For any business owner that intends to operate from a premises or has had experience with commercial lease negotiations, they will know negotiations or discussions do not necessarily guarantee a lease. This not only applies to the possible terms and conditions of the lease but also in considering whether a lease has been formed. It can get tricky. Below, we look at what makes a contract binding, specifically referencing recent decisions and agreements affecting leases.

What is a Binding Contract?

A lease is, in essence, a contractual document. To determine whether a lease had been formed or if a lease is binding, you will need to determine whether the elements of a contract have been satisfied. This means that the following must have happened:

  • An offer;
  • An acceptance;
  • Consideration (e.g. an exchange of money or liability); and
  • An intention to create a legal relationship.

Although the categories seem distinct, contractual disputes do arise – particularly for leases and an agreement for a lease where there is considerable negotiation involved between all parties.

What is an Agreement for Lease?

An agreement for lease refers to a legally binding contract committing both parties to enter into a lease at a future date. The agreement for a lease differs from the actual lease as it does not provide the prospective tenant with possession of a premises. It is commonly used in circumstances where the building/centre is still under development, where the future tenant requires a new fit out, or the requisite development applications are yet to be finalised.

Commercial Lease Negotiations

Lease negotiations are inevitable not only at the commencement of the lease but also when a lease is up for renewal. 

In OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120, the tenant, OXS, had a lease of the premises and operated a restaurant. The landlord was the public authority Sydney Harbour Foreshore Authority (SHFA). OXS had a lease that began in 2009 and terminated in 2014. In 2009, SHFA issued a lease renegotiation policy outlining the process for negotiation of the lease. In 2011, OXS requested an extension of the lease for seven years. SHFA responded with a letter stating they were “prepared to offer” a new lease for ten years subject to OXS meeting certain conditions. OXS replied by accepting the offer as set out in the letter. SHFA later withdrew the offer as the relevant minister would not consent to the lease (as required by the Sydney Harbour Foreshore Authority Act 1998 (NSW)). The Court decided that no binding agreement for lease was formed.

In deciding whether an agreement for lease was formed, the court stated:

  1. There was no intention to be bound; and
  2. There were no particular contractual terms contained in the letter, e.g. price, turnover rent, rent reviews, etc.

In analysing whether an intention to be bound existed, the Court considered the language used in the letter (e.g. “prepared to offer”), the informality of the letter and prior formal negotiation procedures undertaken by SHFA and OXS.

Key Takeaways

When it comes to determining whether a contract is binding (e.g. an agreement for a lease), the court will consider the negotiations between both parties in detail. This detail can come down to the content of any written communication, prior practices regarding negotiation and the exact terms of what parties had agreed. 

Importantly, despite any negotiation parties have undertaken, in the absence of a concluded agreement, it’s difficult to confirm that the contract will be binding. This is because the court may only determine that a contract has formed if there are commercial terms that can be concluded. 

If you have any questions about negotiating your commercial lease or need assistance drafting its terms, get in touch with our commercial leasing lawyers on 1300 544 755. 

COVID-19 Business Survey
LegalVision is conducting a survey on the impact of COVID-19 for businesses across Australia. The survey takes 2 minutes to complete and all responses are anonymous. We would appreciate your input. Take the survey now.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. For just $199 per month, membership unlocks unlimited lawyer consultations, faster turnaround times, free legal templates and members-only discounts.

Learn more about LVConnect

Kristine Biason
Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.
Our Awards
  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2019 NewLaw Firm of the Year - Australian Law Awards 2019 NewLaw Firm of the Year - Australian Law Awards
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer
Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at

View Privacy Policy