Commercial Lease Rent Reviews in Queensland: Annual Increases, CPI and Market Rent Reviews
Rent review clauses are one of the most important financial clauses in a commercial lease.
A commercial lease may start with a rent figure that appears manageable, but that figure may change during the lease term through annual increases, CPI reviews, fixed percentage increases or market rent reviews. These changes can affect the tenant’s cash flow, the landlord’s income, the value of the lease, and the cost of renewing or assigning the business.
For tenants, the key risk is signing a lease without understanding how rent will increase over time. For landlords, the key risk is using unclear wording that later causes disputes about timing, calculation or recoverability.
This guide explains how rent reviews usually work in Queensland commercial leases, including annual rent increases, CPI reviews, market rent reviews and special rules for retail shop leases.
What is a rent review in a commercial lease?
A rent review is a mechanism in a lease that changes the rent at specific times.
The lease should state:
- when the rent review occurs;
- what method is used;
- who calculates the new rent;
- whether notice is required;
- whether the review can be backdated;
- what happens if the parties disagree; and
- whether the rent can decrease.
A rent review is different from outgoings. Rent is the amount paid for the right to occupy the premises. Outgoings are operating costs, such as rates, insurance, maintenance, body corporate levies or other property costs, if the lease allows them to be recovered.
Tenants should review both rent and outgoings together because the total occupancy cost may increase even if only one part of the lease changes.
Common types of commercial lease rent reviews
Commercial leases usually use one or more of the following rent review methods.
| Rent review method | How it works | Main risk |
|---|---|---|
| Fixed percentage increase | Rent increases by a set percentage, such as 3%, 4% or 5% per year | Can exceed market movement if the market softens |
| CPI increase | Rent changes according to a Consumer Price Index formula | Disputes can arise if the CPI source, quarter or formula is unclear |
| Fixed dollar increase | Rent increases by a set amount each year | Simple, but may not reflect market conditions |
| Market rent review | Rent is reset by reference to current market rent | Higher dispute risk because valuation involves judgment |
| Mixed or alternative methods | Lease refers to more than one method | May be problematic in Queensland retail shop leases |
Annual rent increases
An annual rent increase is usually applied on each anniversary of the lease commencement date or on another review date stated in the lease.
The most common annual rent increases are fixed percentage increases, CPI increases or fixed dollar increases.
For example, a lease may say:
- rent increases by 4% each year;
- rent increases by CPI each year;
- rent increases by $5,000 per year; or
- rent increases by the greater of CPI and 3%.
For ordinary non-retail commercial leases, the effect depends heavily on the wording of the lease. For Queensland retail shop leases, additional restrictions may apply under the Retail Shop Leases Act 1994 (Qld), including restrictions on certain ratchet and dual method rent reviews. The Queensland Small Business Commissioner states that the Act does not set a maximum rent increase for retail shop leases, but prohibits ratchet rent reviews and dual method rent reviews.
CPI rent reviews
A CPI rent review links the rent increase to inflation.
A CPI clause may appear simple, but the exact wording matters. The lease should identify:
- which CPI index applies;
- which city or region applies;
- which quarter is used;
- whether the calculation is annual, quarterly or another period;
- whether there is a minimum increase;
- whether there is a cap;
- whether rent can decrease if CPI is negative; and
- whether GST is added after the CPI calculation.
For example, a lease may refer to the “All Groups Consumer Price Index for Brisbane” or another CPI measure. If the lease does not clearly identify the index or period, the parties may later disagree about the correct calculation.
Tenants should ask for the calculation in writing. Landlords and agents should provide the relevant formula, CPI figures and resulting rent amount clearly.
Fixed percentage increases
A fixed percentage rent review is usually the easiest to understand.
If the lease says rent increases by 4% each year, the rent is adjusted by that percentage on the review date. This gives both parties certainty.
For landlords, fixed increases can provide predictable income growth. For tenants, fixed increases allow easier budgeting.
The risk is that fixed increases do not necessarily follow the market. If the market softens, the tenant may still need to pay the fixed increase. If the market rises sharply, the landlord may be locked into an increase that is below market.
This is why fixed increases should be considered carefully before signing a long-term lease.
Market rent reviews
A market rent review resets the rent by reference to the current market rent for comparable premises.
Market rent reviews commonly occur:
- at the start of an option term;
- during a long lease;
- when the parties agree to renew;
- when a lease says rent must be reviewed to market; or
- when the lease requires an independent valuation.
A market rent review may consider factors such as:
- location;
- size and layout of the premises;
- permitted use;
- frontage and exposure;
- access and parking;
- foot traffic;
- comparable rents;
- incentives;
- vacancy rates;
- fitout;
- lease term;
- outgoings structure; and
- condition of the premises.
