Retail Shop Leases Act

Recent amendments to the Retail Shop Leases Act 1994 have made provisions commonly known as ‘ratchet’ rent provisions void in any lease for a retail shop. Ratchet provisions are defined in the new section 36A of the Act as follows:

‘ratchet rent provision means any provision of a retail shop lease to the extent that it—
(a) prevents, or enables the Lessor or another person to prevent, the rent decreasing under a rent review; or
(b) limits or specifies, or allows the limitation or specification of, the amount by which the rent may decrease under a rent review; or
(c) prevents, or allows the avoidance of, the rent review by the Lessor or another person for a purpose mentioned in paragraph (a) or (b).’

The common understanding of the ratchet rent provision is a mechanism whereby the review of rental is such that the rent for the subsequent lease year is either the review amount (be it a market or CPI review) provided it is no less than the rental for the current lease year. An example of which would be a market review where if such review resulted in a decrease of rental, the rental amount would be ratcheted and therefore remain at the current rental for the subsequent lease year rather than decreasing.

This has been a common practice by Landlords for some time.

The definition above seems broad and is yet to be fully tested in a court. It is unclear whether the intention behind the amendment is to broaden the generally accepted definition of a ratchet rent provision or whether it is meant to reinforce it.

If you are a landlord our advice generally would be to keep rental reviews at a fixed percentage to avoid any ambiguity or potential pitfalls.

Whether you wish to rent your retail shop or are entering into a lease in a retail shop as tenant, come and see us at Hatzis Lawyers so you can be sure you are getting the latest up to date advice. Contact us on commercial@hatzis.com.au

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