How does a court determine whether the negotiations for a lease have ceased and agreement has been reached?

My friend and colleague Bill Stark has just posted on his blog a useful summary of the New South Wales Court of Appeal’s decision in BBB Constructions Pty Ltd v Aldi Foods Pty Ltd [2012] NSWCA 224.

In that case, the developer unsuccessfully sued Aldi for damages after Aldi withdrew from lease negotiations. Executed leases had not been exchanged but the developer had started construction on the site.

Bill’s comprehensive post is available here.

It concludes with the following advice:

When engaging in negotiations of any kind, it is important to recognise that you may become legally bound to the deal if you are not extremely careful in addressing the issue of when you have reached an agreement.

It is always a good idea to state in writing early for example “We will not be bound by any agreement until formal documents are signed and exchanged”.

I agree entirely with Bill’s advice.

The reverse is, of course, also true – it is a good idea to ensure that the you have signed agreements before spending money in reliance on the assumed agreement.