A recent NSW Court of Appeal decision about a prospective tenant
withdrawing from negotiations of a proposed lease is a reminder of
the need for parties to clearly communicate at the outset that they
do not intend to be legally bound by any negotiations.
Whilst this is a case involving the negotiation of terms of a
lease, it is equally applicable to all commercial negotiations.
BBB Constructions Pty Ltd (BBB) owned land that
had been approved for residential and commercial development. In
June 2006, Aldi Foods Pty Ltd (Aldi) sent BBB a
proposal to lease a part of the commercial development from which
it would operate a supermarket. Aldi's proposal clearly stated
that '[the] offer was subject to Aldi Board
The area that Aldi proposed to lease included a second basement,
which was not a part of the original plans of the development. If
the parties agreed to a lease, BBB would be required to amend the
plans to accommodate the new Aldi supermarket.
Negotiation of the terms of the proposed lease continued over
the next 12 months. Aldi indicated to BBB on a number of occasions
during this time that the agreement to lease would be signed
imminently. BBB also incurred significant expense in commencing
construction of the second basement.
In about May 2007 (possibly as a result of frustration with
Aldi), BBB began negotiating with IGA in respect of a lease of the
same premises. These negotiations were ultimately unsuccessful.
BBB issued final documents to Aldi in July 2007. Aldi's
board did not approve the tenancy, and informed BBB that it would
not proceed with the agreement to lease.
BBB commenced proceedings in the Supreme Court of New South
Wales, alleging that it had incurred costs in reliance on
Aldi's representations, and that Aldi acted unconscionably
and/or had misled or deceived BBB.
The Supreme Court found in favour of Aldi and BBB appealed the
decision to the NSW Court of Appeal. In dismissing the appeal, the
Court held unanimously that:
BBB knew that the proposal was subject to Aldi board
the approval of the Board was not a 'mere
BBB's conduct (in particular its negotiations with IGA) was
inconsistent with its claim that it relied on Aldi's
representations. Accordingly BBB was not misled or deceived;
Aldi's conduct was not unconscionable because BBB was a
commercially sophisticated party which was able to safeguard its
own interests. Any expense incurred in constructing the second
basement was for BBB's own commercial advantage.
This case serves as a reminder to parties to negotiations that
they must be very clear at the outset that they do not intend to be
legally bound by any negotiations.
When negotiations commence, parties should state in writing at
which point an agreement will be reached, for example 'we
will not be legally bound by any agreement until final documents
are executed by both parties and exchanged'.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Council announced planning policies to encourage more inner suburban retirement village and aged care development.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).