The recent NSW Supreme Court case of Thorn Australia Pty Ltd v Centuria Property Funds Ltd [2021] NSWSC 1271 highlights the necessity for caution and diligence when executing and exchanging deeds, especially in property matters.
The Court was asked to determine whether a prospective lessee who had signed and delivered deeds to a lessor was bound by the deeds. The Court found that although the lessee executed the deeds, provided a bank guarantee, made arrangements regarding access and making further payments, it was held that the lessee did not objectively manifest an intention to be immediately bound by the deeds.
The parties had entered into a Heads of Agreement which included a statement to the effect it did not constitute a binding lease between the parties and both parties had the right to withdraw from negotiations at any time before the execution of the formal lease documentation. The lessee provided a cover letter enclosing the signed deeds that set out the procedure for execution and the return requirements from the lessor. The procedure required that the lessor send a scanned copy of the deeds to the lessee for perusal and approval prior to exchange of the deeds. As such, the lessee did not authorise the exchange of the deeds until written authorisation was given by the lessee to do so.
At first, the Court determined that the Heads of Agreement can give rise to immediately binding legal rights or obligations but this is not a stringent rule. However, even if it is not binding, the words and conduct of the parties should be considered with respect to the statement of principles in the Heads of Agreement.
In the case at hand, within the context of the Heads of Agreement, either party could withdraw at any time prior to the execution of any formal legal documents. This was inclusive of executed documents by either party. The Court held that the scanning of the documents did not objectively demonstrate an intention by the lessee to be immediately bound by the deed.
This decision highlights the complexity, causation and diligence necessary when executing and exchanging deeds.
This case also highlights the importance of the lessee and lessor understanding the procedure for the delivery and exchange of lease documentation.
