A rent review clause in a commercial lease can quietly change what a tenant pays by thousands of dollars a year. Miss the window to respond, and the new rent may lock in automatically, according to the Queensland Small Business Commissioner. For business owners in Springfield, Ipswich and across Queensland, understanding how each type of review works before signing is one of the most practical things a tenant can do.
Commercial leases in Queensland commonly use one of three review methods: a fixed percentage increase, a Consumer Price Index adjustment, or a market review that resets rent to the going rate for comparable premises. Each works differently, each carries different risks, and the Retail Shop Leases Act places specific limits on which methods a retail tenant can be required to accept, according to the Queensland Small Business Commissioner.
As a Springfield law firm, we help clients across Greater Springfield and Ipswich with commercial leases, including reviewing rent review clauses before a lease is signed or an option exercised.
Here is how rent reviews generally work in Queensland commercial leases, and why the type of review written into the lease matters from day one.
Key takeaways
- Retail leases prohibit ratchet clauses and dual-method rent reviews.
- A late-applied market review increase is generally still payable.
- Missing a review window can result in rent being fixed by a specialist valuer.
This article is general information only and is not legal advice. Every situation is different, and you should speak with a solicitor about your own circumstances.
How do rent reviews work in Queensland commercial leases?
Rent reviews in Queensland commercial leases are set out in the lease itself, and the review mechanism the parties agree to at signing governs how rent can change for the life of the lease, according to the Queensland Small Business Commissioner. The three most common structures are a fixed percentage increase applied at set intervals, a Consumer Price Index adjustment tied to movements in the official price index, and a market rent review that resets the rent to what a willing landlord and willing tenant would agree for comparable premises on the open market.
The Commissioner notes that a market review is often the most uncertain for a tenant, because the outcome depends on conditions at the time of the review rather than a formula agreed in advance. A fixed percentage or CPI clause gives a tenant more certainty about what rent will be at each anniversary, though neither prevents significant increases over a long lease term.
What limits apply to rent reviews in a retail shop lease in Queensland?
Retail shop leases in Queensland carry specific protections that do not apply to general commercial leases, according to the Queensland Small Business Commissioner. Two types of review clause are prohibited in a retail lease.
Prohibited review mechanisms in a retail shop lease:
- › Ratchet clauses: a clause that prevents rent from falling below the current level on a market review. These are void in retail leases, meaning a market review must be genuinely open to the possibility of a reduction.
- › Dual-method reviews: a clause that applies whichever of two methods produces the higher rent. These are also prohibited in retail leases under Queensland's Retail Shop Leases Act.
For non-retail commercial leases, neither restriction applies. The Queensland Small Business Commissioner notes there is no statutory cap on rent increases in commercial leases generally, so the only limit is what the parties negotiate and write into the lease.
Whether a lease is a retail shop lease depends on the size and use of the premises. A lease is generally a retail shop lease where the shop is less than 1,000 square metres and used to carry on a retail business, or a non-retail business situated in a retail shopping centre, according to the Commissioner.
What happens when a market rent review is not agreed?
Where the landlord and tenant cannot agree on the new market rent within one month of the review date, a specialist retail valuer determines the rent, according to the Queensland Small Business Commissioner. Either party may ask the Queensland Civil and Administrative Tribunal to appoint the valuer where agreement cannot be reached on who should do it. The valuer's fee is split equally between the parties.
For non-retail commercial leases, the lease itself sets out what happens when a market review is disputed. It commonly names a process for appointing an independent valuer or gives one party the right to refer the matter to expert determination. Where the lease is silent, a solicitor can advise on the options.
The Commissioner also notes that a late-applied market rent increase is generally still payable. If a landlord misses the review date but later seeks to apply the new rent, the tenant may still owe the difference from the review date unless the lease provides otherwise.
"The type of rent review in a commercial lease often matters more than the starting rent. A clause that looks reasonable at signing can produce very different outcomes over a five or ten year term."
Jade Kickbusch, Principal, Brookwater Legal
What does a rent review clause look like in practice?
A well-drafted rent review clause generally states the review dates, the review method, who initiates the review, what notice is required and how any dispute is resolved, according to the Queensland Small Business Commissioner. The Commissioner recommends tenants check key dates carefully, because option and renewal windows, scheduled rent reviews and the annual outgoings audited statement all fall at different points in the lease year.
Points the Commissioner suggests reviewing before signing:
- › Review dates: when each review falls and whether the landlord must give notice or whether the review operates automatically.
- › Review method: fixed percentage, CPI, market or a combination, and how that method is applied in the lease's own words.
- › Prohibited mechanisms: for retail leases, whether any ratchet or dual-method clause has been included and is therefore void.
- › Dispute process: what happens if the parties cannot agree on the new rent after a market review.
- › End of term: at the end of a lease term with no option to renew, the landlord is under no obligation to offer a new lease, and a new lease is a fresh negotiation with no rent limit, according to the Commissioner.
How does a solicitor help with rent reviews in a Queensland commercial lease?
A solicitor reviews the rent review clause before a lease is signed or an option is exercised, checking that the method is clearly defined, that any prohibited mechanisms have been excluded from a retail lease, and that the dispute resolution process is workable, according to Business Queensland. Our conveyancing and commercial team acts for tenants and landlords across Greater Springfield and Ipswich on commercial lease matters.
