Retail leases commonly include provisions for the rent to be reset to market value at the commencement of a further term, usually following the exercise of an option by the tenant. In these cases, an independent specialist retail valuer is appointed to determine the current market rent – a process that sets the rent payable for the new lease term. These determinations can have significant financial consequences for both landlords and tenants.
But when can such determinations be challenged?
A recent decision of the Victorian Civil and Administrative Tribunal in Dalziel v Veev Pty Ltd [2025] VCAT 681 provides useful guidance on the narrow circumstances in which a market rent determination can be set aside.
Background
The dispute arose between landlords of a regional hotel and their tenant, Veev Pty Ltd, following the tenant's exercise of a five-year option under a retail lease. The lease required the appointment of a specialist retail valuer to determine the current market rent, in accordance with section 37 of the Retail Leases Act 2003 (Vic) (RLA).
The landlords believed the determined rent was too low and sought to have the valuer's determination set aside on two main grounds:
- The valuer failed to have proper regard to section 37(2)(b) of the RLA.
- The valuer failed to provide detailed reasons as required by section 37(6) of the RLA.
The law
The RLA requires that a determination of current market rent:
- Reflect the rent obtainable in an open market between a willing landlord and tenant (s 37(2));
- Disregard the value of tenant goodwill and fixtures; and
- Be accompanied by "detailed reasons" explaining the valuer's analysis (s 37(6)).
Courts and tribunals have consistently held that a rent determination can only be set aside where there is fraud, collusion, or a mistake so fundamental that it renders the determination inconsistent with the contractual terms, often referred to as the valuer's "charter".
The Tribunal's decision
VCAT dismissed the application and upheld the rent determination, making several key findings:
- Failure to have regard to s 37(2)(b)
The landlords alleged that the valuer had not properly considered what rent the premises might reasonably attract if offered on the open market. However, the Tribunal found that this complaint was effectively about inadequate reasoning and was better considered under the second ground.
There was no evidence that the valuer had disregarded this statutory requirement; rather, the landlords simply disagreed with how comparable properties were assessed.
- Adequacy of reasons under s 37(6)
The Tribunal examined whether the valuer had provided "detailed reasons", as required by law. The landlords pointed to four areas they claimed lacked adequate explanation:
- The conclusion that the premises were subject to "very strong competition";
- Use of local population data;
- Adjustments made in the financial analysis (e.g. costs of goods sold); and
- Reference to "industry standards".
In each case, the Tribunal found that the valuer had disclosed sufficient information to explain how the determination was reached. It accepted that the valuer:
- Identified comparable properties and explained the basis for selection;
- Considered and discounted the competitive environment's impact on rent;
- Applied accepted valuation methodologies; and
- Reached conclusions informed by professional experience.
Crucially, the Tribunal held that disagreement with a valuer's conclusions, or a desire for more granular detail, is not a basis to invalidate the determination.
Practical takeaways
For landlords and tenants involved in market rent reviews under the RLA, this decision reinforces several important points:
- The bar for challenging a determination is high. Unless the valuer clearly departs from their contractual obligations or statutory requirements, the determination will generally be binding.
- Detailed reasoning is required, but not exhaustive explanation. Valuers must explain their methodology and justify their conclusions, but they are not expected to produce a step-by-step breakdown of every judgment call.
- Comparable properties need not be identical. What matters is that they are reasonably comparable, and that the valuer identifies relevant similarities and differences.
- Disagreement is not enough. Even if a party believes the valuer has made a poor choice or undervalued certain features, unless the error is fundamental, the determination will stand.
How we can help
If you are a landlord or tenant facing a market rent review, or if you are considering challenging a determination, it is critical to seek legal advice early. We assist clients by:
- Reviewing the terms of the lease and valuer's charter;
- Assessing whether there are valid grounds to challenge a determination;
- Preparing detailed submissions to the valuer in the first instance; and
- Representing clients in VCAT proceedings where appropriate.
Please contact us to discuss how we can protect your commercial interests in rent review disputes.
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.
