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Negotiating Leases

Written by: Meredith Dorham

Article Overview: Are you a tenant or a landlord? Do you usually sign a Heads of Agreement or Letter of Offer for Lease that is intended to be subject to a formal lease being executed? If so, beware! You may be about to bind yourself to a valid lease the moment you sign the Heads of Agreement or Letter of Offer for Lease.

Negotiating Leases

The Administrative Decisions Tribunal (“the Tribunal”) has held that a valid and binding lease arose from a Letter of Offer which was drawn up by the landlord and signed by a tenant who was “holding over” after the expiry of their previous lease. The Letter of Offer contained the following words:

“Acceptance of this offer by the lessor will not in any circumstances create a legally enforceable agreement between the parties. The lease will be prepared by the lessor's solicitors, incorporating the above terms and conditions and no agreement will be legally enforceable unless accepted and executed by both parties.”

Despite this disclaimer, the Tribunal determined that a binding lease had come into effect between the tenant and the landlord. So if you are about to sign an indicative Letter of Offer for Lease or a Heads of Agreement, be careful, as you may be creating a valid and binding lease in circumstances where many key terms may still be unresolved. You should consult your lawyer before signing any documents of this nature.

You should also be aware that the law with respect to retail leases was changed by the Retail Lease Amendment Act 2005 (“the Act”) which came into effect last year. Of the changes made by the Act, the most significant are the changes to:

the landlord’s obligation to provide disclosure statements to the tenants;
the term during which retail leases are deemed to be in effect;
the landlord’s responsibilities with respect to outgoings and fit-outs which the tenant is obligated to pay for or contribute to;
the lodgement of the security bond under the New South Wales Government Retail Bond Scheme; and
the tenant’s obligations with respect to transfers of the lease.

If there is a particular concern about any of the above or how it applies to you or your company, do not hesitate to contact Tal Williams on (02) 9458 7241 or Clive Lee on (02) 9458 7391.

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Article Tags: administrative decisions tribunal, amendment act, circumstances, disclosure statements, enforceable agreement, expiry, landlord, lawyer, lessor, new south wales, new south wales government, obligation, retail lease, retail leases, solicitors, south wales government, which came into effect



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