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Informal Leases - “I didn’t sign a thing but yet they are saying they have a lease?!”

Posted by Dean Claughton on 10 Mar 2017

Assisted by Holly Pitt

The process of entering into a Lease Agreement can be time consuming and complex. This process can be affected by a number of factors which can result in the parties not constructing a formal written agreement. This issue is reflected in the case of Doueihi v Construction Technologies Australia Pty Ltd [2016] NSWCA 105 where an “informal tenant” was able to successfully secure a Lease through the Doctrine of Equitable Estoppel.

What is Equitable Estoppel?

The Doctrine of Equitable Estoppel restricts one party from making a legal claim that contradicts their prior actions or claims.

How does Equitable Estoppel apply?

Time and time again parties enter into contracts which are not legally binding.  This decision can be a result of the parties assuming that for example, living with someone in a domestic relationship will surely secure their agreement. This circumstance was evident in the Doueihi v Construction Technologies Australia Pty Ltd case. Construction Technologies Australia Pty Ltd’s major shareholder, Hogan, assumed that a legally binding agreement was not necessary, but rather he relied on his personal relationship with the appellant to the agreement.

However, this personal relationship had come to an end, causing significant issues when Hogan sought to legally secure the agreement and failed. Additionally, Construction Technologies Australia had incurred enormous expenses fitting out the premises in question, having done so on the presumption of a legal interest in the premises.

Construction Technologies Australia ended up with a decision in their favour in this case. Ultimately the court found that they would be able to secure the Lease based on the ability to prove that there was a presumed legal relationship that would exist.

Hence, Doueihi was stopped from denying Construction Technologies Australia’s legal interest in the premises.

What does this mean for you?

This case is a clear reflection of the issues that can arise within the formation and execution of a lease agreement, and contracts in general. 

The costs of drafting a lease agreement or a contract are minor compared to the costs of the litigation should disputes arise. Landlords should be sure to enter quality lease agreements with their tenants and moreover, ensure that any pre-existing informal agreements are put into writing.

Should you have any questions regarding the formality of your own lease, please do not hesitate to contact: