Court Case – Email Negotiations equal binding Lease

Summary

In the decision of Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21, the Supreme Court found that a binding lease had been formed as a result of email negotiations between the parties, despite the fact that no formal lease document was entered into.

Background

Vantage leased part of a building from Priolo for a term of 3 years. In 2009, just prior to expiry of the lease, there were discussions held between Vantage and Priolo for a new lease of the premises upon expiry of the existing lease.

An email was sent by Priolo with a proposal for a new lease with an attachment referring to a telephone conversation. The email stated that Priolo was “pleased to provide the following proposal for [Vantage’s] consideration”. The parties negotiated as to the rent payable and the bank guarantee required by email. A revised proposal was sent by Priolo’s representatives to Vantage by email with the words “We confirm the Lessor is prepared to proceed with a new lease on the basis of the following proposal”. The parties subsequently agreed on all of the major terms of the lease via email. 

A request was then made for a formal lease to be prepared and sent to Vantage for its execution.  Upon receipt of the formal lease, Vantage did not agree to the lease and attempted to renegotiate certain terms. These negotiations were not concluded and following the expiry of the existing lease, Vantage advised Priolo that it had no intention of executing the new lease and it would be vacating the premises shortly. 

Priolo brought proceedings against Vantage asserting that there was a valid agreement to lease in existence, which arose from the email communications between the parties, and therefore Vantage was prohibited from vacating the premises. 

Decision

At trial, the judge concluded on the balance of probabilities that Priolo and Vantage intended to enter into a binding agreement for lease by the acceptance of the revised proposal by Vantage. It was found that all the essential terms of a contract existed in the email communications between the parties.

Vantage unsuccessfully appealed the decision, and the Court of Appeal found that whilst the parties intended that their binding email agreement would be superseded by a formal lease, that lease would simply incorporate all of the express terms of the revised proposal which the parties had already agreed to. 

Relevant considerations in coming to this decision included:

  1. the fact Vantage had been in occupation of the premises for a number of years and was familiar with the premises and the suitability of the premises for its business requirements;
  2. Priolo had been the owner of the property for a number of years and was familiar with the representatives of Vantage;
  3. Vantage had not identified any other office premises which it might lease and was not endeavouring to locate alternative premises;
  4. the revised proposal embodied all terms that were legally necessary to form a contract;
  5. communication by Vantage’s representatives showed that Vantage had approved the terms of the arrangement; and
  6. the terms of the new lease were not materially different from those contained in the existing lease. 

What does this mean for you?

Parties can unintentionally find themselves locked into legally binding arrangements arising from email negotiations. If you do not intend to be legally bound during negotiations, you should make it clear by express statement that you do not intend for any negotiations in respect of the matter to become legally binding on the parties until a formal written agreement is signed. The same principles apply to entering into a heads of agreement or term sheet, which should explicitly state whether they are legally binding or not in order to reduce the risk of a dispute arising down the track.

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