Unreasonable withholding of consent by a landlord

Kids Campus Holdings Pty Ltd v Kelly [2007] VSC 282 (7 August 2007)

The Issue

When can a Landlord reasonably withhold consent to a transfer of a Lease where the legal identity of the Tenant is to change?

What happened?

A Tenant was to sell its business to a proprietary limited company and sought the consent of the Landlord to transfer the Lease.

Prior to receiving a response, the Tenant requested the Landlord's consent to a transfer of the Lease to a listed Property Trust instead. This Trust would then sub-let the premises to the purchaser proprietary limited company, which company would carry out the day to day functions of the business. The Landlord was initially silent on the matter and then refused consent 6 months after consent had been sought. Reasons for the refusal were provided only after a further 2 months.

The Supreme Court held that, although the delay in providing reasons for the refusal indicated that the refusal was not genuine or reasonable, there were factors existing at the time of refusal which would have been apparent to the Landlord at the time of the Landlord's refusal of consent.

The factors were as follows

The Court held that the refusal was reasonable, as these factors adversely affected the Landlord's financial risk by limiting the Landlord's debt recovery rights against the Trust's assets.

Practical tip

An agent should be aware that, in the situation where the original purchaser has nominated an alternative purchaser, the original purchaser continues to be bound by the contract and not the alternative or nominee purchaser.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.