It is a well-accepted practice in relation to the sale of land for there to be a physical exchange of signed counterpart Contracts to bind the parties to the sale. Once the exchange occurs, each party has an enforceable contract ‘signed by the party to be charged’ thereby satisfying the requirements of the old English Statute of Frauds of 1677 (now contained in section 54 of the Conveyancing Act 1919).
Leases however do not usually involve a physical exchange of contracts. Normally, a lessee will sign the lease and post it to the lessor who then countersigns the lease, registers (where necessary) and returns the signed and registered lease back to the lessee. In these circumstances it is crucial for the parties to clearly understand when the contract is made and the parties bound.
In the recent case of Realm Resources Pty Ltd v Aurora Place Investments Pty Ltd , a dispute arose as to whether a sublessee was bound after signing and returning the signed sublease to the sublessor. After returning the signed sublease, the sublessee attempted to withdraw from the transaction. Importantly, the sublease was prepared as a deed, which once delivered cannot be withdrawn.
The Court therefore held that the sublessee delivered the sublease in escrow, subject to the condition that the sublessor sign and then deliver the fully executed sublease to the sublessee. The sublessee was however bound to the sublease in this intervening period. If the sublessee had not intended to be bound, it should have made it abundantly clear that the sublease was not intended to be binding until it had also been signed by the sublessor.
The lesson from this case is that it is important that parties to a lease clearly define when they intend they will be bound by its terms. It is common for parties to stipulate that neither is bound until the terms of the lease are finalised and the lease executed by both parties. If however the parties intend to be bound at an earlier point in time which often occurs when a lessee is wanting immediate access, it is important that the parties clearly define in their correspondence as to when they intend to be bound to the terms of the lease.