In this guide we're outlining the steps required to transfer a retail lease or commercial lease in Victoria. You'll typically find yourself needing to assign a lease when you're buying or selling a business or have found a person to take over a lease.
How to transfer a commercial lease in Victoria?
There are 5 steps involved when transferring a commercial lease in Victoria: (1) determine what type of lease you have, (2) obtain landlord approval, (3) prepare transfer of lease documents (4), complete adjustment of rent, outgoings, and bond, and (5) settle and hand over property. We discuss them in more detail below.
Determine what type of lease you have
The first step is determining what type of lease you have. In Victoria there are two types: retail leases and commercial leases.
Retail leases have protections under the Retail Leases Act 2003 that dictate the procedure of transferring a lease and when a landlord can or cannot reject a transfer. They also have disclosure documents that need to be provided as part of the transfer process to the new tenant.
Commercial leases are pure contract law and the process to transfer such leases is outlined in the lease agreement you negotiated at the commencement of your lease.
Obtain landlord approval
Once you know what type of lease you have, the next step is obtaining the landlord's consent to transfer the lease. Typically, the landlord or their agent will have an application that will need to be completed by the incoming tenant. There will also be an application fee paid to the landlord’s representatives.
This application will contain the new tenant's details, financial standing, business experience, and business plans. The landlord will use this information to assess whether they are happy to consent to the transfer, put conditions on the transfer (such as higher bond), or reject the transfer.
There are many traps involved in this process. You want to make sure the application is prepared and managed correctly to limit the ability for a landlord to reject a transfer. Our office has prepared and managed hundreds of transfer applications to obtain the best chance of success. We act for both tenants and landlords - so know what each party looks for.
Prepare transfer of lease documents
If the landlord consents to the transfer, the formal transfer of lease deed needs to be prepared and executed by all parties.
If your lease is a retail lease, it is also important that you prepare a disclosure statement by outgoing tenant at the application stage, so you are not liable for the lease post settlement.
If you have a commercial lease, the landlord will sometimes want the transfer deed to note the old tenant will remain liable for the remainder of the term – however it is all negotiable. Whether the landlord requires additional assurances or not will depend on the strength of the transfer application and negotiations.
Complete adjustment of rent, outgoings, and bond
Once all the transfer documents are in order, bond paid, and lease insurances taken out, a transfer date will be set. If the transfer is part of a business sale the transfer date will be the settlement date of the business.
As part of settlement, there will be an adjustment of the rent and outgoings paid in advance by the outgoing tenant and settling of all outstanding bills. The incoming tenant will reimburse the outgoing tenant their share of rent/outgoings on a pro-rata basis.
For the bond, depending on the landlord, the bond will either be transferred to the new tenant with the new tenant refunding the old tenant, or the landlord will require the new tenant to pay new bond before they reimburse the old tenant (the second option is the preferred method for our office).
You will also need to make sure non-landlord items are prepared, such as getting a final meter reading on electricity and gas etc.
Settle and hand over property
Once all settlement money has been paid and documents exchanged all that's left to do is hand over the keys. You've transferred the lease!
Frequently asked questions: transfer of lease victoria
Below are some common questions clients have asked when assisting with lease transfers in Victoria.
How long does a transfer of retail lease take?
Under the Retail Lease Act, the landlord has 28 days to consider an application and provide a response. So as a guide, a minimum 28 days is what we advise clients. This is because there are multiple parties involved in the transfer process that need to approve each step. Of course, some transactions complete faster if everyone is on the ball. Our office makes sure that the application is completed fully before submitting so there are no additional delays to your transaction.
Can the landlord charge fees to consider a commercial lease transfer?
Yes, a landlord can charge reasonable fees to consider a transfer of lease application. It is important before an application is submitted that the landlord's fees are confirmed so there are no surprises later on. The cost varies from landlord to landlord.
When can a landlord reject a retail lease transfer?
In Victoria, a landlord can reject a retail lease transfer in limited circumstances, being:
- The proposed tenant plans to use the premises for a purpose not allowed under the lease (e.g. turning a dentist office into a cafe).
- The proposed tenant lacks the financial capacity or business experience to meet lease obligations.
- The tenant hasn’t complied with reasonable assignment requirements, such as providing business records or following consent procedures and providing required disclosures.
What happens if a landlord rejects a transfer of lease?
There are options available depending on the circumstances. Firstly, the contract with the proposed tenant will need to be reviewed along with the landlord application. You will then need to assess whether the rejection was unreasonable. If there is merit to appeal an unreasonable rejection, we then assist clients to prepare a mediation application with the Small Business Commissioner and then VCAT if needed.
Who prepares the transfer of lease document?
It is typically one of the solicitors involved in the transaction. Our office prepares transfer of lease documents for lease transfers.
Example transfer of lease document
Need help with assigning a lease transfer or business transaction?
Our office can assist with business sales and commercial lease transfers. We have completed hundreds of transactions in Victoria and are familiar with the laws and transfer requirements. We assist both landlords to limit their risk and tenants to ensure the best chance your lease is transferred.
Please contact our office if you would like our assistance by calling 03 9708 5564 or using the contact form below.