The Facts

Lease due to expire and negotiations for a new lease begin

A case heard recently in Western Australia concerned a dispute between a landlord and a tenant of commercial premises in Perth.

The tenant had occupied the premises for six years and its lease was due to expire on 30 June 2009. In May 2009, the parties began negotiations for a new lease.

Proposals sent and email negotiations ensue

An initial proposed lease was rejected by the tenant and on 4 June 2009 the landlord's agent sent an email to the tenant attaching a revised proposal. The email stated: "Can you please confirm in writing that this proposal is acceptable to [the tenant] and we will arrange for [the landlord's] solicitors to prepare the draft documentation".

Various emails were then exchanged. Ultimately the tenant confirmed by email on 10 June 2009 that it was "happy with the terms of the proposal" and asked that the agent "[p]lease proceed to wrap this up".

Formal documents prepared but tenant slow to review

The agent instructed the landlord's solicitors to prepare a draft of the formal lease documents and these were subsequently sent to the tenant on 2 July 2009. In preparing the documents, the solicitors had noticed an error in the revised proposal regarding the licence fee for six car bays included with the lease and had corrected it. Also, unlike the original lease, the new draft lease contained no options to renew.

By this time the original lease had expired but the tenant continued to occupy the premises. After a long delay, the tenant replied on 8 September 2009 that it was not happy with the "make good" clause contained in the draft lease. The tenant suggested an alternative clause, which was rejected by the landlord.

Tenant announces intention to vacate premises and landlord sues

A short time later, the tenant wrote to the agent stating that since no concluded agreement on the new lease had been reached, their occupation of the premises since 30 June 2009 had continued based on the holding over clause in the original lease and, in accordance with that clause, they were giving notice that they would vacate the premises in one month.

The landlord brought a claim for damages against the tenant. It was up to the court to determine whether, by the exchange of emails, the parties had intended to create a legally binding relationship notwithstanding that formal documents had not yet been agreed.

case a - The case for the landlord

case b - The case for the tenant
  • The tenant was very familiar with the premises and had dealt with the agent for some years so there was a level of trust between us during the negotiations.
  • After the original lease expired, the tenant was not trying to locate alternative premises nor were we trying to find an alternative tenant.
  • The revised proposal contained all the essential terms legally necessary to create a valid lease.
  • The email exchanges show that both parties intended to be immediately bound by the terms of the revised proposal as soon as the tenant accepted them, with those terms to be substituted by a formal lease in due course.
  • When the tenant accepted the revised proposal, a binding lease agreement was therefore created and the tenant should pay us damages for its breach of that lease.
  • The licence fee payable for use of the six car bays and the "make good" clause were essential terms of any lease and were never agreed between the parties. There had been no "meeting of the minds" on these important items.
  • Indeed, we would never have accepted the revised proposal if it had specified the licence fees later contained in the draft lease documents and if it had contained no option to renew.
  • It was the intention of the parties that a concluded bargain on the new lease would not be reached unless and until formal documents were executed.
  • Formal documents were never executed and we are not in breach of any new lease.

So, which case won?
Cast your judgment below to find out

Vote case A – The case for the landlord
Vote case B – The case for the tenant

Nathan Heard
Business disputes and litigation
Stacks Heard McEwan

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.