Throughout the course of a lease, tenants may want to assign or sublet their lease if they sell their business, wish to move or encounter financial difficulty.
However, this process can pose several legal challenges.
Whilst in some cases assigning or subletting may be prohibited, the majority of leases contain a clause, which specifically prevents the tenant from exercising their right to sublet, assign, transfer, mortgage, or otherwise deal with the lease without the landlord’s consent, which ought not to be unreasonably withheld.
But what does ‘ought not to be unreasonably withheld’ mean?
This area is particularly murky, as there are no precise measures against which a landlord is required to rationalise its decision to withhold consent. Consequently, such an inquiry is very dependent on the facts of each case and a bit of a balancing act.
When could my landlord reasonably withhold their consent?
Examples of when a landlord COULD withhold consent include when –
- The premises would be used in an undesirable manner or by an undesirable assignee;
- The proposed tenant is insolvent or demonstrates an unwillingness to comply with the terms of the lease, or has previously breached a lease agreement;
- The premises would be used for an illegal or immoral purpose, or a purpose not permitted under the current lease;
- The premises might lose value as a result of the proposed assignment;
- The loss of an anchor tenant could have flow on effects for other tenants; or
- The assignee does not comply with the criteria in the assignment application.
Examples of when a landlord COULD NOT withhold their consent include when –
- The landlord has an ulterior motive (that is, has a reason which is not connected with the relevant assignment);
- The detriment to the tenant caused by refusing consent far outweighs any benefit to the landlord by withholding consent; or
- The refusal is based on the race, status or origin of the proposed new tenant.
What should I do if I feel my landlord is unreasonably withholding consent?
The best thing to do would be to speak to your landlord to try to find out what the roadblock is and try to negotiate an outcome. If you need help negotiating, you could invite the landlord to engage in mediation.
Small business owners can also contact the Small Business Development Corporation for advice and assistance.
Another option might be to make an application to a court (or, in some specific cases, a tribunal) for a declaration that consent is being unreasonably withheld, and that the premises may be assigned or sub-let. However, this is a drastic step and you should always get legal advice before you commence proceedings in court
If you proceed to assign or sublease the premises without the landlord’s consent, without first obtaining an order from a Court or Tribunal, you may be in breach of the lease, which would allow the landlord to terminate the lease and sue you for damages.
Can I sue my landlord for damages if they have unreasonably withheld consent?
The authorities suggest that you cannot sue the landlord for any losses that they might suffer as a result of the landlord unreasonably withholding its consent.
If you or someone you know wants more information or needs help or advice, please contact us.