How to Defeat Ostensible Authority Claims in Commercial Leasing

An agent calls with "great news"—they've secured a blue-chip tenant for your flagship commercial space, and the deal is "done." The terms are locked in, the tenant is preparing to move, and the commission is all but paid. But you, the developer, never gave the final sign-off on those specific terms.

This scenario is a developer's nightmare, introducing the core threat of being legally bound to a disadvantageous lease by an agent who overstepped their authority. The legal mechanism that makes this possible is known as "ostensible authority" (or apparent authority), and it represents a significant financial and operational risk.

This article provides a clear, defensive strategy for developers to understand and dismantle these claims, using the fictional but illustrative case of FPP Beyuern Pty Ltd v Hemmington Pty Ltd QSC 999 as a guide. With the legal landscape shifting under the new Property Law Act 2023 (Qld), understanding these principles has never been more critical.

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Key Takeaways

• What is Ostensible Authority: It's a legal doctrine where an agent (like a real estate agent) can bind you to a lease without your actual permission, based on how you've represented their power to a third party (the tenant).

• The Three-Pillar Test: A tenant's claim only succeeds if they can prove all three elements: a representation by you (the developer), reliance on that representation by the tenant, and a resulting detriment.

• Your Defence is Proactive: The strongest defence is prevention. Clearly define your agent's authority in writing and communicate these limits to all prospective tenants before negotiations conclude.

• The New Property Law Act 2023: This legislation introduces stricter disclosure and consent requirements, creating new tripwires for unauthorised agent actions and new defensive opportunities for developers.

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Why Ostensible Authority is a Ticking Time Bomb for Developers

The concept of ostensible authority is a ticking time bomb in the high-pressure world of commercial leasing. A developer's risk is magnified when market dynamics push agents to close deals quickly, sometimes blurring the lines of their actual agent authority. For developers in Queensland, understanding this legal doctrine is not just theoretical; it's a crucial part of risk management, especially with the new Property Law Act 2023 reshaping landlord obligations.

The High-Stakes Commercial Environment in Queensland

Developers currently face immense market pressures. In Brisbane, tight CBD office vacancy rates have compressed to ~9.5%, the lowest point since 2013. However, this is paradoxically paired with the need for high incentives, often around 40%, to finalise deals.

This combination creates a high-stakes environment where leasing agents are under enormous pressure to act quickly and decisively. In their haste to secure a commission, they may exceed their actual authority, inadvertently exposing the developer to the risk of being bound to an unwanted or unprofitable lease agreement.

Defining Ostensible Authority vs. Actual Authority

It is critical to differentiate between the two types of authority an agent can possess:

• Actual Authority: This is the power you explicitly grant your agent, whether in a written agency agreement or through verbal instructions. It is clear, defined, and controlled by you, the principal.

• Ostensible Authority: This is the authority a tenant reasonably believes the agent has, based on your words or actions (as the developer). The legal test for ostensible authority focuses not on the private instructions you gave your agent, but on the impression you gave the tenant.

This distinction is where developers often get into trouble. A casual remark like "just sort it out with my agent" can be interpreted as granting that agent the power to finalise the entire deal, creating significant legal exposure regardless of what your written agreement with the agent says.

The Impact of the New Property Law Act 2023

The legal framework governing these interactions is evolving. The shift from the old 1974 Act to the new Property Law Act 2023 (Qld), which commenced on 1 August 2025, introduces more rigorous statutory procedures that create additional defensive opportunities for developers.

For instance, section 142 of the new Act establishes a mandatory formal process for landlord consents (such as approvals for lease assignments, subleases, or alterations), requiring specific written notices, one-month decision timeframes, and documented reasons for any refusal or conditions. These provisions cannot be contracted out of. Similarly, the Act introduces standardised lease terms and formal notice requirements throughout Part 9 that impose strict procedural compliance on all parties to leasing arrangements.

These new statutory formalities serve as a powerful defensive tool in ostensible authority disputes. If an agent has allegedly bound you to a lease while bypassing these mandatory procedures, you can argue that any reasonable commercial tenant should have recognised the agent was acting outside proper authority.

An agent's failure to follow the Act's strict statutory processes—such as providing formal written notices in prescribed forms or adhering to mandatory timelines—becomes compelling evidence that they were operating beyond the scope of any legitimate authority. This strengthens a developer's position by demonstrating that the tenant's reliance on informal agent communications, rather than the Act's required formal procedures, was unreasonable in the current legal environment.

Understanding the Three Pillars of an Ostensible Authority Claim

For a tenant to successfully argue they have a binding lease based on ostensible authority, they must prove three distinct legal elements. A developer's defence strategy hinges on understanding and systematically dismantling at least one of these pillars. The claim fails if even one pillar cannot be substantiated by the tenant. The core elements of an ostensible authority claim are representation, reliance, and detriment.

