In commercial property management, one scenario landlords often encounter is a tenant seeking to either assign their lease or sub-let a portion of the premises. Whether it’s a matter of the tenant having established a business they now wish to sell, or simply looking to sub-let unused space to reduce overheads, these requests are relatively common. However, they are not as straightforward as they may initially seem.

Understanding the Lease Agreement

As with most legal matters, the specifics lie in the lease. While each commercial lease is unique, most include provisions regarding the assignment or sub-leasing of the premises. Generally, these actions are permitted, provided that the tenant satisfies the conditions outlined in the lease and complies with applicable legislation, such as the Retail Leases Act 2003 (Vic).

Assignment of Lease

An assignment involves the transfer of the tenant’s entire leasehold interest to another party.

When a tenant proposes this, landlords should request a detailed application from the prospective assignee. This typically includes:

• Financial statements
• Identification documents
• Business experience or background
• Any other relevant supporting material

It’s standard practice for landlords to conduct thorough due diligence on the incoming party to assess their suitability to assume the lease obligations.

It’s important to note that while the assignor (outgoing tenant) and assignee (incoming tenant) handle the costs associated with the assignment, the landlord retains final consent rights. However, under the Retail Leases Act, landlords cannot unreasonably withhold consent if the incoming party meets the necessary financial and operational criteria.

Moreover, landlords should be aware of a critical timing condition: if no response is provided within 28 days, consent is deemed to be granted — assuming the Retail Leases Act applies. This underscores the importance of acting promptly and in good faith.

Sub-Leasing Arrangements

Sub-leasing is often more prevalent, particularly in office environments where tenants may have excess space they wish to sub-let to another business. In a sub-lease, the original tenant remains fully responsible for all obligations under the head lease — including rent, repairs, and any damages.

From the landlord’s perspective, there is no alteration to the primary lease agreement. However, landlords typically retain the right to approve the sub-tenant, especially to ensure that the use of the premises remains consistent and appropriate. Where the sub-tenant’s intended use aligns with the existing business type and zoning, approval is usually straightforward.

Again, landlords may request documents to evaluate the sub-tenant’s suitability, but as the head tenant retains liability, the commercial risk to the landlord remains minimal.

Best Practice for Commercial Landlords

• Review your lease agreement to ensure clarity around assignment and sub-leasing clauses
• Act promptly when receiving a request to assign or sub-lease
• Conduct due diligence on proposed assignees or sub-tenants
• Communicate clearly and professionally with your tenant to maintain a positive relationship

If you’re managing a commercial property and have questions about an assignment or sub-leasing request, our experienced team is here to help. At First National Commercial, we pride ourselves on offering practical, informed advice tailored to your property needs.

Contact me, Shannon Hynd on 0499 980 100 to discuss your commercial management requirements.