Annual rent increases and market reviews
Generally commercial leases will include both an annual rent increase and a market rent review. How these are calculated varies.
Increase vs Review
Annual Rent Increase (increase):
Some of the most common types of rent increases are:
These methods lead to few disagreements, likely because the method is rigid, well defined, and open to little interpretation.
Market Rent Review (review):
Reviews are based on research, perspective, and/or professional opinion, which may make them more open to disagreements.
Subject to the terms of the lease, in the first instance, the landlord and tenant will usually try to agree on the appropriate market rent.
The lease may set out a dispute resolution process if market rent can’t be agreed.
Rent changes applied late
If a commercial lease Increase or review is not applied on time, the tenant is still likely liable to pay any amount determined by the increase or review. The oversight or forgetfulness of the landlord or agent does not typically release the tenant from the obligation to pay an increase in rent retrospectively.
Reviews for retail leases
The RSL Act includes specific requirements for conducting rent reviews in a retail shop lease.
The landlord and tenant will usually try to agree on the appropriate market rent. Where parties can agree, this agreed rent is the market rent payable until the end of the applicable term.
According to the RSL Act, if the landlord and tenant cannot agree on the market rent within one month after the review date specified in the lease, a specialist retail valuer must determine the rent. If there is a disagreement on the appointment of a valuer, an application can be made to QCAT (Queensland Civil and
Administrative Tribunal), and they will appoint a specialist retail valuer.
If the lease is not subject to the retail shop leases act in Queensland, the lease may set out a dispute resolution process if market rent can’t be agreed.
The Retail Shop Leases Act 1994 (Qld) (the RSL Act) does not set a maximum limit on how much the rent can be increased; however, a lease may contain clauses that limit the amount by which the rent may be increased.
Clauses considered to be either of the below are prohibited by the RSL Act:
Rent changes at the end of a commercial lease
When a lease is about to end and there are no options to renew:
The landlord is usually not obligated to renegotiate the rent reviews or increases under an existing lease. Negotiation may or may not make commercial sense for both parties.
If the tenant and landlord are unable to resolve the dispute, they may be able to apply for mediation through the Queensland Small Business Commissioner (QSBC). QCAT considers disputes between a tenant and landlord related to retail shop leases if the dispute is not resolved after mediation.
It is not recommended to withhold payment of rent during disputes as this may put you in breach of the lease. You should seek legal advice before withholding rent.
Consider engaging professional lease negotiators or legal professionals experienced in commercial leases to help negotiate and resolve disputes.
Download the Rent increases and reviews fact sheet.