Landlords, Don’t Hand over the Keys Yet! Tenants, Don’t Accept the Keys Yet!

Under section 7 of the Retail Leases Act, a lease commences upon the first of the following occurring:

1. A tenant enters into possession of the premises with the consent of the landlord;
2. A tenant begins to pay rent for the premises; or

3. The lease is signed by all parties.

The third option is the traditional and more desirable of the above to occur, and it also puts beyond doubt that all of the parties to a lease actually intend to enter into one.

But section 7 means that, where either of the first two options precede the third option (indeed, option three might not ever even happen), a lease is formed at law regardless of even whether the parties intend to enter into a lease.

This is important, for both tenants and landlords. Tenants may enter into a lease (by, for example, accepting the keys), and invest money in fit-out, on the faith that once a “formal” lease document is signed, it will contain certain terms. Such faith may end up being misplaced and there is no legal way of forcing a landlord to include terms in a lease that were not already there at the beginning. Landlords, however, bear most of the burdens imposed by the Retail Leases Act from the commencement of the lease. They are forced to grant the tenant a minimum five-year term (with very few exceptions). They are vulnerable, if they have not given the tenant a copy of various documents, including a copy of the signed lease (which may be impossible because such a document may not even exist), to the tenant instantly ending the lease because of that default in providing the document.

For these reasons, no tenant should accept the keys, and no landlord should hand over keys, prior to an agreed lease document being signed by all parties. Both parties should of course seek legal advice prior to signing any such document.

For more information please contact Samuel McMahon or a member of the Lease Disputes Team.