Beware of the Heads of Agreement, Offer to Lease, and the Agreement to Lease

Beware of the Heads of Agreement, Offer to Lease, and the Agreement to Lease

19 February 2020

Legal-ese is notoriously challenging. One small slip of wording can entirely turn the outcome of a case, and property Leases are no exception. A couple of recent cases have highlighted the perils of the conditional clause – the phrase that concedes something is binding once, and only once, then something else happens.

One of these cases deemed that an ‘Offer to Lease’ was not contractually binding, because the offer clearly stated that it was subject to the approval of the landlord. Despite considerable time passing between both parties agreeing to the offer and the subsequent legal case (brought when the landlord wanted to retract), the court ruled in favour of the landlord because neither party had progressed the documentation any further.

Conversely, in a similar case where the two parties had undertaken substantial effort towards progressing the agreement, even though it was not actually signed and completed, the court ruled in favour of the tenant. The key distinctions were the conditional clause, and the behaviour of the parties.

What constitutes an offer and acceptance is traditionally a key element of a legal transaction.

Legal interpretation of an offer and acceptance dates back to the 19th century and, at its simplest, involves one party promising to do something and the other unequivocally agreeing to it. Over time, the vagaries of offer and acceptance have been repeatedly challenged – contributing considerably to the complexity of today’s legal nuance.

Our advice?

Negotiate the right commercial terms and wording in the Heads of Agreement/Offer to Lease and then seek good legal counsel on your Lease early from someone who represents you independently.

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