Lease a Property, can I Enter an Agreement with a Tenant or Landlord?

What is an Agreement for Lease?

If you are entering into a lease where the building is not yet constructed or if there are significant fit-out works to be done, it is likely that you will be asked to enter into an Agreement for Lease in addition to the lease.

It is often the case that people ask ‘What is the difference between an Agreement for Lease and a lease?’ and

‘Why do I need both documents?’

The simple answer is- yes. The Agreement for Lease ensures that the parties are financially and legally protected and that the terms are agreed upon, locking the parties into the proposed lease so both parties can ensure they are happy to commit to their obligations.

Agreement for Lease

If the tenant cannot occupy the premises immediately or the lease is conditional upon certain events occurring, an agreement for lease is needed to bind the parties to the promise to enter into the lease.

A lease will only bind the parties on the commencement date of the lease, where the tenant is granted a right to occupy the premises.

For example: if the landlord is not yet the owner of the property, but is currently purchasing the property they want to rent to the tenant, an agreement for lease would ensure that on the date of settlement, the landlord MUST lease the property to the tenant and the tenant MUST enter into the lease.

When do you require an Agreement for a Lease?

As mentioned above, an agreement for lease is primarily used for transactions where the tenant cannot yet occupy the premises such as:

• The landlord is not the owner of the land (but will be in the near future);
• The premises are not yet built;
• The tenant needs to obtain approval from Council as to permitted use;
• Extensive fit-out works need to be done.

It is important to ensure an Agreement for Lease is entered into in the aforementioned circumstances to protect the interests of the landlord and tenant, creating a binding intention and obligation that the parties must enter into the lease once the conditions in the Agreement for Lease have been met.

Similarly, the Agreement for Lease is a great tool to document agreements regarding fit-out costs, conditions to enter the lease and any other agreement or obligation that has been made which would fall outside the lease commencement date.