By Russell Cocks, Solicitor
First published in the Law Institute Journal
‘An agreement to lease is as enforceable as a lease’
Property lawyers deal with leases all of the time; sometimes in the context of a relationship between landlord and tenant, sometimes where a property that is to be sold is leased and sometimes in more obtuse ways, such as in relation to the assessment of duty or tax.
Generally speaking, such leases will be in a written form and the terms of the lease will be readily identifiable. However, unlike contracts for the sale of land which the law requires to be in writing and signed by the parties, the law has long recognised that a lease relationship can be created in a less formal way than a written and signed lease. Hence, courts will enforce a lease if the court can be satisfied that the parties reached an agreement to lease and this has given rise to the mantra of ‘an agreement to lease is as enforceable as a lease’.
Walsh v. Lonsdale (1882) 21 Ch D 9 is the historical authority for this proposition and Waltons Stores (Interstate) Ltd v. Maher [1988] HCA 7 restated the proposition in the modern language of estoppel and unconscionability, concluding that a court will enforce a written agreement to lease where it would be unconscionable for a party to the agreement to resile from that agreement.
2016 has seen something of a flurry of cases, at all levels, concerning agreements to lease:
North East Solutions P/L v. Masters Improvements Aust. P/L [2016] VSC 1 analysed the obligations of parties who entered into a written agreement to lease which included a term that the parties would negotiate in good faith to resolve any disputes that arose during the term of the agreement. The enforceability of the agreement to lease was never in doubt; the issue was the meaning and extent of the ‘good faith’ obligation and whether one party had breached that obligation.
Risi P/L v. Pin Oak Holdings [2016] VCAT 1112 also related to a written agreement to lease but found that the lease prepared pursuant to that written agreement should be varied to comply with an oral agreement that the parties made prior to entering into the written agreement to lease. The landlord had sought to include a demolition clause in the written lease and the Tribunal ordered that the demolition clause be removed as it had not been a term of the agreement that the parties had concluded.
Crown Melbourne Ltd v. Cosmopolitan Hotel (Vic) P/L [2016] HCA 26 saw the issue return to the High Court in a slightly different form. The tenant entered into a 5 year lease with an expectation that the tenant would be offered a further term. No promise to do so was included in the written lease nor specifically offered to the tenant – all the tenant could rely on were words to the effect that the tenant would be ‘looked after’ when the lease came up for renewal. The Court was not satisfied that these words meant to there was an agreement for a new lease or even an obligation on the landlord to submit terms for a new lease to the tenant for negotiation.
The concept of ‘business efficacy’ has also crept into the language of these cases with courts apparently prepared to analyse the conduct of the parties through the ‘business efficacy’ prism.
Tips
- Whilst written for Victoria this article has interest and relevance for practitioners in all states.
- Courts will enforce informal agreements to lease.
- Adequate proof as to the terms of any such agreement remains essential.