Queensland’s Property Law Act: What Business Owners Must Know About Guarantor Liability on the sale of Business.
The commencement of the Property Law Act 2023 (Qld) marks one of the most significant shifts in Queensland’s leasing framework in decades. While the Act is broad in scope, one reform in particular is already reshaping how small business owners, franchisors, and commercial tenants approach lease assignments: the rules governing when a tenant and their guarantor are released from liability.
Under the former regime, release provisions were often governed solely by contract wording and landlord discretion. By contrast, the new statutory framework creates a clearer path to release.
Old Position:
Prior to the reform, a tenant and guarantor remained liable for the term of the lease even if their buyer onsold the business. These are for lease that are not retail shops governed under the Retail Shop Leases Act 1994 (Qld).
The New Position: Release Only Upon a “Subsequent Assignment”
Under the reforms applying from 1 August 2025, an original tenant and any guarantor are not automatically released when they assign the lease to a buyer of their business. Instead, they remain liable unless and until the assignee later assigns the lease again. Only at that point—when the buyer on‑sells—does the release occur.
Put simply:
You’re not out of the lease until your buyer is out of the business.
Practical Impact on Business Owners
- Increased Risk Exposure During Business Sales
When selling a business, outgoing tenants commonly expect to be released on settlement. Unfortunately this is not the case and Sellers can remain exposed for years—potentially until the buyer sells the business or assigns the lease.
This means vendors must carefully consider the financial reliability and long‑term plans of the incoming tenant. A poorly performing buyer who never on‑sells could leave the original tenant and their guarantor exposed for the entire remaining term of the lease which could equate to unexpected costs for the seller of the business.
- More Complex Negotiations With Buyers and Landlords
This aspect of business sales is often overlooked. Sellers should seek contractual protections—such as indemnities from the assignee, security deposits, or insurance obligations—to offset the delay in obtaining release. Buyers, aware of their enhanced leverage, may resist such conditions.
Landlords, on the other hand, are generally reluctant to grant a release of the seller. This should ideally be negotiated at the time you enter the Lease or at least be explored to secure a release at the point of settlement. The reform does at least provided a potential earlier release date if the buyer on-sells.
It should be noted if the lease has an option and the buyer exercises the option, the seller is also released at that point.
Conclusion
The new statutory release mechanism marks a change in Queensland’s leasing risk profile. However, Business owners still cannot treat the sale of their business as the end of their lease obligations. They must adopt more cautious due‑diligence practices, tightly drafted sale agreements, and clearer risk‑management processes.
The change brought in by the Property Law Act 2023 in relation to the release of tenants and guarantors is welcomed to provide an end date on going liability if there a further subsequent sale of the business. Proper planning on the management of this risk is essential to maximize the opportunity to obtain a release. This will involve negotiations with the landlord sooner rather that later in the sales process. A seller should seek legal advice with an experienced lawyer to make sure time frames and processes are met under the lease or legislation to make sure the tenant and any guarantor are released under the lease where they should be and is not overlooked.
For more information contact Pacific Law at info@pacificlaw.com.au
