Lease Transfer/Assignment

About 2 weeks ago our PM advised us the current tenant has told them they are selling their childcare business. The PM requested the proposed new tenant to fill out a commercial tenancy application.

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?

 

Assignments of leases generally need the approval of the landlord, which cannot be unreasonably withheld. You need to read your lease to establish what your position is first.

Even if you were happy with the incoming tenant, it is a good idea to keep the exiting tenant as guarantor of the rent should the incoming tenant default. This is usually until the end of the lease but does not include option periods. If they are inexperienced in business or the industry, in my view this a fair reason to withhold approval unless the exiting tenant guarantees the rent until lease expiry (I would push for this even if I thought they were ok as you are in a positive negotiating position regarding the approval).

I would want to see a business plan, their financials, meet them and their "relatives" that will be guiding them etc.

If you are still unsure, you can always request an increase in bond/unconditional bank guarantee as well from say 3 to 6 months etc.

All is negotiable and they will likely push back but get yourself into a position you are comfortable with, you can even use this to strengthen your position - amend lease terms you are unhappy with/bond etc.

 

Does your existing lease have directors guarantees from the old tenant? Otherwise you should have a 6 month bond in place (or bank guarantee).

Normally these have to be shuffled around with the sale of business.

And does you lease prohibit the current landlord from selling without your approval?

You should be well protected - otherwise if the tenant is in trouble you just sell to a new cleanskin company and liquidate it.

 

The lease has a "Guarantee Execution" which both husband & wife personally signed as guarantors. The business is owned by their company.

We have a 3 month's bank guarantee which covers the rent plus 3 month's outgoings.

Yes, the lease says the leasee must not transfer this lease without consent.

We definitely want the existing tenant to be kept as guarantor for if the new tenant is no good, as well as hold on to their bank guarantee until the end of the lease.

Is it possible to ask the new tenant to provide a 6 month's bank guarantee even though the existing lease only asks for 3 months?

Also when getting personal financials of the new tenant, would you ask the accountant to provide their assets/liabilities, income/expenses or get the accountant to certify that the info the new tenants provide is true and correct?

 

Get the guarantors personal financials

 

So you will need a statement of net assets

 

not an expert in this field whatsoever but it seems like a real stress and headache to actually asses the new leasees ability to pay and viability of the business, iwth resi, all you got t o look at is income, expenses and a few references

 

THis old thread seems relevant to my upcoming situation soon.

PM gave me the heads up tenant selling her biz and getting a couple of interested parties.
Does lease assignment need to be handled by solicitor? If so, can I assume or ask the outgoing
or incoming tenant to pick up the costs on my side of the legals, as this constitutes a lease break
by the outgoing tenant and not me instigating the change. If it's a complete brand new lease I
have no issue to pay my part of the fees, but it isn't.

Any idea and/or insights is much appreciated. Thanks.

 

Tenant is responsible for the costs you incur in reviewing the application eg accountant to review the financial viability of the incoming tenant & legal advice & preparation of assignment documentation (including replacement security, outgoing tenant guarantees etc).

If there's less than 12 months remaining on the lease, it would not be unreasonable to get a new lease in place.

 

Thanks Scott!!

 

@FXD - this will differ slightly if it relates to a retail lease.

 

Meaning? I may not be able to get tenant to foot the bills?

 

When the Retail Leases Act applies, each party wears it's own costs for a lease - this may differ on assignment - your solicitor can confirm.

 

Hi experts, Re-visiting this old topic on lease assignment.

PM gave me the heads up:
"
I have been advised that the applicant intends to buy into the <biz/company> which holds the
lease. In other words, the applicant intends to become a director of the <biz/company> that holds
the existing lease.

They will want to change the trading name as under new management to entice customers in.
"
Is this breach of lease by original tenant? Seem to be a sneaky act to bypass lease assignment
and shift all liabilities to prospective applicant to me.

Any similar experience or encounter by anyone here??? THanks

 

You would need to review the terms of the lease.
It sounds like the shareholdings will change which will then lead to a change in directorship and then a change in name without the tenant changing.

 

Most commercial leases have a provision for assignment or subletting or a change of substantial shareholding and what needs to be done.