“It’s Only an Offer to Lease” — But Are You Already Committed?
You find a suitable premises for your business.
The leasing agent sends you a short document headed:
- Offer to Lease
- Heads of Agreement
- Letter of Offer
- Lease Proposal
- Terms Sheet
It may only be two or three pages long, so it feels considerably less serious than the formal lease that will eventually follow.
You agree on the rent, lease term and incentive, sign the document and send it back.
Then the landlord’s solicitor issues a lengthy formal lease containing provisions dealing with personal guarantees, make-good obligations, relocation, demolition, indemnities and default.
You reconsider the deal.
Can you simply say:
“I haven’t signed the lease yet, so I’m not legally bound”?
Not necessarily.
Under Australian contract law, the legal effect of an Offer to Lease or Heads of Agreement depends on the words used, the terms agreed and whether the parties objectively intended to become legally bound at that stage.
The title of the document is only one part of the analysis.
What Is an Offer to Lease or Heads of Agreement?
An Offer to Lease is commonly used before the formal commercial lease is prepared.
It records the major commercial terms negotiated between landlord and tenant, which may include:
- the premises;
- annual rent;
- lease term;
- option periods;
- rent review mechanism;
- outgoings;
- commencement date;
- access or fitout date;
- rent-free periods;
- landlord incentives;
- fitout contribution;
- bank guarantee;
- security deposit;
- personal guarantees;
- permitted use; and
- special works to be completed by either party.
For both parties, this can be an efficient way to agree the commercial deal before solicitors prepare the full lease.
The risk arises when someone assumes:
“Heads of Agreement means it is automatically non-binding.”
There is no universal rule to that effect.
The Key Question: Did the Parties Intend to Be Bound?
The leading Australian authority remains the High Court decision in Masters v Cameron.
The Court recognised that parties may agree commercial terms while contemplating a later formal contract, but the legal result depends on their objective intention.
Broadly, the arrangement may fall into situations where:
- the parties have already reached a binding agreement and the formal document simply records it;
- the parties have agreed terms but performance remains conditional upon execution of a formal contract; or
- the parties intend that there will be no concluded contract until the formal document is signed.
The High Court also recognised the significance of expressions such as “subject to contract”, which can indicate that execution of the formal agreement is intended to be a condition before legal obligations arise.
For commercial leasing, this means the question is rarely answered simply by looking at the heading “Offer to Lease”.
You need to read the document itself.
Words Such as “Subject to Lease” Matter
One of the first things a solicitor will usually look for is wording such as:
“Subject to lease”
“Subject to execution of formal lease documentation”
“Subject to contract”
“This document is not intended to create legal relations”
or
“Except for clauses X and Y, this Heads of Agreement is non-binding.”
Clear wording of this kind can be highly significant.
For example:
“This proposal is subject to the parties entering into and executing formal lease documentation acceptable to both parties.”
is very different from:
“The parties agree to be bound by the following terms, with formal lease documentation to follow.”
The first points towards further documentation being required before the substantive lease arrangement takes effect.
The second suggests the commercial deal may already have contractual force.
The entire document and surrounding circumstances still need to be considered.
Example: A Tenant Signs a Two-Page Offer
Assume a café operator signs the following Offer to Lease:
Premises: Shop 8
Rent: $90,000 + GST per annum
Term: 5 years
Option: Further 5 years
Bank Guarantee: 6 months’ rent
Fitout Contribution: $80,000
Permitted Use: Café
Commencement Date: 1 November
The landlord countersigns.
Two weeks later, the tenant receives the full lease.
It contains provisions allowing:
- relocation during redevelopment;
- demolition termination;
- extensive make-good works;
- personal guarantees from the directors;
- broad indemnities; and
- significant obligations relating to repairs and maintenance.
The tenant now wants to withdraw.
The answer cannot safely be reduced to:
“The formal lease wasn’t signed.”
The Offer to Lease must first be reviewed to determine whether the parties had already created a contract or whether their agreement remained conditional upon execution of the formal lease.
A Formal Lease Can Contain Much More Than the Offer
This is one of the strongest reasons to obtain legal advice before signing the Offer to Lease.
The Offer often focuses on the commercial headline terms.
The formal lease may then contain dozens of pages dealing with matters including:
- make-good obligations;
- repair and maintenance;
- air-conditioning;
- relocation;
- redevelopment;
- demolition;
- insurance;
- indemnities;
- legal costs;
- default interest;
- landlord access;
- assignment;
- subletting;
- change of control;
- personal guarantees;
- bank guarantees;
- permitted use;
- signage;
- trading obligations; and
- termination.
