A commonly asked question by leasing agents negotiating commercial property lease agreements on behalfof the Landlord is “how binding is an Offer to Lease document”?

The answer of course is that a well-constructed and compliant Offer to Lease document is an essential tool to assist with the smooth transition from the negotiation phase to completion, lease commencement and occupation of a property.

An accurate and properly prepared Offer to Lease document is an effective risk management tool as it minimises the risk of a potential Tenant withdrawing from the negotiations at the last minute and refusing to sign the formal deed.

Contract law

A binding contract is formed through an offer and acceptance process.

  • One party will present an offer surrounding the commercial terms of the lease.
  • Ongoing negotiations can lead to an agreed outcome following counter offers.
  • While verbal contracts by offer and acceptance can be, and have been, held to be binding, it should be noted that in Western Australia all dealings associated with land must be in writing.
  • From a commercial standpoint, setting aside any legal position, it is difficult to enforce commercial terms of a lease without a written contract. This is usually the Offer to lease.

Key points to remember

An Offer to Lease is prepared when both parties can express agreed terms, once the verbal negotiations have concluded. This ensures that the document represents conditions agreed to by both parties and forms a comprehensive tool to prepare the formal lease as the likelihood for further negotiations surrounding the lease terms has been reduced.

To establish a binding contract capable of requiring specific performance or giving rise to liability for damages for a breach, the Offer to Lease document must include all of the commercial terms and requirements and a pro-forma lease should be attached to the offer to lease document.

For an Offer to Lease to be binding on both parties, case law dictates that the majority of all commercial terms must be finalised. Furthermore, the Courts have stressed that both parties must be ready, willing and able to proceed on those terms.

This is part of the reason why special conditions under the Offer to Lease are so important. If you intend the document to remain conditional until a third party factor has been addressed, it is important to ensure that this is clearly set out in the Offer to Lease document. For example, if both parties want to be able to walk away if a change of use application is rejected, it is necessary that the Offer to Lease is made conditional on this.

Where can I get specialist advice?

LSV Borrello Lawyers are acknowledged specialists with a track record in all facets of property law. We can assist in all aspects of leasing and property law as well as negotiation and litigation. Don’t hesitate to contact the Borrello Graham team on (09) 9404 9100 to discuss your matter.

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