Leases of premises that are classified as retail premises and
subject to the Retail Leases Act 1994 (NSW) (the Act) are heavily
regulated by the provisions of that Act.
Accordingly landlords of retail premises must take care to
ensure that the provisions of their leases are not inconsistent
with the Act.
An important aspect of the Act to be kept in mind when drafting
retail leases are the strict provisions governing market reviews.
Section 19 (where market reviews occur during the lease term) and
section 31 (where a market review applies to determine the
commencing rent of an option term) of the Act set out the structure
that market reviews in retail leases must follow.
In Perri v Exego Pty Limited  NSWADT 170 the
Administrative Decisions Tribunal outlined the following principles
in relation to the bearing of the Act on retail leases in respect
of market rent reviews:
Generally the Act has the effect of varying a lease to the
extent that the provisions of that lease which are in conflict with
the provisions of the Act are replaced by the relevant provisions
of the Act.
Section 19 of the Act is an overriding statutory provision
which operates as a contractual term considered to be incorporated
in the lease itself when the lease provides for a current market
When a market review arises in a lease section 19 applies in
its exact terms, to the exclusion of any contrary term of the lease
or any contrary principle of valuation practice.
Perri v Exego outlined the above principles in relation to the
application of clause 19 of the Act as that clause applied in the
circumstances; however it can be inferred that those principles
would also apply to clause 31 of the Act (where a market review
applies to determine the rent at the start of an option term).
If a market rent valuation is carried out and the valuer does
not follow the requirements of the Act, the valuation will be
considered to have no legal effect, therefore not be enforceable by
What this means is that a landlord could be left with no rent
review at the time of the market review.
It is crucial to ensure market review clauses in leases that are
governed by the Act are drafted in a way that accords with the
provisions of clause 19 or clause 31 as the case may be.
Since the Act provides for the market rent to be determined by
valuation if the parties do not agree, it would help if the lease
clearly defines when the parties are considered not to have agreed
for example there is no agreement if the tenant objects to the
landlord's assessment of the market rent.
If a valuation needs to occur, landlords and tenants must ensure
that the valuer is aware of the criteria under the Act and conducts
the valuation accordingly, in order that the valuation can be
relied on and enforced by the parties.
Please contact us if you have any queries in relation to rent
reviews under the Act.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Many retail leases include a covenant to trade, requiring the tenant to open the premises for trade during certain hours.
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