Generally a commercial lease will include express provision as to the manner in which an assignment of the lease is to be effected and what needs to be provided for the consent of the landlord to the assignment to be obtained.
In these difficult financial times it is not uncommon for a tenant to enter into insolvency whilst a related entity continues to occupy premises, pay the rental under the lease and comply with the relevant lease obligations despite the fact a formal assignment is not effected. The recent NSW Court of Appeal decision of Chamberlain Group Pty Ltd v Kids for Life Academy Pty Ltd [2015] NSWCA 241 provides support for the position that where the assignee is in possession of the premises to the knowledge of the landlord, consent to an assignment can be found to have been given regardless of whether documentation is formalised.
The lease in question contained a fairly standard provision which provided that the tenant must not assign the lease without the consent of the landlord. The lease also noted that as a condition of giving its consent, the landlord may require certain provisions to be satisfied including that the proposed tenant execute a deed of consent in a form reasonably required by the landlord.
It was noted in the Court that applying the ordinary principles of construction to the relevant clause of the lease it was clear that the only pre-condition to assignment of the tenant’s interest is that the landlord “consent” to the assignment. The Court noted that it was a mistake to consider that the threshold requirement to assignment should be noted in terms of agreement to consent as opposed to merely consent. There was no requirement that there be any agreement to consent.
In the circumstances of this matter the landlord plainly acquiesced to the operator (“proposed assignee“) exercising the tenant’s rights and performing the tenant’s obligations under the lease. Firstly, the landlord accepted rent from the operator and secondly the landlord must have known that the operator not the tenant was conducting the business from the property as he knew that the operator was the entity authorised to conduct the childcare business. It was also noted importantly that the landlord knew that the tenant had ceased to exist (the tenant corporate entity was deregistered).
The Court found:
- that in continuing to accept rent from the operator with knowledge that the operator was in possession of and conducting a business from the property; and
- in responding to claims made by the operator to exercise the tenant’s rights under the lease in circumstances where the landlord knew the tenant was deregistered the landlord should be taken to have, by his conduct, consented to an assignment of the lease.It was noted that a landlord’s request for an executed transfer of lease is inconsistent with an absence of consent by the landlord to that assignment.
Landlords need to be aware that their actions can lead to the finding of consent to assignment in certain circumstances despite the fact that they may not have formalised consent in documentation and despite there not being a registered transfer of lease.
