In Brief - The recent NSW Supreme Court decision of Realm Resources Ltd v Aurora Place Investments Pty Ltd  NSWSC 379 highlights the importance of clearly stating when documents are to be binding
A dispute arose as to whether the sublessee was bound after signing and returning the sublease to the sublessor
The dispute that arose related to a sublessee who attempted to withdraw from a sublease following signing and returning the sublease to the sublessor. The court considered the sublessee's contention that the sublease had been delivered in escrow, where the sublease was not intended to become binding until execution and delivery by the sublessor. Despite this, the Court held that the sublessee was bound immediately after signing and submitting the sublease to the sublessor. Importantly, this was the case even before the sublessor had signed.
The Court's decision that the sublessor was bound on delivery of the signed sublease was founded upon the sublease being in the form of a deed, which once delivered to the sublessor cannot be recalled as it is considered to be signed, sealed and delivered (despite the absence of those words in the sublease). This applies even if the deed is delivered in escrow.
Key to the dispute was the absence of a clear intention expressed by the parties that they did not intend to be bound by the sublease until it was executed by the sublessor and otherwise finalised. Absent such an intention, the Court could only hold that the parties intended to be bound by the sublease upon the sublessee returning the sublease to the sublessor.
Where parties do not wish to be bound by the terms of an agreement until it has been executed and exchanged, it must be expressly stated
This case highlights the need to clearly stipulate when and at what stage the parties intend to be bound, both in the relevant document and in the correspondence delivering the signed document.
Additionally, parties should make it abundantly clear that each party may also withdraw from negotiations at any time until the final terms of a lease have been agreed and executed by both parties - if that is the intention (subject to any overriding terms of a previously executed heads of agreement).
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