Assigning Your Practice Lease When You Sell

When a medical, dental or allied health practice sells, the buyer is paying for patients, systems, staff and a location. The location is usually leased, which means the sale depends on a third party who is not at the negotiating table: the landlord. Assignment of the lease is the step that most often holds up settlement, and the reason is almost always that nobody started it early enough.

Assignment, not a new lease

There are two ways to move premises to a buyer. An assignment transfers your existing lease, with its remaining term, its rent, its options and its accumulated history, to the purchaser. A surrender and regrant ends your lease and the landlord grants a fresh one to the buyer on whatever terms it can negotiate.

Assignment is usually better for the vendor, because the buyer inherits terms you already negotiated and the landlord has limited scope to change them. A regrant is often what the landlord would prefer, because it is an opportunity to reset the rent, strip out an option and tighten the make good clause. If your sale contract allows the landlord to insist on a regrant, you have handed over a large part of your bargaining position, and the buyer may reprice the practice once it sees the new terms.

What the landlord can and cannot do

Virtually every commercial lease prohibits assignment without the landlord’s consent. The important question is what qualifies that prohibition. Most leases, and in the case of a retail lease the governing legislation, provide that consent cannot be unreasonably withheld. That is a meaningful protection, but it is not a free pass: the landlord is entitled to be satisfied about the incoming tenant.

In practice the landlord will want to see financial information about the purchaser, evidence of relevant experience and qualifications, details of any proposed guarantors, and confirmation that the use will not change. It is generally entitled to its reasonable legal and administrative costs of dealing with the request. What it is generally not entitled to do is demand a rent increase, a longer term, a larger bank guarantee or the removal of an option as the price of consent, though landlords try this regularly and vendors under settlement pressure often concede it.

Where the lease is a retail premises lease, there is a prescribed process with disclosure obligations and timeframes, and a deemed consent consequence if the landlord simply does nothing within the statutory period. Whether your lease is a retail premises lease is not always obvious for medical and allied health tenancies, and the answer changes your rights significantly. Our note on retail versus commercial leases sets out where the line falls.

You may not walk away clean

This is the point vendors most often miss. Assigning a lease does not automatically release you. Unless the deed of assignment expressly releases the outgoing tenant and any guarantors, you may remain liable for the obligations of the lease for the remainder of the term, including rent the purchaser fails to pay and make good at the end. If you personally guaranteed the lease, or your spouse did, that guarantee can survive the sale.

For retail premises leases, legislation provides a release in defined circumstances where the proper disclosure process has been followed, which is one more reason to follow it precisely. Outside that, a release is a matter of negotiation. Ask for it expressly, in writing, in the deed. If the landlord will not give a full release, the fallback positions worth pursuing are a release limited to obligations arising after the assignment date, a cap on your residual exposure, an indemnity from the purchaser supported by something of substance, and a release of the personal guarantees even if the corporate liability continues.

The practical sequence

Assignment runs on the landlord’s timetable, so the only real lever is starting early. A sensible order of events looks like this:

1. Before you go to market, read your own lease. Confirm the remaining term, whether any option survives, what the assignment clause requires, whether the bank guarantee transfers, and whether a make good obligation has been triggered.
2. Resolve any existing breaches. Unapproved alterations, an outstanding rent review or an expired insurance certificate all give the landlord a legitimate reason to slow the process down.
3. Make the sale contract conditional on landlord consent to assignment on terms acceptable to you, with a realistic date and a right to terminate if consent is refused.
4. Lodge the consent request with a complete information pack from the purchaser the moment the contract is signed. Incomplete requests restart the clock.
5. Negotiate the deed of assignment and the release in parallel with the sale documents, not after them.

Where the practice also owns or occupies premises under a licence or service arrangement rather than a lease, the transfer mechanics differ again, and those documents need their own review. We cover that in our note on room licences and service agreements.

If the lease is short

A practice with eighteen months left on its lease and no option is worth materially less than the same practice with a secure ten-year tenure, because the buyer is acquiring goodwill attached to a location it may lose. If you are planning a sale in the next few years, the single most valuable thing you can do is extend or renew the lease first, while you are still the tenant with a trading history and the landlord has no idea a sale is coming. Negotiating tenure as a vendor under time pressure is the weakest position available.

We act for practitioners on practice sales, lease assignments and landlord negotiations across Melbourne, with pricing disclosed before you engage us so there are no surprises. Book a free first consultation, or read about our property and leasing work. Our legal checklist for buying or selling a practice covers the rest of the transaction.

Frequently asked questions