Reading time: 4 minutes

Tenants usually occupy premises for their business according to the terms of the lease. However, as with most aspects of business, negotiations do take place, and the parties agree to other terms separate from the lease. Without written agreements, it is always contentious as to whether the outcomes of these negotiations are upheld or whether they form broken promises.

For business owners who are tenants of a commercial or retail premises, it is important to know the terms of your lease to ensure they coincide with any oral agreements you may have made with the landlord. You don’t want to end up like the tenants in the recent matter of Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26. This article will explore this case in more detail and highlight the legal effect of statements made during leasing negotiations.

The Lease Terms

In this High Court of Australia decision, the tenants, Cosmopolitan Hotel (Vic) Pty Ltd (Cosmopolitan) occupied two premises within the complex.

The lease which they entered was for the term of 5 years. The lease did not contain an option for renewal. Rather, it included clauses which required the landlord, Crown Melbourne Limited (Crown), to provide Cosmopolitan with six months notice stating that either:

  • The lease would be renewed;
  • A monthly tenancy will ensue; or
  • The tenant would need to vacate the premises.

Cosmopolitan signed the lease in 2005 for the term of five years and in December 2009, Crown notified Cosmopolitan that they would need to vacate the premises in August 2010.

What Did Cosmopolitan Allege?

Crown provided Cosmopolitan with the relevant notice period. However, Cosmopolitan alleged that Crown had made representations that they would be allowed to stay on the premises for a further term of five years.

When Cosmopolitan received a notice to vacate, this is undoubtedly not what they were expecting as they were relying on the promissory statements Crown had allegedly provided. They went further to claim that these statements induced them to enter the lease.

Did the Statement Amount to a Collateral Contract?

A collateral contract is one that can exist side by side to the main contract. Statements made during negotiations can amount to a collateral contract if the parties had the intention for the statement to be binding.

The test to determine whether there was intention is by looking at it from the perspective of an objective bystander. What would a reasonable person in the position of the parties have understood to be intended?

The main statement Cosmopolitan relied on was that they would be “looked after at renewal time”.  The court rejected that a collateral contract was formed in this case, noting that the statement was only “vaguely encouraging” and did not have the quality of a contractual promise.

Is Estoppel Relevant?

Estoppel allows the prevention of something occurring because of an individual’s actions or words to the contrary. In this case, estoppel was considered to prevent Crown from issuing a vacancy notice to Cosmopolitan.

Again, this claim was based on the representation that they would be ‘looked after at renewal time’.

For estoppel to apply, Cosmopolitan needed to show that they:

  • Relied on an assumption or expectation made by Crown; and
  • They suffered detriment as a result of Crown acting inconsistently with this expectation.

The Court did not allow the remedy of estoppel as Cosmopolitan did not show that an assumption or expectation was created. They were also unable to prove that they acted upon any assumption or expectation by entering the lease.

Key Takeaways

The main point to take away from this case is that no matter how convincing or promissory a representation or statement sounds, the terms of your lease will ultimately determine your legal relationship with the landlord. To avoid any ambiguity, costs, or court cases, it is in your interests to update the lease to include any relevant and material representations and promises.


If you have any issues regarding your lease arrangement or broken promises made with your landlord, get in touch with LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.


How Franchisors Can Avoid Misleading and Deceptive Conduct

Wednesday 18 May | 11:00 - 11:45am

Ensure your franchise is not accused of misleading and deceptive conduct. Register for our free webinar today.
Register Now

New Kid on the Blockchain: Understanding the Proposed Laws for Crypto, NFT and Blockchain Projects

Wednesday 25 May | 10:00 - 10:45am

If you operate in the crypto space, ensure you understand the Federal Government’s proposed licensing and regulation changes. Register today for our free webinar.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
Register Now

Day in Court: What Happens When Your Business Goes to Court

Thursday 2 June | 11:00 - 11:45am

If your business is going to court, then you need to understand the process. Our free webinar will explain.
Register Now

How to Manage a Construction Dispute

Thursday 9 June | 11:00 - 11:45am

Protect your construction firm from disputes. To understand how, join our free webinar.
Register Now

Startup Financing: Venture Debt 101

Thursday 23 June | 11:00 - 11:45am

Learn how venture debt can help take your startup to the next level. Register for our free webinar today.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer