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Retail Leases |
"Entry into possession or payment of rent may begin a lease even though there's no formal deed or lease agreement." |
The very common practice of making clear, written offers of lease, or re-lease, may have surprising and unexpectedly binding consequences. |
A recent case found that a lease for the minimum five year term arose out of a 'letter of offer' which most observers would have assumed to be clear enough to ensure that no binding lease automatically resulted. |
The letter stated: "Acceptance of this offer by the lessor will not in any circumstances create a legally enforceable lease between the parties ... no agreement will be legally enforceable unless acceptable and executed by both parties". |
The letter also referred to itself as "this application to lease". The letter of offer went into substantial detail on the new space, the rent, the term and option, guarantees, insurance, lessee's fit out, and period of unoccupancy during construction. It also called for the payment of a $5,000 deposit, to be credited to the rental account if the lease went ahead, and to be refunded if the lessee did not proceed. One of the applicants signed the letter and handed over a cheque for $5,000. |
Other prospective occupants withdrew, and the lessor decided not to proceed. The deposit was returned and the lessor eventually served a notice to quit. |
However, the applicant claimed there was a lease. |
The tribunal which considered the case found that commencement of a lease by virtue of entry into possession or payment of rent may occur even though no formal deed or agreement of lease is executed, so long as the parties have reached 'consensus' on the terms of the lease. It is not necessary for the parties to reach agreement on all the terms of the right of occupation to do this |
The evidence of consensus was the detailed letter and its acceptance evidenced by signature. (The payment appears not to have been relevant.) It may well follow from the decision - at least where there is a tenant holding over - that a verbal acceptance of such a written offer would also establish consensus. |
In relation to tenants who occupy in accordance with a holding over provision, a landlord's agent would be well advised to not make or originate any written offer at all, and to commence every face-to-face negotiation with clear indications that the only offer of lease which will be made will be contained in a draft lease to be sent by solicitors acting for the lessor. |
There would appear to be no reason why similar reasoning would not apply to prospective tenants who tender the first month's rent with an indication of acceptance in response to a letter containing details of a proposed lease. |
