What is an Offer To Lease and is it Legally Binding?

An Offer To Lease is known as the agreement entered into between parties before the Lease. It sets out the particulars and commercial terms between the parties (including any special conditions) to be included in the Lease, usually found in the Lease Schedule. For example, the Offer To Lease will usually include party particulars, use of the leased premises, landlords fixtures and fittings forming part of the premises, term of the lease, option terms available (if any), lease term, rental and outgoings, security deposit, rent reviews, and special conditions.

It is common practice that an Offer To Lease is provided to a Tenant prior to formally entering into the Lease. Although the Offer To Lease is normally prepared on behalf of the Landlord, the Offer To Lease represents the offer made by the Tenant to lease the premises (commercial terms and conditions), which is to be accepted by the Landlord.

In answering the question whether an Offer to Lease is legally binding? one would need to consider whether the elements of offer, acceptance and consideration exist. Most of the time an Offer To Lease would include all these elements creating a contract between parties. A Tenant would usually provide a deposit (consideration) and make an offer by signing the Offer to Lease. The contract would  be formed following the Landlord’s acceptance represented by the Landlord‘s signature on the Offer To Lease.  In some cases, an Offer To Lease may include an expressed provision that states that it is not a legally binding agreement, and that signing of Lease only forms the legally binding agreement between the parties.  In either case it is important that Tenant’s and Landlord’s satisfy themselves that the Offer To Lease is in accordance with their commercial arrangement, given that this document will form the commercial basis for preparation of the Lease.

Matters which Tenants and Landlords need to consider before signing an Offer to Lease:

1.  Use of Premises. Does the Tenant’s proposed use of the Premises comply with Council Planning laws? If the Tenant proposes to use the Premises for retail purposes is this reflected in the Offer To Lease.  The later is particular relevant to outgoings which a Landlord may wish to recover from a Tenant, for example Land Tax, which is illegal for a Landlord to recover under s.50 of the Retail Leases Act 2003.

2. Landlord’s Fixtures/Fitting. Does the Offer To Lease include all Landlord’s Fixtures/Fittings offered with the Premises?  For example a kitchen offered as part of a leased premises, should be included under the Landlord’s Fixtures item in the Offer To Lease.

3. Commercial Terms. Does the Offer To Lease accurately reflect the Term, Options, Rental Amount, Security Deposit, and Rent Reviews process?

4. Deposit. Does the Offer To Lease deduct the Deposit paid from the First Month’s Rent?

5. Outgoings. Does the Offer To Lease include all acceptable Outgoings?

For example is Land Tax applicable to the Lease, does the Landlord require payment of the Landlord’s legal fees related to preparation of the Lease documentation, does the Offer To Lease include maintenance costs paid by the Tenant, which should be paid by the Landlord (which are in substance capital repairs), is the Tenant responsible for the Managing Agents monthly management fees of the Premises?

6. Special Conditions. Does the Offer To Lease include all special conditions negotiated between the parties? For example capital works or Landlord Installations expected to be included in the Lease.

7. Is there a Demolition Clause included in the Offer To Lease?  What impact does this have on the Tenant’s use of the leased premises? What is the notice period in the demolition clause, and is there a relocation clause for the Tenant’s benefit?

These are just some of the issues that both Landlord’s and Tenant’s may need to consider before entering into an Offer to Lease and/or Lease.

Please contact Angelo Karamanis if you require assistance with preparation and/or legal advice in relation to Offer To Lease, Lease, Licence Agreements, Landlord Disclosure Statements, in connection to your Commercial matters.
Disclaimer: This article has been prepared as an informative paper only and is not in any way, shape or form legal advice.

Prepared by Angelo Karamanis on 18 October 2012

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