Pillar 1: A "Representation" Was Made by the Developer

The entire foundation of an ostensible authority claim rests on a "representation" made by the developer (the principal) to the tenant (the third party). This is the action or statement that created the appearance of authority.

This representation can be:

• Explicit: A direct statement, such as telling a prospective tenant, "John is my agent and he handles all negotiations and finalises our lease agreements."

• Implied: This is the more dangerous and common form. Implied representations can arise from conduct, such as equipping an agent with a branded office on-site, allowing them to use your company's official letterhead for all correspondence, or having a known history of letting that specific agent finalise deals without direct intervention. The law looks at the overall picture you presented to the outside world.

Pillar 2: The Tenant "Relied" on That Representation

The second legal requirement is that the tenant must prove they genuinely believed the agent had the authority to finalise the lease, and that this belief was a direct result of the developer's representation.

This is a two-part test:

1. Subjective: The tenant must demonstrate that they personally believed the agent had the power to bind the developer.

2. Objective: This belief must also be reasonable for any commercial tenant in a similar situation. A court will assess whether a prudent business person would have accepted the agent's word without seeking final confirmation from the developer.

Pillar 3: The Tenant Suffered a "Detriment" Due to That Reliance

Warning: The "detriment" element is often underestimated by developers but is a crucial component of the tenant's case. Detriment is not limited to a direct financial loss. It can encompass a wide range of actions taken by the tenant in the belief that a deal was done. This can include giving up negotiations on an alternative property, incurring legal fees to review the "agreed" lease, ordering specific fit-out materials, or making concrete business plans based on securing the new premises. Even seemingly minor actions, if taken in reasonable reliance on the "deal," can be legally recognised as a detriment, completing the three essential pillars for a successful ostensible authority claim against you.

Your Defensive Playbook for Dismantling the Claim

A proactive defence strategy is the most effective way to defeat an ostensible authority claim. Rather than waiting for a dispute to arise, developers should build a procedural fortress that makes it difficult for a tenant to establish the three essential pillars.

The goal is to create a clear, documented trail that defines and limits your agent's authority, making any subsequent claim of apparent authority legally untenable. This playbook focuses on systematically attacking each pillar of the tenant's potential claim.

Attacking Pillar 1: Proving No Representation Was Made

The most powerful defence is to prevent the "representation" from ever being made. This involves a two-pronged approach of internal control and external communication. First, you must establish a tightly worded agency agreement. This is a critical commercial contract that should explicitly state the agent has no authority to bind the developer to any lease, agreement to lease, or any other contractual obligation. It should clearly define their role as a facilitator of negotiations, not a final decision-maker.

The second, and arguably more critical, step is to communicate this limitation directly to the prospective tenant. This should be done in writing at an early stage of the negotiations, for example, within the Heads of Agreement or a preliminary offer letter. A simple clause stating, "This offer is non-binding until a formal lease document is executed by the Lessor" or "The agent has no authority to bind the Lessor to any agreement" is invaluable. This documentation becomes your primary evidence. When a tenant later claims they believed the agent had final authority, you can produce a document they received and acknowledged that explicitly states the opposite.

This simple, proactive step effectively neutralises the "representation" pillar before it can even be constructed and is a key strategy for avoiding costly commercial property disputes.

Attacking Pillar 2: Demonstrating the Tenant's Reliance Was Unreasonable

Expert Insight: Even if a representation was arguably made, you can attack the second pillar by demonstrating that the tenant's reliance on it was unreasonable in a commercial context. For sophisticated commercial tenants, particularly in high-value leases in Brisbane or the Gold Coast, the argument that they relied solely on an agent's verbal or emailed confirmation for final sign-off is often weak.

The core of this argument is that standard industry practice involves the final execution of formal legal documents by the principals—the developer and the tenant—not their agents. A developer's legal team can argue that the tenant, as a commercial entity, is expected to have a certain level of business acumen. They should have known that a multi-million dollar lease is not finalised on a handshake or a brief email from a leasing agent. They should have sought direct confirmation or waited for the fully executed lease documents from the developer's lawyers before acting as if the deal was done.

This strategy effectively shifts the onus of reasonableness onto the tenant, forcing them to justify why they deviated from standard commercial practice.

Attacking Pillar 3: Negating the Claim of Detriment

If the first two pillars hold, your final line of defence is to scrutinise and negate the tenant's claim of detriment. This is not a passive defence; it requires an aggressive demand for evidence. Your legal counsel will demand concrete, quantifiable proof of the alleged losses. Vague claims of "lost opportunities" are insufficient.

