Lease signed by the tenant - can the tenant still withdraw?
The recent case of Thorn Australia Pty Ltd v Centuria Property Funds Ltd  NSWSC 1217 (27 September 2021) is an example of the Court’s willingness to allow parties to walk away from lease negotiations, where the parties agreed they could do that, notwithstanding the terms of the Lease documents were finalised and agreed. Catherine Wheeler and Julie McKeesick outline how the Court considered the effect of the following words in the Heads of Agreement between a prospective landlord and tenant:
“The Lessee and the Lessor reserve the right to withdraw from and terminate negotiations at any time prior to execution of formal Lease documents by both the Lessee and the Lessor.”
The Court decided that the words “mean what they say” therefore the tenant was entitled to withdraw from negotiations prior to execution of formal Lease documents.
The landlord disputed the tenant’s right to withdraw from the proposed lease.
The landlord asserted that the tenant’s delivery of the deeds to the landlord’s solicitors meant they were bound by them.
A lease is a deed and delivery is essential before a deed becomes binding.
Accordingly, consideration was given as to when a deed is delivered and becomes binding. Darke J referred to a previous case:
“ … As I stated in Realm Resources Ltd v Aurora Place Investments Pty Ltd (2019) BPR 39,235;  NSWSC 379 at :
It is not necessary, for delivery of a deed, that there be a physical delivery of the executed instrument. Equally, a physical delivery of an executed deed does not necessarily amount to a delivery. In this context, delivery depends upon the intention of the executing party …”. 1
Darke J considered relevant principles, including that the intention is to be ascertained objectively, by reference to the words and conduct of the executing party and the circumstances surrounding the execution of the deed:
Darke J held that the intention was only to become bound by the deeds once they were signed by the landlord. In the meantime, both parties had the right to withdraw from the transaction. The tenant was entitled to withdraw from the transaction as it did.
In his determination, in respect of the Heads of Agreement, Darke J stated that:
“… Importantly, and as emphasised by the [tenant] in submissions, it was stated that either party could withdraw at any time prior to execution of formal legal documents “by both the Lessee and the Lessor”. I agree with the submission of the [tenant] that those words mean what they say, so it is a statement that there is a right to withdraw until the formal lease documents have been executed by both parties …”. 2
This case is a timely reminder of the importance of:
If you would like further information or leasing advice, please contact our Commercial Property team.
1 [para 44]
2 [para 56]