Can a lease become binding before both parties sign the lease?
A recent decision in the Supreme Court of NSW (Wayne Edward John Streat v Fantastic Holdings (2011)) illustrates the fact that a lease can become binding even when only one of the has signed the document.
In this case, the lessor and lessee had negotiated a new lease over the course of a few months. Both parties finally reached an agreement, culminating in the lessee signing the lease and forwarding it to the lessor for execution. However, the lessor changed his mind about entering into the lease and refused to sign the document, leaving the lessee to seek an order from the court forcing the lessor to sign the lease.
The Decision
The Court subsequently ordered that the parties had already entered into a binding agreement, and that the execution by the lessor was inevitable and a mere formality.
In coming to this conclusion, the Court looked at the negotiations and the intentions of the parties, and decided that the parties agreed to bind themselves on agreement of the commercial terms of the lease. There was nothing else to do aside from signing the document, and the lessee was therefore entitled to an order forcing the lessor to sign the lease.
This decision by the Supreme Court highlights the need for parties to be aware that agreements can become binding before execution by both parties. If a lease is negotiated and agreed upon, one party cannot simply change their mind and decide not to go ahead with the lease. If they try to do so, it is probable that a Court will hold that a binding agreement has already come into place.
Given this precedent, it is critical that you understand exactly what you are agreeing to during your lease negotiations and the impact it might have on your business in the future. Expert legal advice can help you to see the bigger picture and avoid mistakes.
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