Astra Homes Pty Ltd v Longsine Pty Ltd [1996] RSLT 3

___________________________________________________________________________ [1996] RSLT 3 RETAIL SHOP LEASES ACT In the matter of Dispute No 22 of 1996 ASTRA HOMES PTY LIMITED - Claimants -and- LONGSINE PTY LIMITED - Respondent DECISION Given on Tuesday, 4 June 1996 in Brisbane _____________________________________________________________________________ _ -- 1 of 3 -- 2 The question involved in this dispute is whether the Landlord has reasonably or unreasonably refused to give its consent to the subletting of the premises concerned. The lease between the parties contains a specific provision dealing with assignment and subletting. The relevant portions are set out in paragraph d (i), (ii), (iv) of the lease. We do not set them out again but we refer specifically to paragraph d (ii) which provides that: The lessor may require from the assignor or any guarantors of the assignor, a deed containing a covenant that the assignor will indemnify the lessor against any loss due to the default of the assignee or his assigns under the lease. The lessor's insistence of such a covenant shall not be construed as unreasonably withholding consent. This has to be contrasted with paragraph or clause 17 (ix) which provides: The original guarantors of the lease shall not be responsible to indemnify the lessor against any loss due to the default of any assignee of this lease. Notwithstanding anything herein before contained, any subsequent guarantors of any subsequent assignees shall be personally responsible to indemnify for any loss due to the default of any subsequent assignee of this lease. We were told that the Claimant Company is the franchisor of retail outlets or concerned with the business of video leasing. The practise of the Claimant is apparently to set up businesses and then dispose of the business, coupled with the Franchise Agreement and obviously, the Claimant would not wish to remain bound for any default of the subsequent assignee. This specific clause would, in our opinion, take precedence over the general provisions contained elsewhere in the lease. The effect of the assignment would therefore be to release the Claimant from any further liability. Material has been put before us to show that the Claimant, before agreeing to an assignment to one Halford, complied with the provisions of clause D (iii) (a) to (d) of the lease. The mere fact that compliance did not prove that the proposed assignee was a reasonable person to put in as assignee, having all the information, the lessor, that is the Respondent, still has the right to refuse an assignment to any person which, in the lessors' reasonable opinion, is not reasonably commercially acceptable as a tenant. We have examined the material before us. The proposed assignee, Mr Halford, has had some experience in retail trade. He has apparently paid all rentals subsequent to entering in possession, that is for a period for something like eight months, and he apparently raised some $50,000 to pay for the franchise fee, but outside the particular business, he is virtually without assets. The potential liability under the lease has a maximum of -- 2 of 3 -- 3 something like $180,000 but probably has a commercial risk not exceeding something in the nature of $10,000 to $20,000. We think that in normal commercial practise, a landlord is entitled to expect that a future tenant would have assets outside the business which he is acquiring to meet a reasonable commercial loss. In this particular case, there is no evidence to suggest the existence of such outside assets. On the contrary, it appears to us that they do not exist. Looking at it from purely from the point of view of reasonable commercial practise, we think that a landlord is justified in withholding its consent to an assignment of a business of this type to a proposed assignee, having the asset backing limited to that which the proposed assignee has. For this reason, we have come to the conclusion that the landlord was reasonable in withholding consent and we dismiss the application. P. Loewenthal J. Chairman -- 3 of 3 --