Once an Offer to Lease has been signed, it may become commercially—and sometimes legally—more difficult to renegotiate matters that could have been addressed before the document was executed.
A tenant should therefore treat the Offer to Lease as an important legal document rather than simply an administrative step used to reserve the premises.
“Non-Binding” Does Not Always Mean Every Clause Is Non-Binding
Some Heads of Agreement are drafted so that the main commercial leasing terms are expressly non-binding, while particular provisions take effect immediately.
Common examples include:
- confidentiality;
- exclusivity;
- access for due diligence;
- responsibility for legal costs;
- payment of a deposit;
- governing law; or
- restrictions on negotiating with other parties.
For example, the document might say:
“Except for clauses relating to confidentiality, exclusivity and costs, this Heads of Agreement is not legally binding.”
The result may be that the tenant remains free not to proceed with the lease, while still being legally required to comply with those specific clauses.
This is another reason why reading only the words “non-binding Heads of Agreement” at the top of the document can be misleading.
Does Paying a Deposit Mean You Are Bound?
Not by itself.
A deposit can serve different purposes.
It may be:
- a holding deposit to secure the premises temporarily;
- security for the proposed transaction;
- part-payment under an already binding agreement; or
- an amount held pending execution of the formal lease.
The surrounding documentation matters.
For Queensland retail shop leases, the statutory position is particularly relevant: the Retail Shop Leases Act 1994 (Qld) provides that a retail shop lease is regarded as entered into on the earliest of the date it is signed by all parties, the date the tenant takes possession under the lease, or the date the tenant first pays rent—excluding a deposit paid merely to secure the premises.
This demonstrates why a holding deposit should not automatically be treated as equivalent to rent or proof that the statutory retail lease has commenced.
However, the separate common-law question of whether a preliminary Offer to Lease itself created contractual obligations still depends on the document and circumstances.
What If the Tenant Has Already Taken Possession?
This makes the situation more significant.
Consider a tenant who has:
- signed an Offer to Lease;
- received the keys;
- entered the premises;
- started fitout works;
- paid rent; and
- begun operating the business.
Even if the formal lease remains unsigned, the legal relationship cannot safely be analysed solely by saying:
“There is no signed lease.”
For a retail shop lease governed by the Queensland legislation, entering possession or paying rent can themselves be statutory events determining when the retail shop lease is entered into.
For other commercial leasing arrangements, the parties’ conduct may also be relevant when determining what agreement exists and on what terms.
A tenant should obtain legal advice promptly if occupation has commenced while documentation remains incomplete.
Retail Shop Leases Have Additional Queensland Disclosure Requirements
Where the premises constitute a retail shop lease under the Retail Shop Leases Act 1994 (Qld), additional statutory rules apply.
Subject to the legislation’s exceptions and waiver provisions, the landlord generally must provide the prospective tenant with:
- a draft lease; and
- the prescribed lessor disclosure statement
at least 7 days before the tenant enters into the retail shop lease.
Prospective retail tenants also have their own disclosure obligations, and certain tenants must provide prescribed legal and financial advice reports before entering into the lease.
This creates an important practical distinction:
Whether an Offer to Lease is contractually binding and whether the statutory retail lease has been “entered into” are related but separate legal questions.
The Retail Shop Leases Act defines when the retail lease itself is entered into, while ordinary contract-law principles remain relevant when assessing the legal effect of preliminary negotiations and documents.
Why You Should Check Whether the Retail Shop Leases Act Applies
Not every Queensland commercial lease is a retail shop lease.
The statutory protections may apply to many shops and businesses in retail shopping centres and to prescribed retail businesses, but there are exclusions.
For example, a commercial office, warehouse or certain larger premises may fall outside the retail leasing regime.
If the Act does not apply, the parties’ contractual documents become even more important because many statutory retail protections may be unavailable.
When reviewing an Offer to Lease, one of the first questions should therefore be:
Is this proposed lease governed by the Retail Shop Leases Act 1994?
What Should a Tenant Check Before Signing an Offer to Lease?
A tenant should ideally review more than the rent.
1. Is the Offer Binding or Non-Binding?
Look for language dealing with legal intention, including:
- subject to lease;
- subject to contract;
- subject to legal review;
- subject to board approval;
- non-binding;
- legally binding; or
- execution of formal lease documentation.
