In brief: A valuer may not be able to do a
market rent review of licensed premises based on turnover figures,
if none are provided.
What you need to know:
We have not seen any lease of licensed premises that requires
tenants to provide turnover figures to a landlord, or valuer.
If no such figures are provided, can the valuer use
In our view, there are significant dangers in determining a
rent based on turnover, where the valuer does not have the actual
Many valuers of hotels use a trading profits methodology to
determine the rent for the hotel. You will be aware that this
methodology was held not to contravene the Retail Leases Act 2003
(Vic) in the recent decision of Epping Hotels Pty Ltd v Serene
Hotels Pty Ltd (2015). So, if a valuer is provided with
turnover figures, the valuer can use those figures to determine the
rent for a hotel.
However, there are inherent problems within this, including the
how can the valuer rely upon the figures provided by the
tenant? A tenant is likely to understate the turnover figures, to
assist in the determination of a lower rent. This would naturally
disadvantage the landlord;
leases generally do not provide that a tenant is required to
provide turnover figures, so there is no contractual obligation on
the tenant. If no figures are provided, what is a valuer to do?
there is no legal principle of which we are aware, that
requires a tenant to provide turnover figures to a landlord, or a
Currently, we are acting for a tenant and there is a market
review to be determined by an independent valuer. The tenant has
refused to provide turnover figures and the landlord has had an
accountant visit the leased premises in an attempt to reconstruct
the turnover the tenant would achieve. Presumably, this is based
upon the leased floor area and terms of the liquor licence.
Can a valuer rely on such reconstructed turnover figures? In our
view, a valuer is exposing him or herself to the danger of having a
valuation set aside, where a valuer is relying upon reconstructed
figures. In the recent decision of Higgins Nine Group Pty Ltd v
Ladro Greville St Pty Ltd  VSC 244, VCAT was critical of
the valuer who stated in his report that the turnover should be
over $500,000.00 higher, without adequately explaining how such a
conclusion was reached. If a valuer relies on reconstructed
figures, the valuer would need to be very careful to explain in
great detail as to how the turnover figures could be achieved and
what comparable evidence exists to justify such figures.
If the valuer believes that it cannot undertake a market rent
valuation without the tenant's turnover figures, the valuer can
refuse to undertake the valuation; or
institute proceedings against the tenant to compel the
provision of turnover figures.
The cost of any such application would need to be paid by the
landlord (assuming it required the figures) noting that VCAT costs
are not recoverable. There is no certainty that VCAT would compel a
tenant to disclose confidential information, in the absence of a
lease clause compelling the tenant to do so.
In drafting leases, we strongly recommend that if turnover
figures are important to a landlord, and important for undertaking
a market review, a clause be included in the lease compelling the
tenant to provide such figures.
In our view, turnover figures should only be resorted to where
comparable evidence is not available and we very much doubt VCAT
would compel a tenant to disclose turnover figures, if there was
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.Madgwicks is a member
of Meritas, one of the world's largest law firm
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