Colvin v Lennard[2012] QDC 71

DISTRICT COURT OF QUEENSLAND

[1] The Plaintiff owns a commercial property in Fortitude Valley. On July 17, 2006, following various discussions between the parties and the Plaintiff’s real estate agent, the Defendants signed a letter of intent to lease the property. The letter was then signed by the Plaintiff’s predecessor in title (his mother, who has since died) on or about July 18, 2006 and the Defendants were informed of that the next day. On July 25, 2006 the Defendants paid the deposit of $8,429.66. Two days later, the Defendants purported to terminate the arrangement. The Plaintiff regarded that as a repudiation. The Plaintiff accepted the Defendants’ repudiation and terminated the arrangement by letter dated August 4, 2006 to the Defendants. No formal lease instrument was ever prepared or executed.

[2] The Plaintiff argues that the letter of intent was a binding agreement and accordingly the Defendants are liable for the quantified damages of $113,317.87―as the property was not re-let until January 2007.

[3] The Defendants say that the letter of intent was really just an application form for a lease to enable the Plaintiff to assess their lease-worthy capacity. They also say that the Plaintiff (a) revised the bank guarantee requirement so as to require its provision by the Defendants; (b) did not complete certain required works; and (c) did not remove the “For Lease” signs on the property.

[4] The executed letter of intent (omitting trade referees) was as shown below:

[5] As is evident, the letter specifies the property, the parties (lessor and lessee), the lease term, renewal options, commencement date (August 1, 2006), when possession will be granted, rental outgoings recoverable, deposit payable, rental review, lessee’s proposed use, insurance required, property management, reinstatement and decoration requirements, trade referees, the need for a statement of the lessee’s assets and liabilities, repairs and maintenance, air conditioning and lessor’s works. The letter concluded by stating that once it was signed, the lessor’s solicitor would prepare a lease incorporating the letter’s terms together with the usual terms applicable to a lease of that type, and submit it for perusal and signature.

[6] The Defendants signed the clause that they wished to take a lease over the subject premises on the terms and conditions outlined therein and subject to the lessor’s final acceptance. The lessor signed the clause which accepted the Defendants’ offer of lease on the terms and conditions outlined therein, together with the usual terms applicable to a lease of that type.

[7] Attached to the letter of intent were (a) written verification by the Defendants that a bank guarantee by the second Defendant’s mother (Ms Carol O'Brien) for $50,000 was provided and (b) the Defendants’ statement of personal assets and liabilities.

[8] In Masters v Cameron (1954) 91 CLR 353, 360-2, the High Court said that where negotiating parties reach agreement upon terms of a contractual nature and also agree that the matter will be dealt with by a formal contract if the parties have reached finality in arranging all of the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller and more precise but no different in effect, then a binding contract has come into effect at once for the parties to perform the agreed terms whether the contemplated formal agreement comes into existence or not.

[9] In determining this situation, the decisive issue is the intention of the parties, as objectively ascertained from the terms of the document, when read in light of the surrounding circumstances: see Niesmann v Collingridge (1921) 29 CLR 177, 181; Moffatt Property Development Group Pty Ltd v Hebron Park Pty Ltd [2009] QCA 60, at [40], [42].

[10] An analysis of the terms of the letter of intent demonstrates that all of the principal terms of the agreement have been identified and provided for: the property, the identities of the lessor and lessee, the lease period, the options to renew, the rent payable, the obligation to pay outgoings, the mechanics of payment etc, are all clearly expressed. None of the letter’s obligations are calculated by reference to the execution of a formal agreement: the commencement date clause states that the lease and rental and outgoings recoverable payments will commence on August 1, 2006; the possession clause provides that the lessor will provide possession when the lessee complies with the 3 requirements prescribed; and the deposit clause requires payment of a month’s rent upon signing the letter.

[11] The letter also uses the language of a binding agreement: the last page of the agreement asks the lessees to sign the letter and pay the deposit “if the above summary correctly reflects your understanding of an agreement made in discussion with the lessor” and the execution clause uses the language of offer and acceptance. The statement requiring “the usual terms applicable to a lease of this type” to be included is not uncertain or incomplete because, as Keane JA said in Hebron Park at [56], the facilitation of the mechanical details of the implementation of the parties’ agreement could be supplied by implied terms and considerations of reasonableness which obviated the need for further express agreement.

