Strategic edge. Connected advantage.
Release on assignment - what are the owner's obligations?
10 June 2010
In 2006 the Retail Shop Leases Act (Act) was amended to provide that an assignor would be released from liability for any breach of the lease by an assignee after the assignment date (statutory release).
However, the assignor is only entitled to a statutory release if:
Generally, the answer is 'No'. Most leases state that an assignor and any guarantor will continue to be bound by the lease after an assignment. Consequently, there is no contractual requirement for an owner to release an assignor (contractual release).
In addition, the Act does not require an owner to give an assignor a contractual release. The question as to whether an assignor is entitled to a statutory release is a matter of law having regard to whether the 6 requirements mentioned above have been satisfied. If this statutory release exists then it will override the wording of the lease or any consent to assignment documents.
As there is no legal obligation to give a contractual release, the owner's decision is purely commercial in nature.
The owner's decision should not be based on the assumption that the assignor is already entitled to a statutory release. At the time of consenting to an assignment it is unlikely that an owner will be in a position to be satisfied that all the disclosure statements have been given and none of them are defective.
If an owner does elect to grant an assignor a contractual release then careful drafting of the release clause is called for to ensure that the assignor remains 'on the hook' for obligations under the lease up to the assignment date.
For more information on this topic, please contact Shanna Livingstone.
However, the assignor is only entitled to a statutory release if:
- the lease was entered into on or after 3 April 2006; AND
- the assignor gave the prospective assignee a disclosure statement at least 7 days before asking the owner to consent to the assignment; AND
- the prospective assignee gave a disclosure statement to the assignor before the owner was asked to consent to the assignment; AND
- the owner gave the prospective assignee a disclosure statement and a copy of the lease at least 7 days before the owner consented to the assignment; AND
- the prospective assignee gave the owner a disclosure statement before the owner consented to the assignment; AND
- none of the disclosure statements referred to above are 'defective'.
Is an owner obliged to give a release to an assignor?
Generally, the answer is 'No'. Most leases state that an assignor and any guarantor will continue to be bound by the lease after an assignment. Consequently, there is no contractual requirement for an owner to release an assignor (contractual release).
In addition, the Act does not require an owner to give an assignor a contractual release. The question as to whether an assignor is entitled to a statutory release is a matter of law having regard to whether the 6 requirements mentioned above have been satisfied. If this statutory release exists then it will override the wording of the lease or any consent to assignment documents.
What should an owner do if an assignor or guarantor asks for a contractual release?
As there is no legal obligation to give a contractual release, the owner's decision is purely commercial in nature.
The owner's decision should not be based on the assumption that the assignor is already entitled to a statutory release. At the time of consenting to an assignment it is unlikely that an owner will be in a position to be satisfied that all the disclosure statements have been given and none of them are defective.
If an owner does elect to grant an assignor a contractual release then careful drafting of the release clause is called for to ensure that the assignor remains 'on the hook' for obligations under the lease up to the assignment date.
Queries?
For more information on this topic, please contact Shanna Livingstone.