The Motel Lease – Assignment

By David Burrough

Generally, a motel lease will be for a maximum term of twenty-five years, however a motel operator will, on average, only own the business for approximately 3 years.  It is therefore important for all tenants and landlords to understand how the Lease can be assigned.

Usually the Lease will provide that the tenant must not, without the written consent of the landlord:

·       sublet;  or

·       licence;  or

·       franchise;  or

·       part with possession of the motel;  or

·       assign this lease.

The Lease should require the landlord to consent to the assignment if:

·       the proposed assignee is a respectable and financially sound person who is capable of paying the rent and outgoings, and performing all other obligations under this lease, and paying for the tenant’s business;  and

·       the proposed assignee has a good reputation and business skills which, in the opinion of the landlord, will enable the proposed assignee to conduct the tenant’s business competently; and

·       any default has been remedied by the tenant or waived by the landlord;  and

·       the proposed assignee executes an instrument agreeing with the landlord to be bound by this lease as if the proposed assignee were the tenant and

·       if the proposed assignee is a corporation, any guarantee required by the landlord is provided by the directors of the corporation;  and

·       the proposed assignee provide evidence that all insurances required by the lease have been taken out;  and

·       the tenant has transferred to the proposed assignee the business name.

Generally there is also a requirements that the tenant and the proposed assignee comply with all reasonable requirements of the landlord.  This may include delivering to the landlord of a copy of all documents which evidence the amount being paid for the motel business and the level and terms of the proposed assignee’s borrowings.  A landlord will generally request:

·       two personal references (ie someone who knows the purchaser on a social basis should provide a short written letter saying what a fine, outstanding member of the community they are);

·       two business references (ie from people who have known the purchaser on a business basis who are able to confirm that the purchaser’s dealings with them have been professional);  and

·       a statement of assets and liabilities.

Tenants should be aware that the assignment provisions in their Lease will apply if the tenant is a corporation and any persons who own a majority of shares in the corporation disposes of those shares.

Obtaining the consent of the landlord is very similar to obtaining the consent of the Body Corporate to an assignment of the Management Rights.  The process of obtaining the landlord’s consent can take some time, particularly if the landlord wishes to meet with the prospective assignee.  Purchasers looking at buying a leasehold motel can assist this process by having their resumes and references ready.