Creation of an Implied Lease Between a Landlord and Tenant

The actions of a landlord can cause a new implied lease to be created, despite no one signing a lease. This was the case in a recent Supreme Court of New South Wales case, Yangdo Pty Ltd v Equiti Group Pty Ltd [2017] NSWSC 277. This article explains when the landlord’s actions can imply a new lease.

The Case

The landlord (Yangdo) entered into three sublease agreements for the property between 2007 and 2008 with the sub-tenant, Equiti. The landlord’s real estate agent informed Equiti of a new sublease proposal in a letter, later signed on 23 April 2009.

The letter contained clauses relating to:

• the term of the lease;
• outgoings; and
• a rent-free period.

In 2012, Equiti wanted to terminate two of the sublease agreements. The landlord argued that the letter was not binding. However, the letter indicated that the terms of a new lease were agreed on and signed. Furthermore, the current lease was due to expire on 1 May 2009, which showed an intention to enter into a new contract. The landlord also changed the rent to match the terms of the letter.

The Supreme Court held that the letter and the subsequent actions of the landlord indicated that there was a clear intent to enter into a new lease. This created an implied lease with the terms specified in the letter.

Practical Example of When an Implied Lease May Be Found

If a landlord and tenant are entering negotiations for a new lease, they should consider that their actions may imply an intention to enter a new lease. This implication can be stronger if:

• there is an existing lease; or
• the landlord allows the tenant to move into the premises while negotiations are still ongoing.

For example, say a pizza shop owner occupies leased premises under a lease about to expire. The pizza shop owner desperately wants to stay on in the premises because business is great. Accordingly, the pizza shop owner and landlord enter into negotiations about entering a new lease.

After coming to a written agreement, the landlord tells the pizza shop owner that the agreement will be binding when the parties execute the formal lease document but lets the tenant stay in the premises. However, later on, the landlord then makes changes to the lease document and will not sign the final lease.

In this situation, because the landlord and tenant came to a written agreement, and the landlord allowed the tenant to stay in the premises, this could indicate there was an implied lease with the terms contained in the written agreement.

Key Takeaways

In some cases, the actions of the landlord and tenant can imply the creation of a new lease, especially if there is written documentation to that effect. To determine this, you will need to examine all correspondence to determine each party’s intentions. However, as a court must determine the existence of an implied lease, it is always best to have a lawyer review the situation to provide advice.

If you need further advice on whether your discussions have created an implied lease, call LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.