Agreements to Lease – are they legally binding?
By Catherine Burns, Solicitor – 9 March 2018
We often act on behalf of both landlords and tenants in respect of commercial and retail leases. As part of this process, the client will often provide us with an Agreement to Lease document that has been signed by both the landlord and tenant.
What is an Agreement to Lease?
An agreement to lease is signed by the landlord and tenant specifying the essential terms on which the parties agree to lease premises pending the signing of formal lease documentation. The terms generally include matters like the term of the lease including options, base rent, how and when rent increases will be calculated, who will be responsible for the payment of outgoings and any works to be undertaken by either party.
Why is an Agreement to Lease necessary?
Some of the most common scenarios where an Agreement to Lease is required include:
- Where either party intends to undertake construction or fit-out works to the premises prior to commencement of the Lease;
- Where the landlord does not yet have legal title of the property;
- Where the current lease of the premises has not yet expired.
Without signing an Agreement to Lease, there is no obligation on either party to commit to the arrangement pending the formal lease being signed. This means that either party could withdraw their promise to enter into the lease at any time and without consequence. You can imagine how devastated a prospective tenant would be if they had put their sweat, blood and tears into a shop fit-out only to be told that the landlord had received a better offer elsewhere and would not be proceeding with the lease – and vice versa.
The consequences of poor drafting
Not only is it important to have an Agreement to Lease, but it is equally vital to ensure that the Agreement to Lease is drafted in a way that ensures it is legally binding.
In a recent Queensland case, an Agreement to Lease was signed by the landlord and tenant for the lease of a commercial property in Fortitude Valley. The tenant subsequently withdrew from the arrangement. The landlord sued the tenant on the basis that the Agreement was a legally binding document and that the tenant should pay substantial damages as it took another six months to re-lease the property.
In this case the court found that the signed Agreement was binding and ordered the tenant to pay damages and costs of more than $150,000 – a significant price to pay for something that could have been avoided with the right legal advice.
The type of wording used and the substantive content described in an Agreement to Lease are integral to determining whether such an Agreement constitutes a binding legal document. It is imperative that you obtain independent legal advice prior to signing any lease documentation – regardless of whether the document appears to be an offer to lease, a lease application to the agent, an agreement to lease or otherwise. We can advise you on whether the document is binding and what specific wording should be inserted to ensure that your rights as a landlord or tenant are protected.
Our solicitors Marilyn Ma and Catherine Burns both have extensive experience in the field of retail and commercial leasing. Should you wish to discuss your own leasing matter we would be more than pleased to assist you and encourage you to contact our office.
 Colvin v Lennard & O’Brien  QDC 71.