When does an email exchange turn into a binding contract? Which case won?
Lease due to expire and negotiations for a new lease begin
A case heard recently in Western Australia concerned a dispute between a landlord and a tenant of commercial premises in Perth.
The tenant had occupied the premises for six years and its lease was due to expire on 30 June 2009. In May 2009, the parties began negotiations for a new lease.
Proposals sent and email negotiations ensue
An initial proposed lease was rejected by the tenant and on 4 June 2009 the landlord’s agent sent an email to the tenant attaching a revised proposal. The email stated: “Can you please confirm in writing that this proposal is acceptable to [the tenant] and we will arrange for [the landlord’s] solicitors to prepare the draft documentation”.
Various emails were then exchanged. Ultimately the tenant confirmed by email on 10 June 2009 that it was “happy with the terms of the proposal” and asked that the agent “[p]lease proceed to wrap this up”.
Formal documents prepared but tenant slow to review
The agent instructed the landlord’s solicitors to prepare a draft of the formal lease documents and these were subsequently sent to the tenant on 2 July 2009. In preparing the documents, the solicitors had noticed an error in the revised proposal regarding the licence fee for six car bays included with the lease and had corrected it. Also, unlike the original lease, the new draft lease contained no options to renew.
By this time the original lease had expired but the tenant continued to occupy the premises. After a long delay, the tenant replied on 8 September 2009 that it was not happy with the “make good” clause contained in the draft lease. The tenant suggested an alternative clause, which was rejected by the landlord.
Tenant announces intention to vacate premises and landlord sues
A short time later, the tenant wrote to the agent stating that since no concluded agreement on the new lease had been reached, their occupation of the premises since 30 June 2009 had continued based on the holding over clause in the original lease and, in accordance with that clause, they were giving notice that they would vacate the premises in one month.
The landlord brought a claim for damages against the tenant. It was up to the court to determine whether, by the exchange of emails, the parties had intended to create a legally binding relationship notwithstanding that formal documents had not yet been agreed.