All Leases contain rent review clauses which specify how the rent will be increased on each anniversary date of the Lease.
Some Leases contain clauses that specify the rent will increase by either fixed percentage or CPI but on the condition that the new rent will not be less than the current rent paid by the lessee under the Lease.
These kinds of clauses in Retail Shop Leases are now void. On 24 March 2011 the Queensland Parliament passed amendments to the Retail Shop Leases Act which makes a ratchet provision in a Retail Shop Lease void.
The definition of a “ratchet provision” is the following:-
- Any provision in a Retail Shop Lease to the extent that the provision:
- Prevents or enables the lessor or another person to prevent the rent decreasing under a rent review; or
- Limits or specifies, or allows the limitation or specification of the amount by which the rent may decrease under a rent review; or
- Prevents or allows the avoidance of the rent review by the lessor or another person for a purpose mentioned in paragraphs (a) or (b) above.
These amendments are only applicable on Leases entered into after 24 March 2011.
Landlords must also keep in mind that a Retail Shop Lease cannot contain clauses which make provisions for the higher of two different formulas that may be applied to determine new rent. If a Lease contains such a clause, the lessee is entitled to choose which formula must apply to increase the rent and the landlord will have no choice but to accept the formula chosen by the lessee.
We recommend landlords review their Leases to ensure the rent provisions fall within the Retail Shop Leases legislation and lessees to check their Leases to confirm their rent increases are in terms of the legislation.
Should you require any assistance in any leasing matters please do not hesitate to contact Property and Commercial Department Manager, Holly Gilholme on 07 5506 8202 or email email@example.com.