Retail Premises Leases and Review of Rent in Victoria

Review of Rent for a Retail Premises Lease and Victorian Law

Dispute over fixing of rent for the extended term of the lease is very common in tenancy relationship everywhere.

The current relevant legislation to address the issue in retail leases in Victoria is the Retail Leases Act 2003 (VIC) and Retail Leases Regulations 2013.

When the parties enter into a lease agreement, they negotiate and settle the amount of rent for the first term of the lease usually for 5 years period. It is common practice that the terms of a lease provide an option for the Tenant to renew the lease for a further 5 years period subject to the term remaining under the head lease if any.

Usually, the dispute arises for the rate of rent for the period commencing from the sixth year of the lease if the parties don’t agree to the new rent for the renewed period.

This article briefly discusses two cases decided by the Victorian Civil and Administrative Tribunal. These cases are examples where clauses agreed by the parties and properly incorporated in the lease agreement did not provide any solution at the time of need.

The first case is Figgins Holdings Pty Ltd v Williamson Place Pty Ltd (Retail Tenancies) [2010] VCAT 243.

The parties in 2004 entered a lease for premises in Bourke Street Melbourne. The written lease agreement signed by the parties in 2004 did provide a comprehensive clause to address the possible dispute over the rate of rent after the expiry of the first 5 years term of the lease.

The parties had agreed that for the renewed period the Landlord if wanted to increase the rent would give notice to the Tenant of a proposed Rent and the Tenant could dispute the proposed increased rent within one month. If the Tenant did not dispute the increased rent proposed by the Landlord would be the new rent payable by the Tenant.

The rent agreed upon by the parties up to the 5th year was $458,945.34 per annum and the rent for the sixth year was to be settled by the parties.

After expiry of five year original lease term the Landlord issued notice to the Tenant that the rent for the 6th year commencing from 1st February 2009 would be $725,000 per annum.

For some reason, the Tenant could not reply to the notice within one month and the Landlord issued an invoice for the new rent proposed in its notice.

The Tenant disputed the invoice.

Following unsuccessful mediation at the Office of the Small Business Commissioner the Tenant commenced proceedings seeking a declaration that the rent payable for the sixth year of the lease is to be determined by a specialist valuer and that the relevant clause of the lease insofar as it purports to deem the rent payable for the sixth year of the lease is void.

The lease agreement provided that the Act 2003 is applicable. The relevant clause in the written lease agreement provided that;

All the terms and conditions incorporated in this Lease shall be construed as not to infringe the provisions of any Legislation but if any provision embodied in this Lease on its true interpretation does infringe any Legislation, then such provision shall to the extent that it infringes such provision be deemed void and severable.

Now it is necessary to refer to the relevant provisions of the Retail Leases Act 2003 addressing the issue to review of rent.

Section 35 of the Act 2003 provides the procedure for review of the rent and s 37 provides the procedure to work out the rent review based on current market rent.

No provision in the Act 2003 provided a review of the rent through notice to the Tenant in a way as provided by the lease agreement agreed upon by the parties of this case.

The Counsel appearing for the Tenant contended that the Tenant is not liable to pay the increased rent, and that insofar as the relevant clause in the lease agreement relied upon by the Landlord is inconsistent with sections 35 and 37 of the Act 2003 it is void by virtue of s94(1) of the Act 2003.

Section 94 of the Act 2003 provides applicability of the Act 2003 to Retail Leases in Victoria.

On the other hand, the Landlord contended that there is no inconsistency and the clause incorporated in the agreement of the lease to is binding on the tenant to increase the rent.

The Tribunal did not accept the argument on behalf of the Landlord and made the declarations sought by the Tenant. The Tribunal ruled that the amount payable by the applicant for the sixth year of the Lease, commencing on 1 February 2009, is to be determined by a valuation carried out by a specialist retail valuer appointed by agreement between the parties or by the Small Business Commissioner if the parties are don’t agree to each other.

Similarly, in Neret Social Club Pty Ltd v Jovevski Pty Ltd (Retail Tenancies) [2012] VCAT 808 a similar issue was before the Tribunal.

In this case, the Tenant exercised its option to renew the Lease for a further term of five years. Upon renewal, the Landlord sought to review the rent according to market.

The Tenant disputed that the renewed lease term permitted a market review and contended that the Lease only permitted rent to be reviewed by reference to Consumer Price Index, “CPI”.

The lease agreement did provide detailed clauses to address the issue of rent review for the renewed period but both parties had different interpretations.

The Landlord contended that CPI review of the rent was applicable for the original term only and for the renewed term the rent is to be reviewed according to the market.

The Tribunal noted that clauses of the lease agreement become inoperative for certain reasons to provide a solution to review the rent for the renewed period.

The Tribunal accepted the Tenant’s submission that the rent for the renewed term is reviewed by reference to the CPI as was already provided for the original term.

Conclusion: The Retail Leases Act 2003 emphasises fairness of retail leasing arrangements between Landlords and Tenants in Victoria and the clauses of a written lease agreement could be declared void to uphold fairness.

Originally published on 15 January 2022 at LinkedIn.

Basharat Ahmad Jatt

Barrister & Solicitor

Principal

Jatt Lawyers

Melbourne, Australia


Disclaimer

This article is general information for the community and not legal advice. For legal advice please contact with particular facts of your case.

The author is an Australian Lawyer of Pakistani origin. Anyone looking for an Urdu, Punjabi, or Hindi speaking lawyer in Australia can confidently contact Jatt Lawyers.

Legal support for Australian Muslims for inheritance and family law issues in Australia is the common practice area of Jatt Lawyers.

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