Market Rent Reviews: Three items you need to know to get a better deal
Simon Fonteyn, Managing Director of Leasing Information Services and specialist retail valuer, explains how to manage the market rent review process and the key items you need to know to get the best outcome.
Does the Retail Lease Act apply?
The provision of the Retail Lease Act (‘RLA’) in each State to leases provides considerable protections to the sitting tenant at market review time including:
- Ratchet Clauses are banned → i.e the rent can fall
- Only the same or similar use can be compared and incentives must be included in assessments of market rent
- The market rent review process can be reviewed if either party is not satisfied.
However, not all market rent reviews will come under the RLA and each state has different rules, so get advice. In NSW, the RLA applies if:
- The lease including option is less than 25 years in duration
- If the area of the demised premises is under 1,000m2. So if you have a ground lease only and it is more than 1,000m2, the RLA does not apply
How to influence the Determining Valuer at market review time?
The main factors a determining valuer would consider in relation to drive through restaurants are passing vehicular traffic in both directions, site lines, signage, access, ground lease or improvements are leased as well as duration of the lease, escalations or usable site area.
There is a provision that both lessor and lessee can make a submission to the determining valuer. However, such submissions must be in writing and should be based on fact rather than hearsay.
E.g. making a statement saying my turnover is down over the last years is unlikely to carry any overweight with the determining valuer unless it is supported by fact, and there is a reason why such turnover can affect the rental value. If in doubt, always obtain advice from a qualified specialist valuer.
How do you appoint a Determining Valuer?
If you are unable to negotiate a fair market rent outcome with your landlord, the following process should apply:
You can mutually agree on an independent valuer, however, be careful that the valuer nominated by either party is not conflicted. If you cannot agree on a jointly appointed valuer, the following appointing authority is:
| Type of Review | Appointing Authority |
| Retail leases Act does not apply | Presidential appointment of the API in each state |
| Retail Leases Act applies | NCAT, VCAT, QCAT or Small Business Commission in each State |
Once you the appointment has been made, you are obliged to pay 50% of the cost of the Determination. You should always make a detailed written submission. Other important factors to consider are:
- Areas – Do you have a survey based on Gross Lettable Area Retail – Make sure you are not paying for areas that are not part of your lease. E.g. common areas, balconies, storage areas etc.
- Outgoings – What outgoings are you paying under your lease and are they correctly charged?
- Fitout – Who owns the Fitout? If the lessee owns the Fitout then the Valuer must ignore Lessee’s Fitout?
- Incentives – What incentive did you receive under your lease e.g. rent free, contribution to Fitout?
If you would like to know more about this topic, please email [email protected].
