Australia: That's not what we thought it would mean!: negotiating a lease agreement

Last Updated: 2 February 2015
Article by Ann Spencer

It's no secret that it's a lessee's market out there and landlords are eager to entice and secure potential tenants. If you are looking for new office space, you need to be aware that even before you enter into a formal lease, you can be held to a binding agreement to lease.

Unfortunately a potential tenant recently learnt this the hard way when the District Court handed down its decision in Activ Foundation Incorporated v WBHO-Carr Pty Ltd [2014] WADC 174 on 23 December 2014. The defendant was ordered to pay $657,470.85 for breaching an agreement to lease some office space even though the parties had not executed a formal lease agreement and the defendant had not at any stage occupied the office space.

Kott Gunning comment

Proceed with caution when negotiating with landlords and/or their agents – know the effect of what you are signing and communicating to them. If you are in doubt, always seek legal advice.

Refer below for a detailed summary of the case.

Summary of facts

The plaintiff (Activ Foundation Incorporated) owned some land in Wembley, Western Australia and constructed a three-storey commercial office building with 98 parking bays (Premises). Construction of the Premises was completed in April 2011.

Sometime in 2010 the plaintiff engaged Savills (WA) Pty Ltd (Savills) as agent to market level 2 of the Premises for lease to third parties and by March 2011 a significant proportion was leased. Around about this time the Managing Director of the defendant (WBHO-Carr Pty Ltd) was instructed by the defendant's board of directors to find suitable office space.

The Managing Director viewed the unleased portion of Level 2 of the Premises twice during April 2011 in the presence of a Savills leasing agent.

After the Managing Director's second viewing of the Premises on 18 April 2011, he had a telephone conversation with the leasing agent where he was told, amongst other things, the rental price per square metre, the number of car bays available and the plaintiff's incentive of a 7 month rent-free period. The leasing agent warned the Managing Director that he better make up his mind quickly as they had other prospective tenants. The leasing agent also explained that if the defendant was interested in leasing the Premises, the defendant would have to sign an "offer to lease" and the landlord would then assess its application.

On 19 April 2011 the leasing agent emailed the Managing Director a document titled "Offer to Lease – Commercial Office Premises" (Offer to Lease).

On 21 April 2011 the Managing Director signed the Offer to Lease for and on behalf of the defendant and emailed it to the leasing agent. His signature was witnessed by the defendant's Financial Controller and just below his signature, the Managing Director wrote and initialled the following:

Offer subject to Board (WBHO) approval at scheduled meeting 9/5/11.

The Managing Director's covering email advised the leasing agent that he had been advised that the board approval would be a "rubber stamp" exercise.

The Offer to Lease was signed by the plaintiff's Chief Executive Officer on 21 April 2011 and the plaintiff advised Savills that it preferred "...this offer over the [other] offer for a range of reasons...".

By 20 May 2011 the leasing agent had not heard whether the Offer to Lease had the defendant's board's approval and so followed up the Managing Director by email. Later that day, the Managing Director responded to the email saying that "[a]ll required approvals [had] finally been communicated to [him]..." and requested that the formal lease preparations begin.

On 30 May 2011 the leasing agent emailed a copy of the draft lease and draft car parking licence for review by the defendant's lawyers. The leasing agent had earlier requested that the defendant pay 2 months' rent in advance.

On 8 June 2011 another representative of the defendant advised Savills by email that it would not be proceeding with the lease of the Premises due to the defendant's recent review of its financial performance and its view that it would not be prudent to commit to a long term lease of 5 years as outlined in the Offer to Lease. The defendant did not pay the 2 months' rent in advance.

Plaintiff's claim

The plaintiff contended that once the Managing Director communicated that there was board approval of the Offer to Lease on 20 May 2011, the plaintiff and defendant entered into a legally binding agreement whereby the defendant agreed to lease a portion of level 2 of the Premises for 5 years and to simultaneously take on a licence for 21 parking bays.

