Landlord's promise to renew leases does not give rise to collateral contract or promissory estoppel

A majority of the High Court recently held that the Victorian Court of Appeal erred in finding that a statement made by a commercial landlord to a tenant that it would be "looked after at renewal time" (the statement) could give rise to a claim for promissory estoppel.1 The High Court affirmed the finding of the Court of Appeal that the statement also did not give rise to a collateral contract.

The decision affirms that statements made in pre-contractual negotiations that are vague, ambiguous or simply encouraging will not be enforceable in contract or equity. While the landlord was not liable in this case, the case is a timely reminder to both commercial landlords and tenants to be cautious about providing and relying upon encouragement and assurances made outside the terms of an agreement. Even if representations do not form part of the contract and are not subject to 'promissory estoppel', there is a significant risk that landlords and their agents may fall foul of the "misleading and deceptive conduct" provisions of the Australian Consumer Law.

Background to the case

The Appellant (the landlord) is the owner of the Melbourne Casino and Entertainment Complex. The Respondents (the tenants) held two leases limited to a term of 5 years. The leases required the tenants to undertake extensive refurbishments. The landlord did not renew the tenants' leases following a tender process and gave notice requiring the tenants to vacate the premises on the expiration of the leases. The tenants subsequently became insolvent due to write-downs of more than $2 million in the value of the refurbishments.

The tenants alleged that, in order to induce them to enter into the leases with a short 5 year term, a series of statements were made orally to the tenants by the landlord amounting to a promise that the landlord would renew the leases for a further 5 years if they undertook the extensive refurbishments.

In proceedings brought by the tenants in July 2010, the Victorian Civil and Administrative Tribunal (VCAT) found that the landlord had made the statement.2 VCAT determined that the statement gave rise to a collateral contract that required the landlord to offer the tenants further 5 year leases. In the alternative, VCAT considered that the landlord was estopped from denying the existence of the collateral contract.

The primary judge3 and the Court of Appeal of the Supreme Court of Victoria4 held that the statement did not give rise to an enforceable...