New information sheets from the Office of the Small Business Commissioner – options and assignments

The Office of the Small Business Commissioner has recently published two new information sheets about:

1. exercising options;  and
2. assignment of retail premises leases.

The information sheets provide an overview of the operation of the Retail Leases Act 2003 (Vic) in those areas and are expressed in layman’s terms.

They should be a useful resource for landlords and tenants and their lawyers, particularly those who are not dealing with the RLA on a daily basis.

The first information sheet, titled ‘Information Sheet – Options and Renewals‘, is available here.

The second information sheet, titled ‘Information Sheet – Assignment of a Retail Premises Lease’, in available here.

Resolving disputes arising out of a landlord’s refusal to consent to an assignment of a retail premises lease often causes problems.  An assigning tenant is almost always selling its business.  However, compulsory pre-action mediation combined with the usual litigation process at VCAT means there are usually substantial delays before the Tribunal can determine whether the landlord is unreasonably withholding consent to an assignment.  This can cause a sale to fall over.

If that happens, the tenant may be able to sue the landlord for damages if it can establish that the landlord unreasonably withheld its consent.  However, the tenant continues to own the business, so its damages would usually be limited to the difference between the purchase price under the failed contract and the market value of the business.  In a no-cost jurisdiction, this will rarely justify the risk of proceeding.

This problem becomes quite profound when dealing with a distressed sale and a landlord that is interested in the tenant’s business.  It is not hard to imagine a landlord’s refusal of consent to an assignment by a financially distressed tenant causing the tenant’s business to fail.  This may allow the landlord to take over the tenant’s operations, acquiring what’s left of the tenant’s goodwill for free (or, at worst, for the cost of some rental arrears).

By contrast, parties to a (non-retail) commercial lease can apply to the Practice Court under s 137 of the Property Law Act 1958 (Vic) and can often have an issue like this resolved in a very short time.  However, there is no similar procedure established for retail tenancy disputes.

Consequently, if faced with a landlord who is wrongly refusing consent to the assignment of a lease, I suggest the following:

1. contact the Office of the Small Business Commissioner and try to arrange an urgent mediation.  The staff are very friendly and will do their best to accommodate a genuinely urgent case, sometimes arranging a mediation in a matter of days.  Be sure to explain carefully why the case is urgent;  and
2. if the dispute cannot be settled at mediation, request an expedited certificate from the Small Business Commissioner and make an application to the Tribunal for an urgent hearing.  It may be appropriate to write to the Registrar of the Retail Tenancies List (sending a copy to the other side, of course) to explain the urgency of the case and request an urgent directions hearing to arrange an expedited timetable.

You can issue directly at VCAT if you are seeking remedies in the nature of an injunction.  However, when a landlord is wrongly withholding consent to an assignment, the proper remedy is probably a declaration rather than an injunction, so it is better to conduct an urgent mediation at the SBC’s office first.