Ambiguous wording should be clarified before signing.
2. Exactly Which Premises Are You Leasing?
Check:
- shop number;
- floor area;
- attached plan;
- car parks;
- storage areas;
- exclusive-use areas; and
- common areas.
3. When Does Rent Start?
The following dates can be different:
Access Date
Fitout Commencement Date
Lease Commencement Date
Rent Commencement Date
They should be clearly distinguished.
4. What Outgoings Are Payable?
The headline rent may not represent the full occupancy cost.
Check whether the tenant pays:
- Council rates;
- water charges;
- body corporate expenses;
- insurance contributions;
- cleaning;
- security;
- centre management expenses; or
- promotion levies.
Retail shop leases are subject to additional statutory restrictions regarding recoverable outgoings.
5. What Security Is Required?
Check the amount and form of:
- bank guarantee;
- cash security;
- personal guarantee; and
- director guarantee.
A five-year corporate lease backed by unlimited personal guarantees creates a very different risk profile from a lease where liability remains with the tenant company.
6. What Is the Incentive?
If the landlord offers:
- rent-free months;
- rent abatement;
- cash contribution;
- fitout contribution; or
- landlord works,
make sure the Offer records the arrangement accurately.
Also check whether the formal incentive deed may contain clawback provisions if the lease terminates early or the tenant defaults.
7. What Is the Permitted Use?
The permitted use should be broad enough for the intended business.
But remember:
A permitted use in the lease does not itself establish that Council or another regulator has approved that use.
Planning, licensing and building approvals may require separate due diligence.
8. Are There Important Special Conditions?
If the transaction depends on something occurring before the tenant commits, consider whether the Offer needs to be expressly subject to matters such as:
- satisfactory legal review;
- Council approval;
- finance;
- liquor licence;
- franchise approval;
- building approval;
- due diligence;
- landlord works; or
- fitout approval.
If the condition matters commercially, it should be documented clearly.
One of the Biggest Risks: “Standard Lease Terms”
An Offer to Lease may say:
“Lease to be on the landlord’s standard terms.”
That phrase deserves attention.
The tenant may not yet have seen those standard terms.
They could include provisions dealing with:
- personal guarantees;
- relocation;
- demolition;
- extensive make-good;
- compulsory trading hours;
- redevelopment;
- indemnities; or
- limits on assignment.
Before agreeing that the lease will be on the landlord’s standard terms, it is sensible to request and review the draft lease.
For Queensland retail shop leases, the statutory disclosure regime already generally requires the landlord to provide the draft lease before the retail lease is entered into.
For other commercial leases, obtaining it before committing remains an important commercial precaution.
Can the Tenant Renegotiate After Signing the Heads of Agreement?
Sometimes, but the negotiating position may have changed.
If the Heads of Agreement is clearly non-binding, the tenant may still have scope to negotiate the detailed lease terms.
However, the landlord may respond:
“You already agreed to that commercial position in the Heads of Agreement.”
Even where this does not decide the legal question, it can make negotiations more difficult.
If the Heads of Agreement itself is binding, attempting to renegotiate an already agreed matter raises a different issue entirely.
The strongest negotiating position is usually before the Offer to Lease is signed.
What If You Have Already Signed and Want to Withdraw?
Avoid assuming either:
“I can walk away because the lease isn’t signed”
or
“I signed the Offer, so I’m definitely stuck.”
Both can be wrong.
A solicitor will usually need to review:
- the Offer to Lease or Heads of Agreement;
- emails and correspondence;
- whether the landlord countersigned;
- any deposit arrangement;
- whether the parties expressly stated that negotiations were subject to lease;
- whether a draft lease has been issued;
- whether possession has been given;
- whether rent has been paid;
- any fitout works already commenced; and
- the parties’ conduct after signing.
The legal position turns on the documents and circumstances.
If a dispute is emerging, obtaining advice before sending a purported termination or withdrawal notice can be important.
Landlords Should Be Clear About Intention Too
This issue is not only a tenant risk.
A landlord may believe that a signed Offer to Lease has secured the deal and stop marketing the premises.
If the document is actually drafted as clearly non-binding until formal lease execution, the prospective tenant may have greater freedom to withdraw than the landlord expected.
Conversely, a landlord who intends negotiations to remain non-binding may inadvertently create uncertainty by using mandatory language such as:
“The landlord agrees to lease and the tenant agrees to take the premises…”
without an effective qualification making the arrangement subject to formal lease execution.
