Retrospective Rent Review

Adam Held, Held Lawyers

Leases generally specify a method of rent review, often on an annual basis. How time sensitive are such reviews?

• time is generally not of the essence for rent review clauses
• this presumption may be rebutted
• Section 35(5) of the Retail Leases Act 2003 (Vic) may assist a retail tenant.

A lease is essentially a contract – an agreement between the parties that is usually recorded in writing and often extends for years. Rent is agreed at the start of the term, but few landlords will be content to receive the same rent at the end of the term as applied at the start of the term. Most leases include conditions that set out a formula by which rent can be adjusted, generally by way of an increase in the rent on a regular, perhaps annual, basis.

By definition, a rent review must take place at some point in the future. Therefore, some action is going to be required to initiate this review process or else the tenant will simply continue to pay the commencing rent for the entire term. While s35(3) generally prohibits review conditions that prevent rent from decreasing, non-retail leases will generally envisage an increase in rent on review and a tenant is therefore likely to be content to allow the current rental to continue rather than risk an increase on review. The result is that if a review is to take place, it will generally only be at the instigation of the landlord. This applies equally to “automatic” increases based on fixed amounts or percentages as well as other, more complex, methods of review. If the landlord does not call for the increase or initiate the review, the tenant is unlikely to do so.

The question therefore arises: what if there is a delay in the landlord seeking to invoke the rent review procedure? It is generally accepted that the cases support the view that:

1. Where a rent review condition includes reference to the review being undertaken within a specified time, there is a rebuttable presumption that time is not of the essence and the review may be initiated after the expiration of the time period referred to in the condition.

2. The presumption may be rebutted by words in the lease or surrounding circumstances.

3. If the party entitled to initiate the review fails to do so within the time specified in the lease, then the other party may make time of the essence by giving to the first party reasonable notice of a time by which the review is to be initiated.

Section 35(5) provides that rent reviews should be “conducted as early as practicable within the time provided by the lease”. Perhaps, when combined with the unconscionable conduct provisions of part 9 of the Act, a retail tenant may be able to contest a late attempt to review rent.

If you would like further details or assistance or to discuss the information contained in this article or more generally, please do not hesitate to contact us at Held Lawyers, or visit our website at www.heldlawyers.com.

Disclaimer

This article is intended to provide commentary and general information only. It should not be relied upon as legal advice. It is not intended to be a complete or definitive statement of the law on the subject matter covered. Further professional advice should be sought before any action is taken in relation to the matters described.