Drafting and reviewing leases

An informal agreement to lease, which often precedes a formal lease agreement, is a species of a heads of agreement. It is important that it be clear whether the parties are bound and if so, when ensuring that they are not bound prematurely.

Case example:
Parties to a transaction should make clear to each other when it is that a document is intended to legally bind them.
This was emphasised in the decision of the NSW Supreme Court in Realm Resources Ltd v Aurora Place Investments Pty Ltd [2019] NSWSC 379.
Party A signed and returned a sublease to Party B but, several days later, Party A asked t Party B to hold off signing the sublease (and to hold the sublease which was already executed by Party A in escrow) pending further notice from Party A.
Party B ignored this request and also signed the sublease and sent a copy of the now-counter signed sublease back to Party A.
The New South Wales Supreme Court held that Party A became legally bound by the sublease after it signed and delivered the document as a deed to Party B.
The court held that both parties intended that the sublease take effect as a deed and, as the formal requirements for a deed were satisfied when the executed document was delivered by Party A to Party B, Party A became immediately bound and Party A could not then recall the deed. The attempt by Party A to have the sublease held in escrow was too late; by that time Party A was already bound by the sublease, notwithstanding that Party B had yet to countersign the sublease.
If parties do not intend to be legally bound until an agreed form of documentation has been executed and delivered, then this intention needs to be clearly expressed in correspondence between the parties.

Case example:

Parties to a transaction should make clear to each other when it is that a document is intended to legally bind them.

This was emphasised in the decision of the NSW Supreme Court in Realm Resources Ltd v Aurora Place Investments Pty Ltd [2019] NSWSC 379.

Party A signed and returned a sublease to Party B but, several days later, Party A asked t Party B to hold off signing the sublease (and to hold the sublease which was already executed by Party A in escrow) pending further notice from Party A.

Party B ignored this request and also signed the sublease and sent a copy of the now-counter signed sublease back to Party A.

The New South Wales Supreme Court held that Party A became legally bound by the sublease after it signed and delivered the document as a deed to Party B.

The court held that both parties intended that the sublease take effect as a deed and, as the formal requirements for a deed were satisfied when the executed document was delivered by Party A to Party B, Party A became immediately bound and Party A could not then recall the deed. The attempt by Party A to have the sublease held in escrow was too late; by that time Party A was already bound by the sublease, notwithstanding that Party B had yet to countersign the sublease.

If parties do not intend to be legally bound until an agreed form of documentation has been executed and delivered, then this intention needs to be clearly expressed in correspondence between the parties.

The parties may also enter into a formal agreement to lease, ie an agreement to grant a lease in the future without vesting title to the leasehold estate to the prospective tenant, eg when the landlord is in the process of purchasing the property or is acquiring an interest as head lessor.

Key lease terms include:

• option to renew;
• rent review;
• requirement to obtain the landlord's consent;
• obligation to repair, maintain and replace;
• redecoration;
• obligations of the landlord; and
• obligations of the tenant.

A lease must be properly executed to ensure that it is fully binding on all parties.

New South Wales

Covenants in a lease are implied under Pt 6 of the Conveyancing Act 1919 (NSW). These covenants maybe excluded or amended. There are also short forms of covenants in the Conveyancing Act, which, pursuant to s 86 of the Conveyancing Act 1919 (NSW) can be adopted. As well standard forms of lease are available to purchase.

Victoria

There are generally no implied covenants in Victoria, however in the case of leases of registered land, there are some very basic covenants implied under s 67 of the Transfer of Land Act 1958 (Vic). In the case of residential tenancies in Victoria, the Residential Tenancies Regulations 1998 (Vic) contain prescribed forms for residential lettings. All other leases and tenancies in Victoria are not affected by these provisions.

Queensland

In Queensland, certain sections, such as ss 49 and 50 of the Property Law Act 1974 (Qld) imply covenants on the part of tenants and landlords.

Western Australia

Covenants in a lease are implied under the Transfer of Land Act 1893 (WA), which may be negatived, varied or extended by express provisions in the lease: s 131 of the Transfer of Land Act 1893 (WA). There are also short forms of covenants in the Transfer of Land Act 1893 (WA), which can be adopted pursuant to s 94 of this Act and a dozen of these are listed in the Twelfth Schedule to the Transfer of Land Act 1893 (WA).

South Australia

Covenants in registered leases are implied under ss 124 and 125 of the Real Property Act 1886 (SA) and may be excluded or amended. There are also eleven short forms of covenants in Sch 16 of the Real Property Act which can be adopted.

There is no stamp duty payable on leases in South Australia, NSW, Vic, WA and ACT.

See Drafting and reviewing leases.

Australian Capital Territory

Sections 119 and 120 of the Land Titles Act 1925 (ACT) implies specified covenants on behalf of lessees and grants powers to lessors. These implied covenants and powers may be excluded or amended.

For leases of 30 years or more entered into prior to 29 April 2014, stamp duty is payable at conveyance rates.

Since 29 April 2014 stamp duty has been charged on commercial leases where a premium is paid by the lessee for the lease. A premium is considered to be any consideration (whether monetary or non-monetary) that is paid, or agreed to be paid, for the lease. If a premium is paid for the grant or transfer of a commercial lease and the premium exceeds the determined threshold of 25% above market rent over the term of the lease, duty is payable on the total premium component and will be payable at the conveyance rate applicable when the lease was entered into. See s 6A Duties Act 1999 (ACT).

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