When you sell a business that operates from leased premises, the lease doesn’t end — it has to go somewhere. In most cases, it transfers to the buyer through a process called assignment: the tenant changes, the lease terms stay the same, and the landlord has to approve it. In Australia, lease assignment is a legal right in most commercial and retail leases, but that right comes with conditions — and those conditions are where a surprising number of business sales run into trouble.
Here’s what you need to know before you go to market.
What Is a Lease Assignment?
A lease assignment is the legal transfer of your rights and obligations as a tenant from you (the vendor) to the buyer. When settlement completes, the buyer steps into your shoes: they take on the remaining term, the rent, the make-good obligations, and any personal guarantees embedded in the original lease.
Assignment is distinct from a surrender and re-lease, where the existing lease ends and the landlord issues a new one directly to the buyer. Surrender can happen when a tenant and landlord agree to start fresh — but it gives the landlord the opportunity to reset rent and terms, which rarely helps the seller.
In practice, most Australian business sales with leased premises go via assignment. The buyer gets certainty — the same lease, same terms, same protections — and the vendor exits cleanly. Whether that exit is fully clean depends on secondary liability, which we’ll get to shortly.
Getting Landlord Consent
Landlord consent sits in the critical path of most business sales. Most commercial and retail leases require a formal assignment application — submitted to the landlord, reviewed against their criteria, and approved (or rejected) in writing. Plan for four to six weeks from application to formal approval under most circumstances.
What landlords can reasonably require before approving an incoming tenant:
- Financial statements demonstrating the buyer can service the rent
- Business plan or brief showing relevant experience and intentions for the site
- Personal guarantees from the buyer’s principals or directors
- Evidence of relevant licensing (particularly relevant in hospitality, healthcare, and licensed trades)
- Payment of the landlord’s reasonable legal costs for processing the application
What landlords generally cannot do — in most Australian jurisdictions — is use the assignment as an opportunity to renegotiate the lease. They can’t impose new conditions not in the original lease, extend the make-good obligations, or reset rent to market. And they can’t withhold consent unreasonably. If they try, your solicitor will identify that quickly, and the remedy is usually available through state tribunal or court.
In Western Australia, non-retail commercial leases are governed by the Property Law Act 1969; retail leases fall under the Commercial Tenancy (Retail Shops) Agreements Act 1985. Each sets out what the landlord can and can’t require. Know which applies to your lease before you approach them.
The Deal That Nearly Didn’t Happen
I’ve seen lease issues sink deals that had no business being sunk. A Perth-based manufacturer — good business, clean financials, strong EBITDA — had a signed sale agreement at $2.3 million, a buyer with bank pre-approval, and a six-week settlement window. Three weeks in, the landlord knocked back the assignment. The incoming buyer had strong financials but no industry background in light manufacturing, and the landlord decided that wasn’t good enough (which was, arguably, an unreasonable position — but these things take time to argue).
The deal survived eventually, but not before three months of renegotiation, a price reduction, and a very tense few weeks for everyone involved. The seller had started the landlord process after the sale agreement was signed. Starting it the moment the buyer was identified — or earlier, during preparation — would have changed the outcome significantly.
Treat landlord consent as a parallel track to due diligence, not a downstream step.
Secondary Liability: The Risk Nobody Mentions
Here’s something that catches a lot of sellers off guard. In many leases — and under some state legislation — assigning your lease doesn’t fully release you from it. The outgoing tenant can remain secondarily liable for the duration of the remaining term. That means if your buyer stops paying rent, the landlord can come after you.
Whether secondary liability applies to your situation depends on the specific lease language, the state you’re in, and whether the landlord has agreed to a formal release. It’s most commonly seen in longer commercial leases and in situations where the landlord negotiated the lease with you specifically.
If secondary liability applies and you’re also considering vendor finance (where you’re effectively financing the buyer’s purchase), the combined risk profile deserves serious attention. Your solicitor should be advising you on this before you sign anything — not explaining it to you after the fact.
What If Your Lease Has Expired — or Is About to?
If you have less than twelve months remaining on the lease at the time of sale, buyers will be nervous. Location risk is real, particularly in retail, hospitality, and any business where the premises are central to its value — cafes, gyms, specialist service businesses.
