Was an agreement for lease binding?

In Tang Wai Man v Fotosky Investment Ltd ([2006] HKEC 2358, CFI) F owned the basement of a commercial building. It sent T a letter of agreement containing the terms of a proposed letting of the basement to T for use for the parking of motor vehicles (not headed ‘subject to contract’ but providing for a later formal tenancy agreement). When T then advertised for customers for the car park, F argued that the agreement was that the basement was to be used as a vehicle showroom and not for parking vehicles. F ran a vehicle parking business on other basement floors of the same building and T’s rates undercut its rates. F argued that T’s agent had misrepresented the use to which the property would be put, that in any event there was no binding agreement or (if there was) T’s use amounted to a repudiatory breach which F had accepted.

F succeeded. Although a preliminary agreement could be binding (even if a later formal agreement was envisaged) this was not the parties’ intention in this case ([69]). If there was an agreement then, despite the wording of the agreement, the parties’ shared intention was that the property was only to be used as a showroom ([62]). F had accepted a repudiatory breach.  of this term. The agreement did not properly identify the intended tenant ([72]). Although the agreement was not subject to contract, the phrase had been used by T’s agent at the outset and never been expunged ([76]). Alternatively, if there were an agreement, it had been induced by a misrepresentation ([81]).

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