Risks of a tenant moving into possession of premises without a binding lease

The ruling by the NSW Supreme Court in the case of Darzi Group Pty Ltd v Nolde Pty Ltd  demonstrates the risks of a tenant moving into possession of premises without a binding lease. The involved parties signed a Heads of Agreement (HOA) to lease a commercial premises, the tenant took possession and commenced a fit out of the premises. The tenant expected that the imminent formal lease would reflect the terms of the HOA, however the terms of the lease provided by the landlord varied considerably. Consequently, the parties embarked on 2 years of negotiations through their legal representatives, seemingly resulting in the execution of the lease by the tenant before it being returned to the landlord. Despite the passing of a further 2 years (4 years since moving in), the landlord never executed the lease and continued to attempt to renegotiate terms. The tenant commenced proceedings, seeking to enforce the lease that they had signed. The Court held that the parties did not intend to be bound by the lease as it was reasonable to presume that where parties are acting through legal advice, no binding agreement arises until formal execution and exchange.