Lease letter of intent lesson: Can landlord pull plug after pocketing payment?
Bathroom goods supplier, Highgrove – “the fastest-growing bathroomware company on the East Coast of Australia” – wanted to establish a showroom in Townsville and entered into tenancy negotiations.
According to the script that is so often followed, the essential terms including a 12 month rent-free period and director’s guarantees were all canvassed in a few e-mail exchanges, the parties met on site, a formal letter of intent containing the terms was signed by Highgrove and a deposit paid.
The letter of intent specified: “In the event that the Lessee for any reason withdraws from this offer before signing the lease, the Lessor will be entitled to retain $5,000 for costs.”
Draft lease documents were prepared. Amendments were requested. A spat developed as to who was dragging the chain regards finalizing the documentation. Highgrove then requested that the commencement date (and start of the rent-free period) which had already been postponed, be pushed back a further month.
The differences could not be resolved and the landlord notified Highgrove that it no longer was willing to proceed.
Highgrove contended that the signed letter of intent was an offer that had been accepted by the landlord when it retained the deposit and issued draft lease documents. The landlord had – so said Highgrove – repudiated the agreement by withdrawing from the transaction.
It sued the landlord for damages for breach of the alleged agreement.
The “mere retention [of the deposit] pending execution of the lease cannot, of itself, have constituted an acceptance of the offer”, said the court. It was merely a means of furthering negotiations to come to final agreement.
This result was not made any different by Highgrove making a start to its fitout – because this was contrary to the landlord’s specifiic direction.
Also relevant to the dismissal of Highgrove’s claim was the court’s finding that the landlord’s representative had specified on a number of occasions that there would be no final agreement until the lease was “in black-and-white signed”.
In the end, the landlord kept $5,000 and refunded the balance of the deposit – with Highgrove being required to pay the landlord’s legal costs of the three-day Supreme Court hearing.