Both parties benefit from stating clearly whether the document is intended to:
- create an immediate binding lease agreement;
- bind only specific clauses; or
- remain entirely non-binding until the formal lease is executed.
Practical Example: Two Offers That Look Similar
Offer A
Rent: $100,000 per annum
Term: 5 years
Option: 5 years
“These terms are subject to execution of formal lease documentation and are not intended to create a binding lease.”
This provides relatively clear evidence that execution of the formal lease is intended before the lease obligations become binding.
Offer B
Rent: $100,000 per annum
Term: 5 years
Option: 5 years
“The landlord agrees to lease the premises to the tenant on the following terms. The parties will execute the landlord’s formal lease.”
This wording creates a materially different question.
The reference to a future formal lease does not necessarily establish that the parties intended to postpone all legal obligations until that document was signed.
That distinction is why a few words in an Offer to Lease can have consequences far greater than the length of the document suggests.
Before Signing: A Simple Commercial Lease Checklist
Before signing an Offer to Lease or Heads of Agreement, consider confirming:
- Binding status — Is the document legally binding?
- Premises — Exactly what area are you leasing?
- Rent — Base rent, GST and review mechanism.
- Outgoings — What costs are additional?
- Term — Initial term and options.
- Dates — Access, fitout, commencement and rent commencement.
- Security — Bank guarantee and personal guarantees.
- Incentive — Rent-free period or fitout contribution.
- Permitted use — Is it broad enough for your business?
- Approvals — Are planning or licensing approvals required?
- Make good — What will be required at the end?
- Relocation/demolition — Does the landlord expect these rights?
- Special conditions — Finance, approvals or due diligence.
- Retail lease legislation — Does the Retail Shop Leases Act apply?
- Legal review — Has the document been reviewed before signing?
A two-page Offer to Lease can determine the commercial framework for a five- or ten-year commitment.
Its size should not determine how seriously it is reviewed.
Frequently Asked Questions
Is a Heads of Agreement always legally binding in Queensland?
No universal rule applies. Its legal effect depends on the wording, completeness of the agreement, objective intention of the parties and surrounding circumstances. A document expressly made subject to execution of a formal contract may produce a different result from one stating that the parties are immediately bound.
Does “subject to lease” make the document non-binding?
It can be strong evidence that the parties intend formal lease execution to occur before substantive lease obligations arise, but the whole document and circumstances must be considered.
Can an Offer to Lease be binding even if the formal lease has not been signed?
Potentially. The absence of the final lease signature does not by itself determine whether an earlier agreement created contractual obligations.
Is paying a holding deposit the same as entering into the lease?
For a Queensland retail shop lease, the Act expressly excludes a deposit paid merely to secure the premises when identifying the first payment of rent that can trigger the statutory date the lease is entered into.
What if I have already moved into the premises?
Take legal advice promptly. For Queensland retail shop leases, taking possession under the lease can itself be the date on which the lease is treated as entered into under the Act.
Should I have a lawyer review the Offer to Lease or wait for the full lease?
Reviewing the Offer first can be valuable because this is usually when the major commercial terms—and the parties’ negotiating positions—are being established.
The Key Point: Review the Offer Before You Sign
An Offer to Lease may look informal.
It may be short.
It may have been prepared by a leasing agent rather than a solicitor.
None of those facts automatically determine its legal effect.
The important question is:
What have the parties agreed to, and did they intend to become legally bound at this stage?
Once rent, term, security, incentives and other commercial terms have been agreed in writing, correcting an unfavourable position can become considerably harder.
For tenants and landlords alike, the better time to clarify the legal effect of a Heads of Agreement is before it is signed, rather than after one party tries to withdraw.
Signing an Offer to Lease in Queensland?
Ensure Legal 安信法律 assists landlords and tenants with:
- Offers to Lease;
- Heads of Agreement;
- commercial lease reviews;
- retail shop leases;
- lease negotiations;
- disclosure requirements;
- incentives;
- personal guarantees;
- make-good provisions; and
- commercial leasing disputes.
If you are about to sign an Offer to Lease—or have already signed one and are unsure whether you are legally committed—obtaining advice early can clarify your position before further costs or obligations arise.
Disclaimer: This article provides general information only and does not constitute legal advice. Whether an Offer to Lease, Heads of Agreement or other preliminary document is legally binding depends on its wording, negotiations, conduct of the parties, applicable legislation and the circumstances of the transaction. Specific legal advice should be obtained for your matter.
