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Signing a Commercial Lease Proposal: What does it mean for me?

There are a few steps involved in obtaining a commercial lease, one of the first steps for the Tenant (known as the “Lessee”) once they have found a new premises is negotiating with the Landlord (known as the “Lessor”) to come up with preliminary terms for the lease.

Often these preliminary terms are written up by the Real Estate Agent as a “Heads of Agreement” or “Lease Proposal”. So what rights does a Tenant have when this sort of document is signed?

The wording used in the document is important in answering this question. The Agent will usually include a provision about whether the document is binding or not. For example, the document might state that it is an agreement to lease and is not binding until a formal lease has been signed. The document may be silent on the issue altogether.

Irrespective of these terms, the actions of the parties can also have an impact on whether a lease has commenced or been “entered into”, even in circumstances where the proposal or agreement to lease specifically states the document is not binding.

For instance, if the Landlord allows the Tenant to obtain possession of the lease premises early and the Lease is what is known as a “retail lease”, the lease will be considered to have commenced on the date the Tenant enters into possession (see section 8 of the Retail Leases Act 1994 (NSW)).

Whether a Tenant has a binding agreement or certain rights at the time the “Heads of Agreement” or “Lease Proposal” is signed depends on the individual circumstances of each case. If you would like some advice about entering a commercial lease, please do not hesitate to contact our Commercial Property Law team at Brazel Moore Lawyers on (02) 4324 7699.

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