A commercial leasing nightmare: Informal dealings can be binding!

Dean Claughton

You have probably heard some horror stories about people not reading the complete terms of a lease and ending up in a drawn out legal battle which costs more money than it is worth. Commercial leases are no different – you can be locked into a lease without even signing any paperwork.

Here’s a case study about Priolo Corporation Pty Ltd (Priolo) who learnt this lesson the hard way.

Commercial property owner, Priolo, leased a property to Vantage Systems Pty Ltd (Vantage), which included six car parking spaces.

With the original lease due to expire, discussions began about a new lease and Priolo emailed a proposal to Vantage, later revising it for Vantage to consider.

The revised proposal covered all typical lease details but mistakenly set the car parking licence fee at $375 per car space per annum, instead of $375 per month for each space. Vantage noticed the mistake but didn’t draw it to anybody’s attention.

This in itself is a warning to lawyers and clients alike – make sure all details are correct! When situations like this arise you can’t rely on the ethics of the other party, especially if the lease (as in this instance) works in their favour.

In this case, there was a subsequent dispute about whether or not the two companies were bound under the revised proposal.

The Court of Appeal held that Priolo and Vantage had intended to be bound as soon as the terms of the revised proposal were agreed upon.

This case is evidence that dealings and negotiations around commercial leasing have the potential to bind you. If the requirements of a valid contract are satisfied then the parties will be bound - even if formal documents have not been prepared or signed. As a lawyer, of course I recommend that you sign and exchange contracts in person, however it’s not always possible for some parties and email may be the only option. If this is the case, you should document all correspondence and read over all material provided by the other party.

For more information please read our Plain English Guide to Commercial, Industrial and Retail Leasing.

If you don’t want to be bound to a new lease before formal documents are executed or you are unsure of how to make this intention clear in your dealings, please contact:

Dean Claughton, Lawyer
Phone: +61 9895 9276