on incoming tenant, mortgage registration/bank consent)

@Shady - tenancy application is just like a residential application but requires financials - p&l, balance sheets etc, trade references, past experience and the like to confirm ability to run the business.

 

I assumed as much but never heard of a tenancy application being used in commercial. It sounded like a residential agent trying to fumble through managing a commercial property

 

Appreciate further input from people on this forum.

After 2 weeks our property manager has gotten minimal info from the new proposed tenant. Basically saying for the new tenants we really don't have a lot of information. They've provided an application form and ID however no profit & loss or bank statements etc. They have responded that this is because:

We are a newly formed company and therefore do not have any trade references. We have many close relatives who have extensive experience in operating multiple childcare centres and therefore we will have plenty of guidance and support in the running of the business and ensuring its success.

In reference to page 4 of the document, as we are a newly formed company and purchasing the existing business, all of the financial aspects of this business will apply.

We would be happy to meet with the landlord and/or agent at your earliest convenience to discuss any questions you may have.
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Would you as an agent/owner reject the proposed tenant or ask the tenant to give personal assets/liabilities, income & expenses, certified by their account as well as bank statements?
And also get the new proposed tenants come and meet the agent?