The Importance of Ensuring Lease Documents are Clear as to When they Bind

The recent NSW Supreme Court case of Realm Resources Ltd v Aurora Place Investments Pty Ltd (2019) dealt with a dispute that arose as to whether a binding sublease of five years had been entered into in respect of part of Level 16 of the Aurora Place building in Sydney's Philip Street.

The sub-lessee (Realm) signed the negotiated sublease and had returned it to the sub-lessor (Aurora), but before Aurora had countersigned, Realm changed their mind and attempted to withdraw from the transaction. In proceedings, the sub-lessee argued that it was not the intention to be bound prior to both parties having signed and that they had validly withdrawn from the agreement.

The court did not accept this argument stating that the sub-lease was to take effect as a deed. The sub-lease contained a clause which stated that it was "a deed, even if it is not registered". This deed was executed correctly under s127(1) Corporations Act 2001 (Cth) and the sub-lessee had delivered the deed with the clear intention to be bound.

This case shows that, where the parties do not wish to be bound until the agreement has been executed and exchanged, it needs to be expressly stated. It illustrates the importance of satisfying "subject to" clauses for a lease to become legally binding.

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If you wish to discuss any aspect of a commercial lease, please contact Szabo & Associates Solicitors, on (02) 9158 6333 or fill in our online enquiry form.