Suppose you sign a three year lease to rent commercial premises from a business. The business will stay on site, but you’ll share office space and some other facilities. You’re also doing some work for that business on a building project, so the arrangement is convenient for everyone.
Before you move in, though, you decide that the premises don’t meet your needs after all. So you mention it to the landlord while you’re talking about the building project work. You tell him you’re not moving in. He tells you that’s “sweet as”, and the conversation moves on.
A few months pass. As far as you’re concerned, the lease is dead. The landlord doesn’t ask for rent or mention the lease at all. But then you complain that the business hasn’t paid you for your work on the building project. Suddenly you start getting rent demands. Are you still responsible?
This was the situation in the recent case of Goertzen v All Traffic Management Services Limited. The High Court found that the lease had not been surrendered and ATMS was still going to be liable for the rent.
So how can you be sure that a lease really has been cancelled, and that it isn’t going to turn round to bite you later? Whether you’re a landlord or a tenant, it pays to know where you stand.
The basic rule is that it must be completely clear – it must be unequivocal – from the way the landlord and tenant behave that they agree the tenancy has ended. That means the court is going to look at all the facts, not just what one person thought was agreed.
There were a few factors in this case that meant the lease was still live:
- It’s possible but pretty unlikely that a landlord would simply accept that a 3 year lease wasn’t going ahead. That’s a lot of money that they’re not going to get. Most people would expect something in return for letting the tenant out of the lease early.
- The fact the landlord’s own business continued to occupy the premises didn’t matter. The landlord and tenant were always going to share the property.
- Even if the lease had said the landlord would move out altogether, that wouldn’t have mattered. The landlord could have shifted out at short notice without a problem, once the tenant decided to move in.
- The fact the landlord hadn’t been asking for rent didn’t matter either. Quoting an earlier case, the Judge decided that “mere inaction would not be unequivocal conduct by the landlord.” In any case, here, the parties were working together on the construction project. They had a relationship to maintain. Mr Goertzen also explained that he thought the rent money could be set off against the payment that he owed to ATMS.
- The phrase “sweet as” falls quite a long way short of being an unequivocal agreement.
- The landlord – the owner of the premises – was a Trust. Mr Goertzen was only one of three trustees. He couldn’t unilaterally agree to cancel the lease – he would have had to get proper agreement.
It’s up to the tenant to prove that the landlord has accepted that the lease has been surrendered. That’s a high hurdle. If you’re the tenant, you have to work harder to make your case.
Whether you’re the landlord or the tenant, though, don’t leave it as something that’s agreed in a conversation. If there’s a disagreement later it’ll come down to who is most believable. Instead, confirm in writing that you’re surrendering the lease and make sure you get a response that makes it clear the other party agrees.
It’s also worth while to check in quickly with your lawyer. Explain the whole situation and get some advice to make sure there are no unexpected arguments down the track.