The process involves challenging the tenant's evidence on two fronts: timing and causation. For example, if the tenant claims they abandoned negotiations for another property, you must demand evidence of when this occurred. Did they abandon the other property before or after they should have reasonably expected to receive fully signed documents from your side? If they acted prematurely, their detriment was self-inflicted. Similarly, you can argue that many of the costs they incurred—such as legal fees for reviewing a draft lease or preliminary fit-out designs—are a normal business risk inherent in any negotiation process.

These are costs of trying to secure a deal, not a legal detriment flowing from a reasonable reliance that a deal was already finalised. By carefully dissecting the claim, you can often prove that no legally recognisable detriment occurred.

Case Study: How FPP Beyuern v Hemmington Created a Costly Lesson

Legal principles are best understood through practical examples. The fictional case of FPP Beyuern v Hemmington serves as a powerful illustration of how easily a developer can become entangled in an ostensible authority dispute and highlights the critical importance of disciplined communication. This scenario could easily end up before a body like the Queensland Civil and Administrative Tribunal (QCAT) or the courts, creating significant litigation risk.

The Factual Scenario: A Handshake Deal Goes Wrong

Illustrative Example: FPP Beyuern Pty Ltd, a developer, engaged a leasing agent, "Chris," giving him a wide brief to find a tenant for a new industrial unit on the Sunshine Coast. During a site inspection with a promising prospect, Hemmington Pty Ltd, FPP's director was keen to build rapport. In a casual meeting, he told Hemmington's director, "Chris handles everything for us, just work it out with him. He knows what we need." Taking this as a green light, Chris entered into intense negotiations with Hemmington. Under pressure to meet his quarterly targets, Chris eventually emailed Hemmington, stating, "Great news, we are all agreed on the terms. The deal is done. Welcome aboard." Unfortunately, these terms included a rent-free period that FPP's director had not approved.

The Court's Ruling: Why the Developer Was Bound

When FPP refused to honour the lease on the terms Chris had "agreed," Hemmington sued, and the matter proceeded to court. The fictional judge's ruling was a costly lesson for FPP.

The court found that all three pillars of ostensible authority were established:

1. Representation: The director's casual comment, "Chris handles everything for us," was deemed a clear and unambiguous representation to Hemmington that Chris had the authority to finalise the deal.

2. Reliance: Hemmington demonstrated that they relied on this representation by immediately ceasing their search for other properties and notifying their current landlord.

3. Detriment: The court found that Hemmington had suffered a detriment by giving up the opportunity to secure an alternative premises and incurring preliminary costs for their planned move.

The court ruled that despite Chris's lack of actual authority to grant the extended rent-free period, ostensible authority existed. FPP was legally bound to the unfavourable lease. This case underscores how a single, careless statement can override a detailed agency agreement and why a developer would urgently need a skilled commercial litigation team to manage the fallout.

Fortifying Your Operations Against Future Agency Risk

The lesson from cases like FPP Beyuern v Hemmington is that preventing ostensible authority claims is a matter of operational discipline, not just legal theory. Developers must implement robust internal controls and clear protocols to manage agency risk. This involves fortifying both your legal agreements and your day-to-day communication practices, which is a key aspect of sound corporate governance in the building and construction law sector.

Crafting Ironclad Agency Agreements

Your first line of defence is the agency agreement itself. This document must be meticulously drafted to leave no room for ambiguity regarding the agent's powers.

The practical steps for creating a protective agreement include:

1. An Explicit Limitation Clause: The agreement must contain a clear and prominent clause stating that the agent has no authority to execute, sign, or otherwise bind the developer (the Principal) to any lease, agreement to lease, offer, or any other form of contract.

2. A Process Clause: Define the exact procedure for handling offers. This clause should mandate that all offers must be presented to the developer in writing for review and that any acceptance of an offer will only be communicated directly from the developer's designated legal representative or a named director. This prevents the agent from becoming the messenger of a binding acceptance.

3. An Indemnity Clause: Include a clause that makes the agent liable for any losses, damages, or legal costs incurred by the developer as a direct result of the agent exceeding their actual, specified authority. This creates a powerful financial disincentive for the agent to overstep their bounds.

For complex commercial leasing arrangements, it is crucial that these agreements are drafted or reviewed by expert commercial lease lawyers who understand the specific risks involved.

Implementing Clear Communication Protocols

An ironclad agreement is only effective if it's supported by disciplined communication. Your internal team can inadvertently create a representation of authority through casual remarks.

Therefore, you must:

• Establish a Single Point of Contact: Designate one person within your company (e.g., a director or in-house counsel) as the sole authority for final lease approvals. All staff and agents must know who this person is.

