Be aware of ‘subject to’ conditions in commercial leases

The recent case of Realm Resources Ltd v Aurora Place Investments Pty Ltd in the NSW Supreme Court illustrates the importance of satisfying ‘subject to’ clauses, in order for a lease to become legally binding. The case involved Aurora (sub-lessor) and Realm (sub-lessee) who signed a lease proposal for 300 sq/m in the Aurora Building. The lease proposal prepared by Aurora’s agent included a ‘subject to’ condition stating “the terms and conditions of this proposal are subject to: (i) availability of premises (ii) lessor’s board approval (iii) satisfactory legal documentation being entered into by the parties.” In August 2017 a sublease for the premises was executed on agreed terms by Realm, with Realm’s solicitors sending a certificate of insurance (the final requirement). The next day, Realm had second—thoughts about the sublease, with their solicitors emailing Aurora requesting that they do not arrange the execution of the lease, and that they hold the signed lease in escrow pending further communication. Realm decided to not proceed with the sub-lease and applied for a declaration that no binding sublease existed, relying on the fact that the ‘subject to’ condition wasn’t satisfied. Aurora claimed that the sublease was binding, and that they were entitled to $735,000 for unpaid rent. In making their decision, the Court had regard to the fact that all 3 parts of the ‘subject to’ condition had been satisfied. It also had regard to the fact that the sublease was ‘entered’ into by the parties as it was intended to take effect as a deed, the formal requirements of a deed had been satisfied under s127(1) of the Corporations Act and that the deed was delivered by Realm evincing an intention to be bound. Ultimately, the Court ruled in favour of Aurora, who was awarded damages for loss of rent. This decision demonstrates the importance for commercial leasing agents, landlords and tenants to review their ‘subject to’ conditions to reduce uncertainty and ensuing legal disputes.

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