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Think before you click ‘Send’! – Your email may result in a binding lease

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By Divya Sharma, Lawyer, MST Lawyers

What you need to know

In the matter of Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASC 21:

  • The Court found that an email exchange between a tenant and a landlord’s agent created a binding agreement for lease and licence.
  • This was despite the fact that no formal lease or licence documents were signed by the parties and the parties were still continuing to negotiate the terms of the lease.

What happened? 

The tenant’s ‘office’ lease and ‘car park’ licence were due to expire on 30 June 2009. In May 2009, the landlord and tenant entered into negotiations for a new lease and licence. The landlord’s agent emailed a revised proposal to the tenant on 4 June 2009 detailing a number of lease terms including duration, rental, rent reviews, outgoings, make-good, bank guarantee, GST and terms of the car park licence. The email asked the tenant to “confirm in writing…that these terms are acceptable.” The revised proposal stated that “the Lessor’s standard Lease and Licence shall be utilised to document and [sic] agreement between the parties, and shall be prepared by the Lessor’s solicitors incorporating the relevant terms contained within this proposal”

On 10 June 2009, the tenant responded stating it was happy with the terms of the revised proposal and was waiting on sub-tenant’s acceptance. The tenant sent another email to the landlord’s agent later that day stating “We have received our sub-tenant approval of the terms as well. Please proceed with wrapping this up.”

A draft lease and licence agreement were subsequently prepared by the landlord’s solicitor and sent to the tenant on 2 July 2009. The tenant did not sign the documents and in August 2009 the tenant communicated to the landlord that it was unhappy with certain terms of the documents. There were subsequent communications between the parties however the tenant’s position was that there was no concluded agreement and it was occupying the premises on a holding over basis under the original lease and that it would be vacating soon.

What was the issue?

The question was whether the parties intended that upon tenant’s acceptance there should be a binding agreement to lease the premises and licence the car spaces. Part of the inquiry required the court to determine whether the parties expected to execute a formal lease and licence agreement to substitute the earlier agreement that would contain after negotiation additional terms by consensus.

What was held?

Making an objective assessment of the state of affairs between the parties, particularly what was said and done and having regard to the circumstances in which those statements and actions took place, the court determined that there was an immediately binding agreement that would be superseded by formal lease and licence once drafted and executed. The Court was satisfied that parties were willing to and did bind themselves to a new lease and licence. The subsequent negotiations, dealings and communication between the parties including their failure to agree upon and sign formal documents did not destroy the earlier concluded binding agreement.

What does this mean for you?

If you negotiate lease agreements or any other agreements, you must be careful in communicating with the other party. If you intend that negotiations should not be binding then you should state this clearly at the beginning and throughout the negotiations process. You should also consider adding a note to the effect that any negotiations between the parties are subject to a formal written and executed document setting out the final terms of the agreement concluded between the parties. If you fail to take such precaution you may find yourself and or your principal bound by agreements containing terms that you may not be happy with.

Obtaining legal advice at the earliest stage in the negotiation process is always recommended. In addition to drafting, reviewing and negotiating leases, MST Lawyers can help you review or draft your agreements to lease and licences. Please contact our experienced Property and Leasing team for any questions that you may have by email property@mst.com.au or by telephone +61 3 8540 0200.