do I have a lease – or just an agreement to agree?
3 mins reading time
When dealing with Property matters, we often witness how agreements and promises can be misconstrued and eventually contested. The importance of a lease is a tale as old as time and a lease, by any other name, is not really a lease.
Take the heavily negotiated Agreement to Lease between 400 George Street and BG Limited for example. The Agreement to Lease fell over after the tenant signed what purported to be a “deed” but then withdrew before the landlord accepted. In 2017, there was Crown Towers Melbourne v Cosmopolitan Hotel – a sad case of the tenant relying on what they thought was a landlord’s “promise” to extend their Lease.
Ausko Corporation v Junapa 2021 NSWSC 615 is a case, echoing the issues of the matters above, where a tenant thought they had an agreement for a new lease but were subsequently served with a notice to vacate.
when is a lease indeed expired
The facts of the matter were straightforward with Ausko occupying premises pursuant to a lease for 5 years. On expiry, Ausko elected not to exercise its option but subsequently negotiated new terms and continued in occupation paying rent. The Landlord elected to terminate asserting the lease had expired.
The Landlord asserted that a concluded agreement (given the expiry of the old lease) was not reached because, even if essential terms were agreed, many commercial matters remained outstanding, and the procedural requirements of the Retail Shop Lease Act 1994 had not been satisfied. The Court agreed finding, among other things, that the tenant could not argue the “commercial terms” were sufficiently set out in the now expired lease.
lessons learned: defining a lease
What do the three cases mentioned above have in common? In every case, the landlord or tenant argued an agreement had been reached either, because the terms were negotiated and set out in a “deed”, or a promise had been made or the essential terms were agreed to in a series of emails.
A lease is just another form of contract. It is possible to reach a binding agreement by email exchange but the terms must be clear and agreed. As with any contract, the person seeking to enforce the lease must satisfy a Court that the terms were agreed and both parties intended to be bound.
implications for landlords
For landlords, this means a simple agreement for lease will often be insufficient as not including all relevant terms and made more complex in retail by the need to comply with relevant State Retail Shops legislation.
implications for tenants
As a tenant, the value of your business is often tied to the term of your lease, so including an option is important. If not available, then:
- negotiate early for a new lease and reduce it to writing; and
- don’t rely on “promises”.
If negotiating for a “new” lease, the Court will not readily accept that the terms of the “old” lease apply despite the essential terms being agreed.
As a final word of caution, over 50% of suburban commercial and industrial leases are documented on simple commercial tenancy agreements – with no legal input. While this may save a few dollars at the outset, the likelihood of a party losing badly, due to what they assumed an agreement said, makes investment in professional advice seem well worth it.
If you have would like professional advice on the terms of your lease, or if any of the above cases resonated with you, contact the Macpherson Kelley Property team.
more
insights
stay up to date with our news & insights
do I have a lease – or just an agreement to agree?
When dealing with Property matters, we often witness how agreements and promises can be misconstrued and eventually contested. The importance of a lease is a tale as old as time and a lease, by any other name, is not really a lease.
Take the heavily negotiated Agreement to Lease between 400 George Street and BG Limited for example. The Agreement to Lease fell over after the tenant signed what purported to be a “deed” but then withdrew before the landlord accepted. In 2017, there was Crown Towers Melbourne v Cosmopolitan Hotel – a sad case of the tenant relying on what they thought was a landlord’s “promise” to extend their Lease.
Ausko Corporation v Junapa 2021 NSWSC 615 is a case, echoing the issues of the matters above, where a tenant thought they had an agreement for a new lease but were subsequently served with a notice to vacate.
when is a lease indeed expired
The facts of the matter were straightforward with Ausko occupying premises pursuant to a lease for 5 years. On expiry, Ausko elected not to exercise its option but subsequently negotiated new terms and continued in occupation paying rent. The Landlord elected to terminate asserting the lease had expired.
The Landlord asserted that a concluded agreement (given the expiry of the old lease) was not reached because, even if essential terms were agreed, many commercial matters remained outstanding, and the procedural requirements of the Retail Shop Lease Act 1994 had not been satisfied. The Court agreed finding, among other things, that the tenant could not argue the “commercial terms” were sufficiently set out in the now expired lease.
lessons learned: defining a lease
What do the three cases mentioned above have in common? In every case, the landlord or tenant argued an agreement had been reached either, because the terms were negotiated and set out in a “deed”, or a promise had been made or the essential terms were agreed to in a series of emails.
A lease is just another form of contract. It is possible to reach a binding agreement by email exchange but the terms must be clear and agreed. As with any contract, the person seeking to enforce the lease must satisfy a Court that the terms were agreed and both parties intended to be bound.
implications for landlords
For landlords, this means a simple agreement for lease will often be insufficient as not including all relevant terms and made more complex in retail by the need to comply with relevant State Retail Shops legislation.
implications for tenants
As a tenant, the value of your business is often tied to the term of your lease, so including an option is important. If not available, then:
- negotiate early for a new lease and reduce it to writing; and
- don’t rely on “promises”.
If negotiating for a “new” lease, the Court will not readily accept that the terms of the “old” lease apply despite the essential terms being agreed.
As a final word of caution, over 50% of suburban commercial and industrial leases are documented on simple commercial tenancy agreements – with no legal input. While this may save a few dollars at the outset, the likelihood of a party losing badly, due to what they assumed an agreement said, makes investment in professional advice seem well worth it.
If you have would like professional advice on the terms of your lease, or if any of the above cases resonated with you, contact the Macpherson Kelley Property team.