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LPLC: Devil in the detail

Every Issue

Cite as: (2006) 80(12) LIJ, p. 80

Are your business vendors protected?

The sale of a business can be a hectic process, with a tendency for commercial imperatives to eclipse legal detail.

Parties to the sale of a business can be preoccupied with the timetable for handover and the financial bottom line. Solicitors are often put under pressure from vendor clients driving the transaction.

As a result, solicitors can overlook the additional disclosure requirements in the Retail Leases Act 2003 (Vic) (the Act). These provisions apply to the assignment of retail leases for an ongoing business and protect vendors and their guarantors who might otherwise be at risk of continuing liability.

In the most common scenario, the incoming tenant defaults on rent and the landlord pursues the unwitting vendors of the business and their guarantors.

The sale of an ongoing business commonly requires the vendor to arrange for a transfer of lease to the purchaser. It seems some practitioners are leaving their vendor/assignor clients exposed by not complying with the additional disclosure requirements in s61(5A) of the Act. These requirements are separate and in addition to the departing tenant’s obligations to:

  • request the landlord’s consent to an assignment: s61(2); and
  • provide the assignee with the disclosure statement (previously given to the tenant) together with any changes the tenant is or should be aware of regarding the lease; or request an updated version from the landlord for this purpose: s61(3).

Form of disclosure

The additional obligations set out in s61(5A) require the assignor tenant to give the landlord and the proposed assignee a disclosure statement in the form prescribed by the regulations. There are, however, some procedural gaps:

  • there is no form prescribed for the s61(5A) disclosure statement; and
  • there is no prescribed time for providing the statement.

In the absence of a separate prescribed form, practitioners should use the standard form of disclosure statement prescribed by reg 8.

As this form is not tailormade there are a few anomalies and apparent duplications.

For the most part, the statement relates to the landlord’s obligations and details concerning the lease. However Part 6, entitled “Assignments”, covers details of the previous three years’ business records and confirmation that the original landlord’s disclosure statement has been provided to the purchaser and any relevant changes.

While it is tempting to fill out only Part 6, practitioners are advised to fill out the whole form.

In relation to timing, it is safe to assume that the disclosure statement should be provided at the same time as the request for consent to assignment from the landlord and certainly before the assignment occurring.

There are some other minor discrepancies in the provisions governing assignments carrying over from the 2005 amendments. Section 62 incorrectly refers to a disclosure statement in accordance with s61(4). No such sub-section exists – s61(4) became s61(5A) as part of the 2005 amendments. It is clear from the wording of the section, however, that it is intended to refer to s61(5A).

Vendors and guarantors protected

Provided the disclosure statement given to the assignee under s61(5A) does not contain any information that is false, misleading or materially incomplete, s62 will absolve the assignor/vendor of the business from any further obligations under the lease.

Practitioners need to familiarise themselves with the special protection afforded to a vendor/assignor under the Act.

Failure to take the steps necessary to obtain the protection may leave the solicitor acting for the vendor/assignor exposed to the risk of a claim.

This column is provided by the LEGAL PRACTITIONERS’ LIABILITY COMMITTEE, which is the professional indemnity insurer for Victorian legal practitioners and most national law firms. Apart from handling claims against lawyers, the LPLC also provides a comprehensive risk management program to assist the profession to minimise the risk of claims arising. For further information, ph 9670 2001 or visit the website


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