In 2006, legislation was passed amending the Retail Shop Leases Act 1994 (Qld) such that when a lease is assigned, the assignor is released from liability under the lease.
Lessor: A person who grants a leasehold interest in premises to a lessee.
Assignor: A person assigning an interest.
Assignee: A person to whom an interest is assigned.
The previous approach to the assignment of leases
Prior to the 2006 amendments to the Retail Shop Leases Act 1994 (Qld) (‘RSLA‘), for an assignment of a lease to take effect, the assignor was required to indemnify the assignee, generally for the term of the original lease.
For example, ABC holds a lease that is subject to the RSLA and wishes to assign the lease to XYZ. In this situation, ABC would be required to obtain approval from the lessor to assign the lease. It has long been accepted practice that ABC would indemnify XYZ in relation to the remaining term of the assigned lease, such that should XYZ break the assigned lease or not be able to pay any remaining costs associated with the lease, then ABC would be required to cover those costs.
2006 amendments to the RSLA
In 2006, the Retail Shop Leases Amendment Act 2006 (Qld) was introduced which, among other things, introduced section 50A to the RSLA.
Section 50A acts to substantially alter the situation described in the example above.
Specifically, section 50A provides that:‘
…if the lessor, assignor and assignee of the lease have each complied with sections 22B and 22C, or any order mentioned in section 22E(2) and imposed on the disclosing person; and each disclosing statement given under the section or order by the disclosing person is not a defective statement.
When the assignment is entered into the assignor is released from any liability under the lease to which the assignor would otherwise be subject if there is any default by the assignee.
Section 50A of the RSLA in operation
Section 50A establishes that in leases entered on or after 3 April 2006 the assignor is no longer required to indemnify the assignee when assigning a lease subject to the RSLA.
For example, ABC holds a lease that is subject to the RLSA following the introduction of section 50A and wishes to assign the lease to XYZ. As before, in this situation, ABC would be required to obtain approval from the lessor to assign the lease. However, operation of section 50A establishes that, provided that all parties have provided adequate disclosure, ABC is no longer required to indemnify XYZ in relation to the remaining term of the assigned lease. The effect is such that should XYZ break the lease or not be able to pay any remaining costs associated with the lease, then ABC would not be required to cover those costs.
Issues with section 50A
In practice, lessors are attempting to find ways around operation of section 50A.
As lessors are now statute barred on requiring an indemnity from assignors, some lessors are attempting to require directors in a personal capacity to indemnify assignments.
Previously, lessors could require that directors indemnify assignments, however subsequent to the introduction of section 50A the position is not clear. The intent of section 50A would suggest that this practice would be prohibited however as the term ‘assignor’ is not defined in the RSLA, the position in relation to the inclusion of ‘directors’ as ‘assignors’ is not clear.
At the time of writing, section 50A remains relatively untested by the courts, resulting in what seems like a ‘grey area’ in leasing law between legislative intent and practice.
How Ramsden Lawyers can help
Are you a lessee under the RSLA?
Are you an assignee under the RLSA?
Are you a lessor under the RSLA?
It is important that you know your legal position.
Leasing is a complex area of the law that requires expertise and experience.
Here at Ramsden Lawyers we are expert leasing lawyers, with the necessary expertise and experience to deal with any leasing matter.
By John Ramsden, Lawyer and Managing Director of Ramsden Lawyers
14 May 2013