Back to Basics – Helpful Tips on Leases

Many business people are still getting bogged down in expensive legal disputes over leases, which in many cases they could have avoided by following basic principles.

• In one recent case a landlord lost a tenant in the process of selling a commercial building. When the new landlord received a form of lease with an amended shorter term from the tenant they were unsuccessful in enforcing either a renewal of the original lease or the amended terms of the proposed lease. The landlord should have realised that when the original lease was not renewed it expired and could not later be renewed. The landlord should also had known that the return of an amended form of lease from the tenant was not an agreement to lease but merely a proposal for the landlord to accept or in this case reject.
• In another case a landlord got into problems with a tenant who had a one-year lease with a right to renew for 9 years. At the time of renewal however the landlord presented the tenant with substantially different terms, which they did not accept. The landlord failed in its subsequent bid to evict the tenant and had to pay out substantial damages. The landlord should have realised that the tenant had a right to renewal on existing terms (subject to any right of rent review) and if they wanted a different deal that could only be achieved by a fresh agreement.
• In a recent Fair Trading Act case a tenant tried to resist franchise payments by pointing to a loophole in the standard 8 page agreement the parties had signed. The tenant argued that the parties should be bound by the precise wording they had signed. The court however found for the other party, because the tenant had altered the document before it was signed in a way that made it difficult to find the changes. The tenant should have realised that the other party could not agree to specific terms if it did not have proper notice of them. This case will be particularly important for leases and other agreements, which are sent or redrafted, in digital form.
• In another case a landlord failed in a claim against a guarantor for acknowledged breaches of the lease. The problem was that the landlord and tenant had made material changes to the lease but had not notified the guarantor. The landlord should have realised that the variation created a new lease and that the guarantor would not be bound to guarantee a new lease about which it had no knowledge.

The remarkable thing about all these cases is that they could have easily been avoided if the parties had followed the basic contractual principles at an earlier stage.