At Ensure Legal, we understand that rent adjustments are one of the most important considerations for both landlords and tenants in commercial leases in Australia. Annual rent increases and market rent reviews are common features in most leases, but they can sometimes lead to confusion or disputes. Knowing how these adjustments work can help both parties plan ahead and avoid unnecessary conflicts.
Understanding the Difference Between an Annual Increase and a Market Review
Most commercial leases will include a mechanism for annual rent increases and, in longer leases or when an option is exercised, a market rent review. While both involve changes to rent, they serve different purposes.
Annual rent increases are predetermined adjustments to rent throughout the lease term. They are usually calculated in one of the following ways:
- A fixed percentage increase each year
- An adjustment based on the Consumer Price Index (CPI)
- A fixed dollar amount increase (less common)
Because these increases follow a set method, they are straightforward and unlikely to cause disputes.
Market rent reviews, on the other hand, aim to reset the rent to reflect current market conditions. These typically occur at key points, such as:
- When a tenant exercises an option to renew the lease
- At specific times in long-term leases
Market rent is usually determined by comparing similar properties in the area. This means that rent can go up or down, depending on market trends at the time of the review. Since market reviews involve professional opinions and research, they can sometimes lead to disagreements between landlords and tenants.
What Happens During a Market Rent Review
The lease should outline how a market rent review is conducted. Usually, the landlord and tenant will first attempt to reach an agreement on the revised rent. If they cannot agree, the lease may set out a process for resolving the dispute.
For retail leases, additional protections apply under the Retail Shop Leases Act 1994. If the parties cannot agree on the market rent within one month of the review date:
- A specialist retail valuer must determine the rent
- If there is a dispute over who to appoint, either party can apply to the Civil and Administrative Tribunal to appoint a valuer
- The valuer’s decision is based on lease guidelines and submissions from both parties
- The cost of the valuation is shared equally between the landlord and tenant
For commercial leases that are not covered by the Retail Shop Leases Act, the dispute resolution process will depend on the terms set out in the lease.
Late Rent Adjustments
If a rent increase or market review is not applied on time, tenants may still be required to pay any outstanding adjustments once they are applied. A delay in processing does not typically release a tenant from the obligation to pay the increased rent retrospectively.
Limitations on Rent Reviews in Retail Leases
The Retail Shop Leases Act does not cap rent increases, but it does prohibit certain types of rent reviews in retail leases, including:
- Ratchet rent reviews, which prevent rent from decreasing even if the market rent has fallen
- Dual method rent reviews, where the landlord can choose the higher of two or more review methods
These types of clauses are not enforceable in Queensland retail leases.
Rent Changes at the End of a Lease
If a lease is coming to an end and there is no option to renew, the landlord may:
- Offer a new lease, potentially with different terms, rent, or security deposit requirements
- Choose not to offer a lease renewal at all
There is no legal limit on how much rent can increase in a new lease negotiation. Since there is no lease in place at that stage, this becomes a commercial negotiation, and mediation is generally not available related to new lease terms.
We can help
Rent adjustments are a fundamental part of commercial leasing, but they don’t have to be a source of stress. By understanding the lease terms, planning for rent changes, and keeping communication open, landlords and tenants can avoid unnecessary disputes.
If you have concerns about a rent increase, market rent review, or lease negotiation, our team at Ensure Legal can help. We provide expert guidance on commercial and retail leases across Queensland, helping businesses and property owners navigate their legal obligations with confidence. Contact us today to discuss your leasing concerns.