• Train Your Team: All project managers, directors, and administrative staff must be trained to never make casual statements about an agent's authority, such as "the agent will sort it out" or "they have the power to finalise this." The official company policy should be to always redirect final-stage negotiation queries to the designated decision-maker or your legal counsel.

• Maintain a Paper Trail: Ensure all substantive communications with tenants, especially those relating to the approval process, are documented in writing.

This internal discipline is a cornerstone of effective risk management.

When to Seek Specialist Legal Advice

Knowing when to engage a lawyer is critical. In ostensible authority disputes, early intervention can prevent a misunderstanding from escalating into costly litigation. Waiting until you receive a formal letter of demand significantly weakens your position.

Red Flags That Require Immediate Attention

You should seek immediate legal advice from a commercial lawyer if you notice any of the following red flags:

• An agent becomes evasive when asked for the final, signed documentation.

• A tenant begins requesting site access, keys, or starts moving in equipment before a formal lease has been executed by you.

• You receive correspondence from the tenant or their lawyer that refers to an "agreed" or "finalised" deal that you have not personally signed off on.

• An agent pressures you to honour terms you never approved, citing a "commitment" they made to the tenant.

A lawyer can intervene swiftly to re-establish the correct legal process, issue formal clarification to the tenant, and de-escalate the situation before the tenant's reliance (and potential detriment) grows, solidifying their claim. This proactive approach is essential when dealing with issues like terminating commercial contracts that arise from such disputes.

The Role of an Expert Commercial Lawyer

A specialist lawyer, like John Merlo, plays a multifaceted role in protecting developers from agency risk.

This role covers three key areas:

1. Proactive Counsel: Drafting and reviewing agency agreements and communication protocols to build a strong preventative framework. This includes providing advice on a comprehensive guide to construction law and ensuring compliance with legislation like the Building Industry Fairness (Security of Payment) Act 2017.

2. Dispute Resolution: Intervening at the first sign of a dispute to negotiate a commercial resolution, dismantle the ostensible authority claim by attacking its three pillars, and protect the developer's interests without resorting to litigation.

3. Litigation and Representation: If a dispute cannot be resolved, they will represent the developer's interests vigorously in formal legal proceedings, whether in the courts or at tribunals like the Queensland Civil and Administrative Tribunal (QCAT).

Engaging expert legal advice should not be seen as a last resort, but as an essential component of a sophisticated developer's operational strategy.

For further insights, you can explore our firm's legal publications.

Conclusion

For property developers, ostensible authority is more than a legal theory; it is a clear and present danger to profitability and project control. An agent, motivated by commission and market pressure, can bind you to a lease you never approved through your own words or actions. However, this risk is entirely manageable.

The defence lies in a proactive, disciplined approach built on two foundations: ironclad agency agreements that explicitly limit an agent's power, and rigorous communication protocols that ensure no representation of broader authority is ever made to a tenant.

By understanding the three-pillar test of representation, reliance, and detriment, and by systematically building a defence that dismantles each one, you can protect your assets and ensure that the only deals you are bound to are the ones you have personally and formally approved.

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FAQs

What is the single most important clause in an agent's agreement to prevent ostensible authority claims?

The most critical clause is a "Limitation of Authority" clause. It should explicitly state that the agent has no authority to bind the principal (the developer) to any lease, agreement, or contract, and that any binding agreement is only formed upon the execution of formal legal documents by the developer themselves.

Can an email from an agent create a binding lease?

Potentially, yes. If a developer has represented that the agent has the authority to finalise deals, and a tenant reasonably relies on that representation to their detriment, an email from the agent confirming "the deal is done" could be sufficient to create a binding agreement based on ostensible authority, even without a formal lease document.

How does the new Property Law Act 2023 (Qld) help developers defend against these claims?

The Act introduces more formal, statutory procedures for things like landlord consents and disclosure obligations. A developer can argue that a tenant's reliance on an agent who bypassed these new, stricter legal requirements was unreasonable. The agent's failure to follow the mandatory statutory process can be used as strong evidence that they were acting outside the scope of any legitimate authority.

Is "ostensible authority" the same as "apparent authority"?

Yes, the terms "ostensible authority" and "apparent authority" are used interchangeably in law. They both refer to the authority that an agent appears to have to a third party, based on the actions or representations of the principal (the developer).

What is the first thing I should do if I suspect my agent has overstepped their authority with a tenant?

Immediately contact your commercial lawyer. Do not engage further with the tenant or the agent on the issue. Your lawyer can provide urgent advice, manage communication to prevent worsening the situation, and formally clarify the agent's limited authority to the tenant before the dispute escalates.

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This guide is for informational purposes only and does not constitute legal advice. For advice tailored to your specific circumstances, please contact Merlo Law

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