In a recent Queensland Supreme Court case, the key issue for the Court to decide was whether the 'ratchet' rent review clauses in the lease were permitted by the Retail Shop Leases Act 1994 ("the Act"). Ratchet rent review clauses do not allow CPI or market rent reviews to decrease the rent.
The Act provides that a rent review clause in a lease is void if it provides for the rent to change in accordance with whichever of two or more methods of calculating rent will result in the highest amount.
The tenant argued that the ratchet rent review clause was void because it stopped the rent from decreasing. The Court, after following a rather torturous route, agreed with the tenant. In arriving at its decision the Court disagreed with a 1998 decision of the Retail Shop Leases Tribunal which found that a similar ratchet rent review clause was void under the Act. The Court considered that a clause which required the rent to remain the same if a CPI or market review would have meant a reduction was not a 'method of calculation'.
The Court sought guidance from the explanatory memorandum for the Retail Shop Leases Bill and the Minister's second reading speech when the Bill was introduced into Parliament in 1994. Both these sources made it clear that it was the Parliament's intention to prohibit ratchet rent reviews. Having regard to the Parliament's intention, the Court gave effect to it by deciding that ratchet rent review clauses are void.
In light of the Court's finding, the tenant became entitled to choose which method of rent review would apply. It will be of no surprise to you that the tenant chose no increase.
After 14 years, this decision finally gives us Supreme Court authority for the proposition that ratchet rent review clauses are void 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.
