Get Your Lease in Writing! Do Not Think Verbal Promises Are Binding! 

Be careful about what your landlord has told you prior to signing a lease – it may not always be enforceable!

In a recent case

A landlord owned a large commercial property part of which was configured as a hotel. The tenant wished to lease this premise so they could run a hotel business.

During negotiations the landlord stated that the tenant would be “looked after” following the end of the lease. The parties entered into a 5 year lease.

During the lease period the tenant undertook substantial refurbishments to the premises. The tenant alleged that this was part of the agreement to renew the lease once the period ended.

At the end of 5 years the landlord gave notice for the tenant to vacate the premises. As the tenant had no lease he ultimately went into bankruptcy. The refurbishment is alone were written down by the value of $2 million.

The tenant claimed that the landlord’s comments during negotiation created an obligation to renew the lease. The landlord however argued that the comments were not contractually binding.

Court Decision 

The case went to the High Court. The Court found that the comments were no more than “vaguely encouraging”, and that a reasonable person would not have thought they amounted to a contract. Additionally, the essential terms of the contract had not been agreed upon at the time the comments were made and therefore no contact existed.

Furthermore, the court found that the comments could not create a legal obligation to renew the lease because the comments were too ambiguous to be interpreted as a promise. The court also found that the tenant could not demonstrate that it had relied on the promise to make its decision to enter into the lease in the first place.

If your landlord has indicated that they may renew your lease, it is important to ensure you ascertain exactly what they mean and put it into a document of some sort (preferably in the lease), or you may be left in the dark at the end of your lease! Commercial and Business Law is one of our areas of expertise here at Fox & Staniland Lawyers and we can help you draft verbal promises in writing if you are expecting to rely on them in the future.