[12] In my opinion, the objective intention of the parties, ascertained from the terms of the letter of intent was to create an immediately binding agreement. Contrary to the Defendants’ submissions, the letter does not use the language of a lease application form and I see no reason to think that it could be so viewed.

[13] The Defendants also relied heavily upon an alleged communication between the Plaintiff and the First Defendant on July 25, 2006, to the effect that the Plaintiff needed a bank guarantee by the Defendants and not by the Second Defendant’s mother. Therefore, the Defendants submitted that without that particular guarantee―and none was forthcoming, no lease agreement was concluded. The Plaintiff could not recall that conversation but conceded that it may have occurred.

[14] However, whether or not that conversation occurred does not impact upon the conclusion of the lease agreement but rather, as the letter of intent makes clear, whether and when the lessor will grant the lessee possession. The provision of the bank guarantee was a pre-condition to possession, whereas the various other obligations in the letter (such as to pay the rent and outgoings) are quite separate and more fundamental.

[15] Next, the Defendants complain that certain works (adding a skirting board to the boardroom, evening out an uneven floor in the rear warehouse, attaching a rear sliding door and pruning an overgrown vine), which the Plaintiff agreed to perform, were not done. With respect, this point really leads nowhere because the Defendants terminated the agreement before those works could have been completed. I reject any proposition that the non-completion of those works by the time the Defendants terminated the agreement has the result that the principal lease agreement never came into being. However, some other works referred to in the letter of intent and by the Defendants in their Notice of Defence (provision of an air conditioning plant, supply and installation of a rail in the disabled person’s toilet, relaying of electrical cables and completing some electrical works in the boardroom) were completed by July 21, 2006.

[16] Finally, the Defendants submitted that the property was never taken off the market―and therefore, inferentially, no lease was ever concluded because the “For Lease” signs remained on the premises and the property was still listed on the internet for lease. However, the Plaintiff gave evidence (which I accept) that the removal of the signs and listings was a matter for his real estate agent and that would eventually have been done. In my view, it does not lead to the conclusion advanced by the Defendants.

[17] I have therefore concluded that none of the points advanced by the Defendants alters my finding that the letter of intent created an immediately binding agreement between the Plaintiff and the Defendants.

[18] The remaining issue is quantum. The amount sought is $113,317.87 and was supported by invoices. The Plaintiff submitted that it was calculated on the following basis:

1. (a)
   First, by calculating the rent payable by the Defendants for the initial 3- year period of the lease (August 1, 2006 to July 31, 2009), including the CPI increases to which the parties agreed at the commencement of the second and third years of the lease;
2. (b)
   Secondly, by adding the outgoings paid by the Plaintiff for the period between the commencement date of August 1, 2006 and January 27, 2007, which is the date from which the next tenant started paying rent and outgoings. The Defendants were required to pay outgoings pursuant to the letter of intent;
3. (c)
   Thirdly, by adding costs incurred by the Plaintiff in re-letting the property. Mainly, those costs included advertising costs, agent’s commission and certain works required by the new tenant, before it would lease the property; and
4. (d)
   Finally, by deducting the rent paid by the new tenant, for the period January 27, 2007 to July 31, 2009.

[19] The Defendants did not dispute quantum. It is taken to be admitted under Uniform Civil Procedure Rules, r 166 and I see no reason to not accept the Plaintiff’s calculation. I therefore find that the total amount of loss and damage which was suffered by the Plaintiff as a result of the Defendants’ repudiation of the lease agreement was $113,317.87.

[20] In all of the circumstances, I give judgment to the Plaintiff against the Defendants in the sum of $113,317.87 together with interest pursuant to the Supreme Court Act 1995 (calculated at $37,969.77) and costs (including reserved costs, if any).

…

[21] The Defendants are to pay the Plaintiff’s costs on and after September 1, 2009 on an indemnity basis.