Market rent reviews often create more disputes than fixed increases or CPI increases because valuation involves commercial judgment.
CPI review vs market rent review
A CPI review and a market rent review are not the same.
| Issue | CPI rent review | Market rent review |
|---|---|---|
| Basis | Inflation index | Current market evidence |
| Certainty | Usually higher | Usually lower |
| Evidence needed | CPI figure and formula | Comparable lease evidence and valuation material |
| Common timing | Annual review | Option renewal or long lease review |
| Dispute risk | Usually calculation-based | Often valuation-based |
| Can rent decrease? | Depends on lease wording | Depends on lease wording and applicable retail lease law |
| Best suited for | Predictable yearly increases | Re-setting rent to market at key points |
A tenant should not assume a CPI clause protects them from large rent increases. A landlord should not assume a market rent review automatically gives them the rent they want. Both depend on the lease wording, market evidence and applicable law.
Can a landlord backdate a rent increase?
This depends on the lease.
Some leases allow a rent review to take effect from the review date even if the calculation or notice is given later. In that case, the tenant may receive an invoice for backdated rent.
However, tenants should not automatically accept a backdated invoice without checking the lease. The tenant should ask:
- what clause allows the increase;
- what review date applies;
- how the amount was calculated;
- whether notice was required;
- whether the increase can be applied retrospectively; and
- whether the lease or applicable law limits the review.
The QSBC has identified surprise and backdating as common causes of lease cost disputes, especially where tenants receive large, delayed or one-off adjustments without clear documentation.
For landlords and agents, the practical lesson is simple: issue rent review notices and calculations promptly. Delayed communication often creates avoidable disputes.
What if the tenant disagrees with the rent increase?
A tenant should first review the lease.
The question is not simply whether the increase feels fair. The question is whether the landlord has applied the correct clause, method, timing and calculation.
A tenant should check:
- the rent review clause;
- the review date;
- the calculation method;
- the CPI source or market review process;
- any cap, floor or ratchet wording;
- whether the lease is a retail shop lease;
- whether the increase has been properly notified;
- whether the landlord has provided supporting calculations; and
- whether the tenant has a dispute resolution right.
It is usually risky for a tenant to simply stop paying rent. The QSBC warns that withholding rent during a dispute may put a tenant in breach of the lease and recommends seeking legal advice before doing so.
Retail shop leases in Queensland
Retail shop leases require special care.
If the lease is governed by the Retail Shop Leases Act 1994 (Qld), rent review rules may be affected by the Act.
For retail shop leases, if the parties cannot agree on current market rent within one month after the review date stated in the lease, the rent must be determined by a specialist retail valuer. If the parties cannot agree on the valuer, an application can be made to QCAT for appointment of a specialist retail valuer.
QCAT states that both parties must agree to appoint a valuer and sign the application form, after which QCAT selects and appoints an independent specialist retail valuer to determine the current market rent. The valuer’s cost is generally expected to be shared equally.
This process is important for both landlords and tenants. A landlord should not assume it can impose its preferred market rent. A tenant should not assume it can simply reject a market review without following the process in the lease and the Act.
Ratchet clauses and dual method rent reviews
A ratchet clause is a clause that prevents rent from decreasing, or limits the extent to which rent can decrease, after a rent review.
A dual method rent review is a clause that allows the rent to be reviewed by choosing between two or more rent review methods.
For Queensland retail shop leases, the QSBC states that ratchet rent reviews and dual method rent reviews are prohibited under the Retail Shop Leases Act 1994 (Qld).
This is a major difference between retail shop leases and other commercial leases. In a non-retail commercial lease, the position depends on the lease wording and applicable law. In a retail shop lease, the Act may override inconsistent drafting.
Landlords should ensure rent review clauses are drafted correctly. Tenants should obtain advice if the lease appears to prevent rent from falling on a market review or allows the landlord to choose the most favourable review method.
Rent increases at the end of a lease
The position is different when a lease is ending and there is no option to renew.
If there is no option, the landlord may choose whether to offer a new lease. A new lease may have different rent, security, outgoings, guarantees, incentives or other commercial terms.
The QSBC states that where a lease is about to end and there are no options to renew, the landlord may offer a new lease but is not obligated to do so, and no legislation limits the rent increase that a lessor can ask for a new commercial or retail lease.
This is why option clauses matter. A tenant with a properly exercised option may have stronger renewal rights than a tenant negotiating a completely new lease after the existing lease expires.
Option renewals and market rent
Many commercial leases provide that rent will be reviewed to market at the start of an option term.
This can be a critical point for both parties.
For tenants, the risk is that the option is exercised without understanding what the new rent may be. For landlords, the risk is that the lease does not clearly set out the market review process.
