By Angela Kordos

5 July 2022

What to do when your retail premises lease calls for a market review of rent

The Retail Leases Act 2003 (Vic) (the “Act”) sets out certain rights and obligations in relation to rent reviews under a retail premises lease.
This two part series will explore rent reviews based on the current market rent of retail premises, and what to do when a dispute arises.
In Part 1, we will explore methods of rent review and market rent reviews generally.
In Part 2, we will explore the role of a Specialist Retail Valuer under the Act.
1.         Methods of rent review
Retail leases are required to set out when a rent review is to take place and the basis or formula on which the reviews are to be made.
Under the Act, there are five possible rent review methods:
(a)        fixed percentage rent increases;
(b)        reviews of rent having regard to an independently published index of prices or wages (usually the Consumer Price Index);
(c)        a fixed annual amount;
(d)          the current market rent of the retail premises; or
(e)        the basis or formula prescribed by the Retail Leases Act Regulations 2013 (the “Regulations”) (no basis or formula has yet been prescribed as at the date of this blog).
The Act also sets out how rent is to be determined when the rent review provision in the lease is void or non-compliant. For example, if the basis or formula on which a rent review is to be made is not one of the bases or methods set out above, or if the provision is otherwise void because it fails to set out how the rent review is to be made.
This blog will focus on rent reviews based on the current market rent of the retail premises.


2.         Threshold issues
2.1       Is the lease governed by the Act?
A preliminary threshold issue is whether the premises are “retail premises”. Effectively, premises will be considered “retail premises” if under the terms of the lease, they are used or are to be used wholly or predominantly for the sale or hire of goods by retail or the retail provision of services (see section 4(1)(a) of the Act).
The question as to whether premises are “retail premises” is a complex one at law which goes beyond the scope of this blog, and we encourage you to reach out for tailored advice if this question arises for you as a landlord, tenant or agent.
2.2       Has the option for renewal been validly exercised?
Given market rent reviews are often (but not always) triggered on renewal of lease, an initial question for practitioners, agents and landlords alike is whether the option for a further term has been validly exercised by the tenant. This is a threshold issue which landlords and agents alike would be prudent to consider.
It is also worthwhile noting that a retail tenant now has the right under section 28A of the Act to request an early rent review, where a lease provides for market rent review.


3.         Market rent reviews
If the lease is a retail premises lease under the Act, the lease is taken to provide as set out in subsections (2) to (6) of section 37 of the Act.
The current market rent is taken to be the rent obtainable at the time of the review in a free and open market between a willing landlord and willing tenant in an arm’s length transaction, having regard to:
(a)          the provisions of the lease;
(b)        the rent that would reasonably be expected to be paid for the premises if they were unoccupied and offered for lease for the same, or a substantially similar, use to which the premises may be put under the lease;
(c)        the landlord’s outgoings to the extent to which the tenant is liable to contribute to those outgoings (for example, land tax is not recoverable under a retail lease so would not be a relevant consideration);
(d)       rent concessions and other benefits offered to prospective tenants of unoccupied retail premises.
4.         What if the parties are in dispute as to the market rent payable?
4.1       The parties can appoint a specialist retail valuer by agreement
If parties are in dispute as to the assessment of market rent, then they can refer the matter to a specialist retail valuer (“Specialist Retail Valuer”) to determine the current market rent by a valuation.
A Specialist Retail Valuer is defined in the Act as a valuer that has not less than 5 years’ experience in valuing retail premises (and in the case of retail premises in a retail shopping centre, the valuer must have not less than 5 years’ experience in valuing retail premises located in regional or sub-regional shopping centres).
If the parties are able to come to an agreement on the appointment of a Specialist Retail Valuer, the costs of the valuation will be shared equally between the landlord and the tenant.
4.2       The parties can apply to the VSBC
If the parties fail to agree on a Specialist Retail Valuer, then either party may apply to the Victorian Small Business Commission (“VSBC”) for the appointment of a Specialist Retail Valuer under the Act. This can be done even where the lease in question specifies that a certain rent will apply where the tenant has not objected to a notice of a rent increase within the specified time (i.e. the Act prevails).
The VSBC will then select an independent Specialist Retail Valuer who has the requisite experience and who does not have a conflict of interest with either party.
Some key commercial questions to ask before going down the path of a VSBC valuation are:
1.         whether there has been a substantial effort to reach an agreement on a rental amount; and
2.         whether there has been a substantial effort to reach an agreement on a valuer.


Tomorrow, in part 2 of this 2 part series, we will examine the Specialist Retail Valuer’s role in greater detail.


If you have any questions in relation to market rent reviews, if you require legal advice in relation to specialist retail valuations, or if you otherwise are a landlord or tenant that would like more information or advice on rent reviews or leasing generally, please contact Angela Kordos or a member of our Property Law Team.

Related Articles

View All
Property & Development

Early deposits. Your FAQ’s answered

This blog explores what is required in order for a Vendor to obtain their deposit prior to settlement and what a...
Read More
Property & Development / Real Estate Agents

Stamp Duty is now payable on late settlement and default penalty interest

The dutiable value of a property is the value in which stamp duty is determined to be due and payable at settlement by...
Read More
Property & Development / Commercial Contracts & Agreements

Market rent reviews under the Retail Leases Act 2003: Applying to the VSBC for the appointment of a Specialist Retail Valuer under the Act

In Part 1 of our blog series, we explored market rent reviews generally This is Part 2 of our 2 part blog series, in...
Read More
Property & Development

Option Deeds: What are they and Potential Risks

Contracts of Sale are utilised by the parties to record their agreement to sell and/or buy a property Depending on the...
Read More
Property & Development / Real Estate Agents

Nominating a new purchaser – 3 big things to think about

Some of the questions which you will need to answer when, or even before, you nominate a new purchaser are: How is GST...
Read More
Property & Development / Mortgages, Loans & Finance / Real Estate Agents

What is the Homebuyer Fund?

The Fund allow individuals the opportunity to own their own home that previously has always been out of reach The Fund...
Read More
Litigation & Dispute Resolution / Property & Development

Interstate Landlords in Victoria – new arrangements in the Magistrates’ Court of Victoria

One of the hassles for residential landlords who own property in Victoria but live interstate has been the lack of...
Read More
Property & Development / Real Estate Agents

Recording: TLFC Law Lunchtime Briefing: 2021 Commercial Tenancy Relief Scheme

If you were unable to attend this session, you are welcome to watch the recording at your convenience...
Read More
Property & Development / Commercial Contracts & Agreements / Small to Medium Enterprises

COVID-19 Clauses in Contracts of Sale

The uncertainty and instability of the COVID-19 pandemic continues, as Melbourne endures lockdown 60 and other parts of...
Read More
Property & Development

It’s Groundhog Day: COVID-19 and the new CTRS legislation

It’s a bit like Groundhog Day down here in Victoria: another day, another lockdown Another year, another Commercial...
Read More
Leasing & Lease Disputes / Property & Development / Real Estate Agents

COVID-19 and the new Commercial Tenancy Relief Scheme

A global pandemic, an economy forced into hibernation, and repeated, extended, and somewhat unpredictable lockdowns…...
Read More