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Have we signed yet… when does a lease become binding? Part 2

We recently reported on the case of Realm Resources Pty Ltd v Aurora Place Investments Pty Ltd [2019] which held that a sublessee was immediately bound after signing and returning the sublease to the sublessor, notwithstanding the sublease had not also been signed by the sublessor.  

This decision can be contrasted with another recent case of Darzi Group Pty ltd v Nolde Pty Ltd [2019] in which the lessee failed to establish that a binding lease had come into effect after signing and returning the lease to the lessor.

In this case, the parties signed a Heads of Agreement and the lessee took possession and commenced a fitout of the premises. The parties then embarked upon two years of arduous negotiation through their legal representatives which resulted in a seemingly settled lease being signed by the lessee and returned to the lessor. Despite a further two years elapsing, the lessor did not sign the lease and then attempted to renegotiate its terms. The lessee sought to enforce the lease which it had signed and returned to the lessor.

The Court held that based on an objective review of the correspondence between the parties’ legal representatives and also the conduct of the parties, it was the intention of the parties not to be bound until the formal lease was signed by both parties and exchanged.

This decision particularly when contrasted with the decision in Realm Resources Pty Ltd v Aurora Place Investments Pty Ltd [2019], illustrates that parties to a lease transaction need to be very clear as to when they will consider themselves bound.       

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