Agreed or not agreed, that is the question
In commercial renewal lease negotiations there can be a series of offers, counter-offers and commercial realities that must be faced. When the parties agree heads of terms it is often thought the hard work is done and everything is agreed, both parties can breathe a sigh of relief. In reality, transactions can quickly unravel as negotiations of the finer details emerge. Once the form of renewal lease is agreed and the court has been informed, there is no turning back and the parties can proceed straight to completion, right? In a cautionary tale to landlords and tenants (and their solicitors), it may not be too late to go back to the negotiating table.
The Court of Appeal in Goldpine Estates Ltd v Boots UK Ltd had to decide, in a lease renewal application, whether an agreement on the form of a new lease following negotiations that were “without prejudice” and “subject to contract” prevented the landlord from seeking to renegotiate terms. The solicitors had agreed the terms of the lease and were ready to issue signing copies. An issue regarding the interim rent arose and the landlord sought to revise the previously agreed terms. Despite this, the court was informed at a Case Management Conference that the lease was agreed “subject to contract”.
The court held the agreement “subject to contract” meant that the parties were not bound to enter into the new lease. Subject to contract negotiations are conditional on the lease being executed and exchanged. Although it appeared at the Case Management Conference that everything (except interim rent) was agreed, the landlord was not precluded from going back on the perceived agreement. It would disproportionate if the landlord was prevented from seeking to renegotiate terms. However, a word of warning to landlords and tenants, the court does have the ability to penalise a party for wasted costs. It is therefore sensible to make any disagreement on previously agreed terms known to the other party and the court as soon as possible.
Best practice, once a new lease is agreed and there are ongoing court proceedings, is to enter into a Tomlin order attaching the agreed lease which is submitted to the court.