Do not assume that buying the business also secures its premises. Before committing, establish whether the seller’s existing lease will be assigned to you or replaced with a new lease, and make the business purchase conditional on the required documents, consents and premises access being in place.

That distinction can change the term, rent, security, guarantees and risk you are accepting. Australian Government guidance specifically tells buyers to ask whether the landlord will transfer the lease or require a new one (business.gov.au). The legal process also depends on the lease, the premises and the state or territory, so this is a transaction-coordination issue as well as a document-review exercise.

First resolve the transfer route

An assignment generally puts the buyer into the seller’s position for the remaining lease term, subject to the lease, governing law and assignment documents. A replacement lease is a separate bargain with the landlord and may start with different commercial terms. A buyer should not treat the two routes as interchangeable.

Ask the seller, landlord or managing agent to confirm in writing:

  • whether assignment is permitted and landlord consent is required;
  • whether the landlord instead proposes a surrender and new lease;
  • the documents, financial information and business-experience evidence required from the buyer;
  • who must obtain any mortgagee or head-landlord consent;
  • who pays the landlord’s documented legal and administrative costs; and
  • the target date for approval and signing.

South Australian official guidance, for example, notes that a new lease may be an alternative when the existing term is short, but the landlord is not obliged to agree to it (Small Business Commission SA). That is a useful commercial warning, not a rule to apply across Australia.

What remains if the lease is assigned?

Obtain the complete lease record, not just the signed original. It should include every variation, renewal, option notice, disclosure statement, incentive deed, licence, fit-out approval and relevant landlord correspondence. Then reconcile it with the seller’s account of the tenancy.

Questions to resolve include:

  • Term and options: How much fixed term remains? Which options exist, who may exercise them, when is notice due, and could an existing default affect the right to exercise one?
  • Rent and outgoings: What is payable now, how and when is it reviewed, and are any incentives still being applied or subject to repayment?
  • Use and approvals: Does the permitted use cover the buyer’s intended operation? Are fit-out, signage, access, parking and trading arrangements documented?
  • Landlord rights: Do relocation, demolition, redevelopment, inspection or termination provisions undermine the expected occupancy period?
  • Transfer restrictions: What information, forms, fees, deeds and approvals does the assignment clause require?

Do not rely on an option label or the seller’s summary. Ask the buyer’s lawyer to confirm which rights transfer, what has already been exercised or missed, and whether any side agreement binds an incoming tenant.

Test the landlord’s conditions

Landlords commonly assess an incoming tenant’s financial capacity and relevant operating experience. In Victoria, the official retail-lease guidance says a written transfer request must include information about the proposed tenant’s financial resources and business experience; it also identifies permitted use, financial resources, business experience and compliance with reasonable assignment provisions among the possible grounds for withholding consent (Victorian Small Business Commission).

Before accepting consent conditions, identify their full economic effect:

  • the amount, form, expiry and release process for a bank guarantee or cash security;
  • each proposed personal or corporate guarantee and who gives it;
  • whether the landlord requires prepaid rent, a rent change or a variation to other terms;
  • whether consent is conditional on repairs, insurance evidence, licences or fit-out works; and
  • whether the seller and its guarantors are released, and whether that affects negotiations between buyer and seller.

State retail-leasing rules can alter the process and timing. For example, NSW guidance describes a 28-day response period after the required information is supplied and says an assignment may be deemed to occur only if the statutory conditions are met (NSW Small Business Commissioner). A buyer should have a lawyer confirm the regime that applies rather than assuming silence equals consent.

Clear arrears, breaches and unresolved notices

Request a current landlord ledger and written details of any arrears, default notices, disputes, unapproved works, insurance gaps or outstanding repair obligations. Compare these with the lease, disclosure documents and seller’s financial records.

Then allocate each issue expressly. Who pays pre-settlement rent and outgoings? Who rectifies an existing breach? Will the landlord acknowledge that identified defaults have been remedied? Are any incentive clawbacks, reinstatement costs or legal fees outstanding? An assignment deed alone should not be treated as evidence that the account is clean.

Make premises certainty a settlement dependency

The business-sale contract and lease process should be coordinated so the buyer does not pay for a location-dependent business without an enforceable right to occupy it.

A buyer’s legal advisers may recommend conditions dealing with:

  1. landlord consent in an acceptable form;
  2. execution and delivery of the assignment deed or replacement lease;
  3. completion of required disclosures and other statutory steps;
  4. resolution of specified arrears, defaults, works and consent costs;
  5. delivery of access devices, security details and premises records; and
  6. simultaneous or correctly sequenced completion of the business sale and lease transaction.

Hypothetical example: a sale contract is ready to settle, but the landlord will consent only if the buyer provides a six-month bank guarantee and the seller remedies unapproved alterations. The buyer should quantify the extra security and delay, decide whether the terms remain acceptable, and avoid treating the premises condition as satisfied until the agreed documents and works are complete.

A focused decision test

Before approving the premises component, be able to answer four questions:

  • Right: What signed document gives the buyer the right to occupy from settlement?
  • Cost: What rent, outgoings, security, fees and works follow from that document?
  • Duration: Does the remaining term and any enforceable option support the acquisition plan?
  • Clean handover: Which historical defaults or obligations remain, and who is responsible for resolving them?

If any answer depends on a future discussion or an unsigned side promise, record it as an unresolved condition rather than an assumption in the purchase price.

When specialist advice is needed

A commercial leasing lawyer should review the lease, applicable state or territory rules, consent process, deed, guarantees and settlement conditions. An accountant can test rent, outgoings and security against working capital and maintainable earnings. Property, planning, building, insurance or licensing specialists may be needed where the intended use, fit-out or approvals are uncertain.

Sources

Disclaimer

This article provides general information only. It does not constitute legal, tax, accounting, financial, credit, valuation or other professional advice. Circumstances differ. Obtain advice from appropriately qualified advisers before acting or entering a transaction.