Tenant slips through the fingers

Institutional landlords should take note of the decision of the NSW Court of Appeal in Centuria Property Funds Ltd v Thorn Australia Pty Ltd [2022] NSWCA 104.

The issue in the case was whether the tenant had entered into a legally binding lease.

The facts closely follow the usual process for office leasing by institutional landlords in Australia.

In April 2021 the landlord (Centuria Property Funds Ltd and Trust Company (Australia) Ltd) entered into a HOA to lease office premises. The HOA was expressed to be non-binding and reserved the right of the parties to withdraw from the transaction at any time prior to execution of formal lease documents by both parties. The HOA also granted the tenant a right to early access to commence fitout, on certain conditions.

The Lease and Incentive Deed were then negotiated, signed by the tenant, and delivered to the landlord in late June/early July.

The evidence disclosed that the solicitors for the parties took a different approach to the transaction process: the tenant solicitor expected a formal exchange to occur: the landlord solicitor taking the approach that once the tenant had delivered the signed documents to the landlord there was nothing further to be done by the tenant (the only remaining condition being execution by the landlord) with the result that the tenant no longer enjoyed the right to unilaterally withdraw.

At the same time, access to the premises was granted to enable the tenant’s IT contractors to commence some early works.

The landlord did not proceed to execute the documents, and the tenant gave notice that it withdrew from the transaction on 16 August 2021, before the landlord signed.

At first instance Darke J held that the right in the HOA to withdraw at any time up to execution of the formal documents by both parties had not been abrogated by the process described above. The tenant did not evince an intention to be bound by the documents prior to execution by the landlord: rather, the evident intention was to be bound when the landlord signed. Therefore, the tenant retained the right to withdraw at any time before the landlord signed.

The Court of Appeal agreed: at [72] “There was no clear statement or conduct on the part of the [tenant] to indicate that the [tenant’s] position had relevantly changed…such that its intention was to be bound by the relevant lease documents…at a time before the [landlord] had signed those documents”.

Darke J also held that the grant of early access was of little significance in determining whether the tenant had manifested an intention to be bound by the Incentive Deed and Lease.

The Court of Appeal again agreed. At [101]: “The fact that access was provided… (for the limited purposes of IT installation and not fitout works perse) is consistent with an informal licence arrangement”. The Court of Appeal did not consider that by taking advantage of the early access opportunity the tenant thereby evinced an intention immediately to be bound by the lease documents.

Accordingly, the tenant was free to walk. Had the landlord signed sooner, that right would have been lost.

The decision should be considered by institutional landlords in terms of the drafting of their HOAs, and in terms of the process they adopt around signing lease documents and granting tenant access. The facts of the case are consistent with industry practice, which sees landlords grant tenant access for fitout once they receive the signed lease, incentive deed, BG and COC, and then take months to themselves sign and return the documents to the tenant. While the legal consequences of this process may turn on the detail of each particular case, it would clearly be a mistake for landlords to assume that tenants are invariably bound in these circumstances.


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Speirs Ryan is a Sydney based boutique property law firm with national coverage. The firm is uniquely placed with specialist teams in both property transactions and strata law.

Disclaimer: This article is a general summary with focus on issues of interest to the authors. It is not intended to be used as legal advice.

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