Commercial leases: Why important terms should always be in writing

Date: Aug 01, 2012
Document Type: Newsletter

Anyone who has made the decision to start a business will have a myriad of considerations to take into account, and perhaps one of the most important concerns, is in relation to a commercial lease. Just like residential leases, the basic framework and approach when signing a residential lease can also be applied to commercial leases. However, there are understandably also significant distinctions as well when discussing commercial leases, and a party who is intent on entering into a commercial lease, should always aim to put important terms in writing during the negotiation period.

The requirement to put important terms in writing

It may seem obvious that important terms in a commercial lease should be reduced to writing. However, it is not uncommon for large complexes, such as shopping centres, to have boilerplate agreements which are given to all lessees and who are subject to the same terms. With that in mind, if a lessee is able to negotiate with the commercial complex in regards to the lease, any important points that arise – especially when the point is a fundamental aspect in regards to the lease – should be put in writing. The requirement to reduce the important terms of a commercial lease is even more pronounced in standard commercial leases that may be given out by a shopping centre, because the courts will usually afford more weight to an agreement if the terms are set out in writing if a conflict does arise.

By reducing an important term to writing, ensures that a lessee is protected in the event a situation arises where the commercial premises may suffer damage, and the onus is then on the lessor to rectify the problem, if the term has been agreed upon prior to the signing of the lease.

Can oral assurances by a lessor be valid?

Although it is probably a good idea to have important terms put down in writing, there may be some instances in which oral assurances by a lessor has induced a lessee to sign an agreement – but the result has been unsatisfactory performance after the agreement has been signed: What happens in such a scenario? Although, case law has remained unsettled in regards to an oral pre-contractual promise, there may be room for an assurance espoused by a lessor to have effect, but it is dependent on the potency of the assurance, and the individual facts surrounding the case.

However, in instances where the lessee is reliant on the assurances of the lessor in the formation of an agreement, but is not included in the lease signed by both parties, the courts may read the assurance and the formal lease together in the forming of an opinion on whether or not there was a condition.

When rectification by the courts is a necessity

There may be situations where a lease fails to properly reflect the intentions of the parties, and may require court intervention.

The courts will generally intervene in circumstances where it would be considered unconscionable for one party to take advantage of the mistake within the instrument, at the expense of the other party. Furthermore, the equity generally arises only in instances where the mistake is committed by one of the parties, and not by mutual mistake.

When determining whether or not an instrument requires rectification, the courts will consider:

  • whether one of the parties believes that a term or provision is included within the instrument, but in actual fact is not
  • the other party has an awareness of the inclusion or omission of the term, due to the mistake of the other party
  • the party benefitting from the mistake, has not drawn attention to the error to the other party.

Rectification of a lease may also be required in instances where the terms included within the instrument, is ridiculous or is obviously erroneous.

Commercial leases can be very complex and any errors in the terms of a lease can lead to significant problems. If you need assistance in construing what the terms mean in your commercial leasing agreement, always seek the assistance of a lawyer.

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