Step 1: Talk to us
Get in touch and we will explain how rent reviews generally work and what the clause in any particular lease provides for.
Step 2: Review the lease
We review the lease and identify the review mechanism, the review dates and any prohibited clauses that may be void under Queensland's Retail Shop Leases Act.
Step 3: Identify the risks
We explain the practical effect of the rent review method over the lease term, including what a market review could produce and what the dispute resolution process involves.
Step 4: Negotiate or advise
Where the lease has not yet been signed, we can assist with negotiating changes to the review clause. Where an option is about to be exercised, we advise on the timing and process.
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When does a rent review dispute become a bigger problem?
A rent review dispute can escalate quickly where the lease does not clearly describe the process, where a party misses a notice deadline, or where the parties cannot agree on who should act as the independent valuer, according to the Queensland Small Business Commissioner. The Commissioner offers low-cost confidential mediation for commercial lease disputes, including those arising from rent reviews, and the Queensland Civil and Administrative Tribunal can arbitrate retail shop lease disputes.
The Commissioner notes that disputes about whether an outgoing was reasonably incurred, and disputes about rent review calculations, can both be referred to mediation. Where a landlord has applied a ratchet clause in a retail lease, the clause is void, and a solicitor can advise on what that means for the rent payable.
What do the rent review rules not cover in a commercial lease?
The Retail Shop Leases Act's protections apply only to leases that meet the definition of a retail shop lease, according to the Queensland Small Business Commissioner. A lease of premises larger than 1,000 square metres generally falls outside the regime, even where the tenant operates a retail business. The Commissioner notes that QCAT has found it has no jurisdiction in such cases.
The prohibitions on ratchet clauses and dual-method reviews also apply only to the rent review mechanism itself. They do not affect how outgoings are calculated, how a market review valuer is chosen, or how the lease deals with rent during a make good or fit-out period. Each of those is governed by the lease's own terms.
For leases that are not retail shop leases, there is no statutory prohibition on any review method, including a ratchet or a dual-method clause. In those cases, the negotiated terms of the lease are the only protection a tenant has.
Frequently Asked Questions
What is a ratchet clause in a Queensland commercial lease?
A ratchet clause prevents rent from falling below the existing level on a market review, according to the Queensland Small Business Commissioner. In retail shop leases in Queensland, ratchet clauses are prohibited and are void to the extent they appear in the lease.
Can rent go down on a market review in a Queensland retail lease?
Generally yes, because ratchet clauses are prohibited in retail shop leases under Queensland's Retail Shop Leases Act. A market review in a retail lease must be genuinely open to the possibility of a reduction, according to the Queensland Small Business Commissioner.
Who decides the rent if a market review is not agreed in a Queensland retail lease?
A specialist retail valuer determines the rent if the parties cannot agree within one month of the review date, according to the Queensland Small Business Commissioner. The Queensland Civil and Administrative Tribunal can appoint the valuer, and the fee is split equally.
Is there a cap on rent increases in a Queensland commercial lease?
There is no statutory cap on rent increases in Queensland commercial leases, according to the Queensland Small Business Commissioner. Prohibited methods in retail leases are ratchet clauses and dual-method reviews, but the size of any permitted increase is not limited by law.
What happens if a landlord applies a rent review late in a Queensland commercial lease?
A late-applied rent increase is generally still payable from the review date, according to the Queensland Small Business Commissioner. Whether the tenant owes the difference depends on what the lease provides, which is a matter a solicitor can advise on.
Do you need a solicitor to review a rent review clause in Springfield or Ipswich QLD?
A solicitor can check whether the review mechanism is clearly defined, whether any prohibited clause appears in a retail lease, and what the dispute process involves. Legal advice is particularly useful before signing a new lease or exercising an option that resets the rent.
Can a Queensland commercial lease have more than one rent review method?
A lease may use different review methods at different points in the term, but a dual-method clause that applies whichever produces the higher rent is prohibited in retail shop leases, according to the Queensland Small Business Commissioner. Non-retail leases carry no such restriction.
Your Next Steps
Getting a rent review clause right before signing can make a significant difference to what a business pays over the life of a lease, particularly where a market review is involved and conditions shift. For tenants and landlords in Greater Springfield and Ipswich, understanding the review mechanism in detail, not just the starting rent, is what puts a commercial lease on a sound footing.
If a commercial lease is on your mind, the next step is a straightforward one. Get in touch with the Brookwater Legal team or call (07) 3437 8555, and we'll talk you through how the process generally works.
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External Resources
- Queensland Small Business Commissioner - Annual rent increases and market reviews
- Queensland Small Business Commissioner - What is a retail shop lease in Queensland
- Queensland Small Business Commissioner - Tips when entering a commercial lease
- Business Queensland - Retail shop leases
- Queensland Legislation - Retail Shop Leases Act 1994
Brookwater Legal · This article contains general information only and does not constitute legal advice. It does not take into account your individual circumstances. You should obtain legal advice about your own situation before acting on anything in this article. Liability limited by a scheme approved under Professional Standards Legislation.