A lease with three or more years remaining — or a formal option to renew — is a different conversation to one with eight months left. I’ve seen this difference account for 20 to 30 percent of the agreed sale price in hospitality businesses in Perth, where the site itself is half the business. Buyers don’t pay full value for something they might lose within a year.
If your lease is due for renewal before you plan to sell, the advice is simple: renew it first, ideally with an option term attached, then sell. It adds months to your timeline but is one of the cheapest and most reliable ways to lift the sale price. An option to renew, properly documented, costs you a solicitor’s fee and a conversation with the landlord. Leaving that step undone can cost you several hundred thousand dollars at settlement.
If the lease has already expired and you’re running month-to-month, you’ll need to negotiate a new one before or concurrent with the sale — or accept that buyers will discount for the uncertainty. Some buyers see an expired lease as leverage to renegotiate terms themselves, which can work in their favour but weakens your position.
How the Lease Affects Your Business Valuation
Lease tenure and rent cost feed directly into what your business is worth.
As a cost: above-market rent runs through your normalised EBITDA and reduces the profit figure buyers use to calculate value. A business paying $40,000 per year more than market rent is carrying that gap in every scenario buyers model. It comes off the top.
As a risk: a short lease remaining — or an uncertain landlord — reduces the multiple buyers are willing to apply. A business generating $600,000 in normalised EBITDA might attract a 4x multiple with five years of lease plus options, or a 2.5x multiple if the lease has eight months left. Same business, same profit, different risk profile — and a difference of $900,000 in what you walk away with.
The combination of above-market rent and a short remaining term is the worst of both. I’ve seen it knock a business’s achievable sale price almost in half. (The owners were surprised. They shouldn’t have been — but the lease had never come up in our earlier conversations, and by the time it did, there wasn’t enough runway to fix it.)
Our business valuation calculator gives you a starting point for estimating your business’s value. How your lease sits will affect where you land within the range.
Before You Go to Market
Pull your lease out and read the assignment clause before you appoint an advisor or speak to any buyers. The key things to check:
- Does assignment require landlord consent? Almost always yes — but the conditions vary.
- How much term is remaining, including options? If less than two years, prioritise renewal.
- Are you paying market rent? If not, understand how the gap flows into your valuation.
- Is there a personal guarantee? Will it fall away on assignment, or does it survive?
- Is there a secondary liability clause? Does assigning the lease actually release you?
The time to identify problems with your lease is not during buyer due diligence. It’s in the preparation stage, six to twelve months before you go to market — when there’s still time to do something about them. The M&A process runs faster and cleaner when the lease is sorted before the business is on the market.
If you’re wondering how your lease affects what you can realistically achieve from a sale, get in touch with Miro Capital. We work with business owners across Australia through the full sale process, and the lease question comes up on almost every transaction we run.
FAQ
Is it better to sell a business with a lease?
Yes, in most cases. A secure lease with term remaining is a genuine asset — it gives buyers certainty of location and makes the business easier to finance. The risk is an expiring or above-market lease, which buyers price in heavily. If your lease situation is weak, fixing it before you sell is usually worth the effort.
Can a commercial lease be transferred when selling a business?
Yes. Most Australian commercial and retail leases allow assignment to a buyer, subject to landlord consent. The landlord can set reasonable conditions around the incoming tenant’s financial capacity and experience, but cannot use the process to reset rent or impose conditions not in the original lease.
Who prepares a transfer of lease?
The vendor’s commercial solicitor typically prepares the assignment documentation. The buyer’s solicitor reviews it. The landlord’s solicitor may prepare a deed of consent if the landlord requires formal approval. Costs vary but are usually shared between parties.
How do you transfer business ownership in Australia?
It involves a signed business sale agreement, transfer of assets or shares, employee entitlements, any required regulatory notifications, and — for businesses on leased premises — assignment of the commercial lease. A corporate advisor and commercial solicitor manage the coordination. The lease assignment is often the step with the longest lead time.
How do I avoid capital gains tax when selling a business?
The small business CGT concessions can significantly reduce your tax. The 15-year exemption, 50% active asset reduction, retirement exemption, and rollover relief each have eligibility requirements based on your structure, net assets, and the nature of the sale. See our guide on tax on selling a business in Australia and get advice from a specialist before you negotiate a price — the structure of the deal matters as much as the number.