When Does a Draft Deal Become a Binding Agreement? High Court Guidance

As any property professional will know, negotiations can be tense and it is common for various draft agreements to fly between parties without any final deal in fact having been reached. Exactly that happened in one case involving the proposed lease of a luxury central London home at a rent of £6,500 a week.

Company A wished to lease the house from its owner, company B. A total of five tenancy agreements, in various forms, were drafted during negotiations and some of them were signed on behalf of one party or the other. Company A had been given the keys to the property, and was in the process of moving in furniture, when sticking points emerged as to the terms of the tenancy, in particular its start date.

Company A launched proceedings on the basis that a tenancy agreement had been finalised. It sought declarations to that effect and damages for unlawful eviction. Company B submitted that no binding agreement had been reached. The High Court accepted that a tenancy agreement had been signed and posted on behalf of company A. Arguments that the document had been concocted were rejected.

However, in ruling in favour of company B on the principal issue, the Court found that no final agreement had ever been achieved in respect of the tenancy's start date. The relevant document had also not been dated in accordance with its terms. Company B had thus made no offer which was capable of being accepted by company A and no binding tenancy agreement had been created.

Company A, however, was entitled to the return of monies that it had paid in respect of improvements to the property prior to the date on which it had planned to move in. A damages claim pursued by company B, on the basis that the moving of furniture into the property amounted to a trespass, was dismissed.

Publity AG. V Chesterhill Properties Limited