It is common practice in lease negotiations for the parties to
begin by informally negotiating the major lease terms. When the
parties reach consensus on these major terms, they execute an offer
to lease. Such offer may be binding or non-binding. A
binding offer to lease is a contract itself and is
enforceable. Both parties should carefully consider whether
they want the offer to be a binding agreement. Ensuring that
an offer is non-binding will generally require specific language in
the offer and the avoidance of certain conduct by the parties after
the offer is signed.
An offer to lease is considered to be binding if: (a) it
contains the essential elements of a lease and (b) the parties have
demonstrated an intention to be bound by the offer.
Essential elements of a lease
The essential elements that must be set out within an offer to
lease or a lease, and upon which there must be agreement between
the parties for the agreement to be binding, are as follows:
a description of the premises;
the identities of the parties;
the amount of rent to be paid;
the commencement date of the lease;
the term of the lease; and
other material elements (including applicable covenants,
conditions, exceptions or reservations).
Intention to be bound
The intention of the parties to enter into a binding agreement
may be made clear by the words of the offer, the actions of the
parties during negotiations and the actions of the parties after
the offer to lease is signed. If a judge has to determine whether
there was an intention to be bound, she makes this determination
from an "objective" perspective, meaning that the
intentions of the parties are determined from the perspective of a
reasonable person without consideration of what the landlord and
tenant may later claim they intended.
When the offer to lease does not indicate that it is binding or
non-binding, the actions of the parties help the court determine
the objective intentions of the parties. For example, if a tenant
spends significant time and effort preparing and moving into the
premises, the court will generally interpret this as an intention
for the lease to be binding.
If an offer to lease explicitly states that it is either binding
or non-binding such statement is usually conclusive of the
intention of the parties. However, it is possible that
despite an offer to lease including a provision that it is
non-binding, a court could conclude that the actions of the parties
objectively indicate that they intended to be bound by the offer.
Therefore, it is important for landlords and tenants to ensure
their actions are consistent with a non-binding agreement.
What if the offer to lease is non-binding but the tenant has
If the offer to lease is binding, or is found to be binding by
court, then its terms will govern the tenancy for the term set out
in the offer.
However, if the offer is non-binding, at common law, a person
who takes possession of a leased premises and pays rent under an
unenforceable agreement may be considered to be a periodic tenant
from month to month or year to year depending on the
circumstances. This creates a lot of
uncertainty for both parties, but can be avoided with carefully
drafted terms in the offer to lease and by ensuring the lease is
executed prior to the landlord giving or the tenant accepting
possession of the premises.
Tips for parties when entering into a lease:
Ensure the offer to lease clearly states the parties'
intention that the offer be binding or non-binding.
To ensure a non-binding offer to lease remains non-binding,
consider leaving an essential term out of the offer to lease
– For example, set the rent within a certain range
instead of a set number.
Include a provision in a non-binding offer to lease that
says the parties will negotiate and execute a formal lease prior to
the granting of possession of the premises.
Execute the lease before the tenant moves into the
Trading Inc v EB Engineered Panels and Controls Inc, 2011 NBCA
29 at para 14.
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.
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