Defendant's position

The defendant contended that there was no binding agreement between the plaintiff and the defendant. Essentially, the executed Offer to Lease and confirmation of board approval was submitted to be merely an informal offer to lease the Premises which was ultimately subject to a formal binding lease agreement between the parties. In the alternative, the defendant submitted that once the plaintiff was informed of the board's approval, the agreement between the parties was only to negotiate a lease and car parking licence.

The judgment

Derrick DCJ identified the following questions for his determination:

  1. Did the signed Offer to Lease constitute a legally binding agreement once the board's approval was communicated?
  2. If the signed Offer of Lease was a legally binding agreement, was that agreement:
    • a 5 year commercial lease and a car parking licence? or
    • an agreement to negotiate a lease and car parking licence?
  1. If there was a legally binding agreement, did the defendant breach the agreement?
  2. If the defendant breached the agreement, what damages are payable to the plaintiff?

In answer to His questions, His Honour found as follows:

  1. The circumstances which surrounded the Managing Director's signing of the Offer of Lease and communication of the board's approval supported the conclusion that the Offer to Lease created a legally binding agreement between the parties. Despite the fact that the Offer to Lease envisaged further negotiations between the parties and the addition of terms, this did not lead to the conclusion that it was not intended to be legally binding.
  2. The nature and intention of the legally binding agreement was to lease the Premises to the defendant for 5 years and to grant a car parking licence. The circumstances which supported this objective conclusion included the following, amongst others:
    • The Offer to Lease was a formal document in terms of its structure and content. His Honour made mention of the fact that the approval and acceptance clauses were expressed formally.
    • The Offer to Lease began with the following words:
    • The Lessee described below hereby offers to lease from the Lessor described below the premises described below on terms and conditions as set out hereunder.
      [emphasis added]
    • The Offer to Lease was a 20-clause document which went beyond specifying the bare essentials of a lease. Notably, it did not include any term that stated the offer was subject to the parties signing a formal lease but it did include clauses in respect of the rent payable, lease term and options, the lease commencement date, rent review structure, details of variable outgoings and the date of possession for the defendant for the purpose of fitting out.
    • The fact that the defendant was actively looking for office premises and the Managing Director had inspected the Premises twice. It also took the Managing Director two days to return the signed Offer to Lease, giving him an opportunity to review the document and present any queries to Savills.
  1. The defendant breached the agreement. The defendant's subsequent notification (by email dated 8 June 2011) to not proceed with the lease was a breach of the lease agreement by repudiation. Thereafter the plaintiff accepted the defendant's repudiation and terminated the lease.
  2. In accordance with general contractual principals which apply to breach and repudiation of a lease, the innocent party suing for breach of contract is entitled to be placed in the same position as if the contract had been performed, to the extent that money can do this. The plaintiff was awarded the following damages (inclusive of interest to the date of trial):
  • loss of rent                           $421,732.45
    This figure was the difference between the profit the plaintiff made on the lease area of level 2 of the Premises (as contemplated by the Offer to Lease) and the benefit of the rent it would have made from the defendant for the whole term of the lease.  It was noted that the lease area was vacant from 11 July 2011 to 1 December 2012.
  • outgoings                              $48,671.09
    These being those amounts recoverable from a tenant such as council rates. Without a tenant, the plaintiff would have incurred those costs.
  • car park licence fees             $57,148.00
  • cost of lease preparation       $1,518.08
  • marketing costs                     $7,021.39
  • construction of corridor          $26,076.00
    This corridor was necessary to accommodate a new tenant and was an expense of the plaintiff.
  • fit out costs                            $95,303.84
    The payment of a new tenant's fit out costs by the plaintiff was necessary to secure that tenant. The plaintiff had to be sure that it was mitigating its loss. 

Total: $657,470.85

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.

Kott Gunning is a proud member of

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Ann Spencer
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”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions