AS A COMMERCIAL PROPERTY landlord you have certain rights.
However, your ability to refuse consent to a lease assignment will depend on several factors.
These include the application of the lease provisions, relevant common law and the statutory implied term that deals with assignment.*
For example: Section 144 applies a covenant to every Victorian lease.
Therefore, the landlord’s consent is required for an assignment or subletting. And it may not be unreasonably withheld and no fine or premium can be charged for such consent.
The section also allows the lease to expressly exclude its operation.
Usual Types of Assignment Covenants
Most commercial leases will contain one of three assignment provisions:
- Assignment is prohibited absolutely;
- Assignment is allowed, subject to the landlord’s consent (of which the landlord has an absolute discretion); or
- Assignment is allowed, subject to the landlord’s consent (which cannot be unreasonably withheld).
The purpose of these covenants is to protect the landlord from having the premises used or occupied in an undesirable way, or by an undesirable tenant.
In this article, we will consider the first two scenarios. Take a look at Part 2 to find out how the third scenario applies.
Assignment is Prohibited Absolutely
Where the lease absolutely prohibits the tenant from assigning its interest under the lease:
- s.144 does not apply because there is no requirement to obtain the landlord’s consent; and
- the tenant will have no rights against the landlord for unreasonably withholding its consent to an assignment proposal.
Assignment is Allowed, Subject to Landlord’s Discretion
Where the lease provides for an assignment by the tenant, subject to obtaining the landlord’s consent (of which the landlord has an absolute discretion) – the landlord may arbitrarily withhold its consent.
This is provided that the lease expressly excludes the operation of s.144.
However, you should be aware that it is all or nothing.
It is simply not possible to limit the operation of s.144 by listing circumstances that shall not be deemed unreasonable. To limit the operation of s.144, the lease must expressly exclude its operation.
Lease is Silent as to Assignment
If the terms of the lease are silent regarding the assignment of a lease, s.144 will apply, and the landlord must not unreasonably withhold its consent.
BOTTOM LINE: These covenants can be used by landlords to prevent their properties being used or occupied in objectionable ways.
Always be aware of the terms of your assignment covenant and seek legal advice if you need clarification on your lease agreement.
*See for example s.144 of the Property Law Act 1958 (Vic). A similar provision to s.144 exists in other jurisdictions.
Disclaimer: If you think a similar situation may apply to you, then you should contact us for detailed legal advice relating to the particular facts and circumstances of your property or lease agreement. This article is not intended to provide such detailed and specific advice and you should not act on the basis of any matter contained in this article without first obtaining more comprehensive professional advice.