In brief - Type and basis of rent reviews controlled by law
For landlord and tenants, any major increases or reductions in rent have significant ramifications. In Australia, the law controls the type and the basis of rent reviews which can be undertaken. In the context of retail leases, the law controlling rent review is similar whether it is a major shopping centre, a strip shop or a stand alone shop.
Standard types of rent review
The standard types of rent review are the following three:
- Inflation adjustment or consumer price index adjustment on a periodic basis
- Market rent review to bring the rent up or down to the current market
- Fixed amount or fixed percentage increases so that the rent steps up or steps down by agreed amounts of money or percentages at agreed intervals
General rent review provisions
The position on rent reviews is similar in each state and is largely governed by the legislation in that state. Some features regarding the timing and basis of rent reviews are highlighted below.
- A lease must specify when the rent reviews are to be conducted and the basis on which they are to be made.
- In most states, a lease must not provide for a change to base rent more frequently than 12 monthly after the first anniversary of the commencement of the lease. An exception to this provision applies in NSW and South Australia if the change in rent is by a specified amount or percentage.
- "Ratchet clauses" which have the effect of preventing the rent from decreasing on a market rent review are void in every state.
- A rent review can be made on the basis of a fixed percentage, an independently published index of prices or wages, a fixed annual amount, the current market rent or a basis or formula prescribed by regulations.
Methods of undertaking rent reviews in different states
In Victoria, Queensland, Tasmania and Northern Territory, the methods by which a rent review may be undertaken are prescribed by legislation.
In NSW and South Australia, a provision of a retail shop lease is void to the extent that it allocates to one party discretion to decide which of two or more methods of calculating a change to base rent is to apply, or provides for base rent to change in accordance with whichever of two or more methods of calculating the change would result in the higher or highest rent.
In NSW a lease provision is void if it provides a method of calculating a change to the base rent but allocates to one party a discretion to decide whether or not the base rent is to be changed in accordance with that method, while in South Australia, the allocation of the decision to one party regarding whether or not to review rent is also void.
Lease provisions which are contrary to legislation
Despite what parties may write into their lease, the basis for the type of review, the timing of those reviews and the method in which the reviews are undertaken are largely governed by the legislation of each state. If a provision of a lease is contrary to the legislation, then the offending provision in the lease is of no effect.
New South Wales
For further information, please refer to section 18 of the Retail Leases Act 1994 (NSW).
For further information, please refer to section 27, section 36 and section 36A of the Retail Shop Leases Act 1994 (QLD).
For further information, please refer to section 35 of the Retail Leases Act 2003 (VIC).
For further information, please refer to section 22 of the Retail and Commercial Leases Act 1995 (SA).
For further information, please refer to section 11 of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA).
For further information, please refer to section 12 of the Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (TAS).
Australian Capital Territory
For further information, please refer to section 46, section 47, section 49 and section 50 of the Leases (Commercial and Retail) Act 2001 (ACT).
For further information, please refer to section 28 of the Business Tenancies (Fair Dealings) Act 2003 (NT).
This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal or financial advice. Please seek your own legal or financial advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.