Before exercising an option, tenants should check:
- the deadline for exercising the option;
- the required method of notice;
- whether there are any preconditions;
- whether the tenant must not be in breach;
- whether rent is reviewed to market;
- whether the rent can decrease;
- whether a valuer can be appointed;
- who pays the valuation costs; and
- whether the option term is commercially viable.
A tenant should not leave this review until the final week before the option deadline. Once an option is missed, the tenant’s negotiating position may change significantly.
Rent reviews and business sales
Rent review clauses can also affect business sales.
If a tenant is selling a business, the buyer will usually want to know the future lease cost. If a market rent review is due soon, the buyer may be concerned that rent will increase after settlement.
The seller should check whether any rent review is pending. The buyer should review the lease before the business sale contract becomes unconditional.
Rent review risk may affect:
- business valuation;
- bank finance;
- assignment approval;
- buyer due diligence;
- landlord consent;
- settlement timing; and
- negotiation of price or special conditions.
A lease assignment should not be treated as a purely administrative step. Rent review exposure can materially affect the value of the business being transferred.
Landlord checklist before applying a rent review
Before issuing a rent review notice or invoice, landlords and agents should check:
- the correct review date;
- the correct rent review method;
- whether notice is required;
- the CPI index or market review process;
- whether the lease is a retail shop lease;
- whether the clause is enforceable;
- whether any cap or restriction applies;
- whether the calculation is clear;
- whether GST has been applied correctly;
- whether the tenant has been given sufficient supporting information; and
- whether any backdated adjustment is allowed.
Clear documentation reduces disputes. A short explanation with the calculation is usually better than issuing an unexplained invoice.
Tenant checklist after receiving a rent increase
After receiving a rent increase, tenants should check:
- whether the review date has occurred;
- whether the landlord used the correct clause;
- whether the calculation matches the lease;
- whether CPI has been calculated using the correct index and period;
- whether the increase has been backdated;
- whether the lease allows backdating;
- whether the rent can decrease on a market review;
- whether the lease is a retail shop lease;
- whether a specialist retail valuer process applies;
- whether outgoings have also increased; and
- whether the total occupancy cost remains affordable.
If the increase is unclear, the tenant should ask for the calculation and supporting basis in writing.
Common rent review disputes
Common disputes include:
- incorrect CPI calculation;
- rent review notice issued late;
- backdated rent adjustment;
- market rent disagreement;
- landlord refusing to allow rent to decrease;
- tenant refusing to pay an increase;
- disagreement over comparable premises;
- valuation process dispute;
- option renewal rent dispute;
- rent review and outgoings increase happening together;
- unclear GST treatment;
- incorrect use of dual review methods; and
- retail lease specialist valuer disputes.
QCAT lists rent determination procedure, specialist retail valuer issues, outgoings, disclosure statements, assignment, termination and compensation among matters that can arise in retail shop lease disputes.
How Ensure Legal can assist
Ensure Legal assists landlords, tenants, business owners and property professionals with commercial lease rent review issues in Queensland.
We can assist with:
- commercial lease review;
- rent review clauses;
- CPI rent increase disputes;
- fixed percentage rent increases;
- market rent review disputes;
- option renewal advice;
- retail shop lease rent review issues;
- specialist retail valuer process;
- lease assignment and business sale issues;
- landlord lease drafting;
- tenant lease negotiations;
- QSBC mediation preparation; and
- QCAT retail shop lease disputes.
Rent review clauses should be checked before the lease is signed, before an option is exercised, and before a rent dispute escalates.
Speak with a Queensland commercial lease lawyer
If you have received a rent increase, are negotiating a market rent review, or need to understand your lease before exercising an option, Ensure Legal can review the lease and explain your position.
Contact Ensure Legal to arrange a commercial lease review.
This article is general information only and is not legal advice. You should obtain legal advice specific to your circumstances before acting or relying on this information.
FAQ
What is a rent review in a commercial lease?
A rent review is a lease mechanism that changes the rent at specified times. It may use a fixed percentage increase, CPI increase, fixed dollar increase, market rent review or another formula.
Can commercial rent increase every year in Queensland?
Yes, if the lease allows annual rent increases. The amount and method depend on the lease wording. For retail shop leases, additional rules may apply under the Retail Shop Leases Act 1994 (Qld).
What is the difference between CPI rent review and market rent review?
A CPI rent review adjusts rent by reference to an inflation index. A market rent review resets the rent by reference to current market rent for comparable premises.
Can a landlord backdate a rent increase?
It depends on the lease. Some leases allow the reviewed rent to apply from the review date even if the calculation is issued later. Tenants should check the lease before accepting a backdated invoice.
Can market rent go down?
It depends on the lease and whether retail lease legislation applies. For Queensland retail shop leases, ratchet rent reviews that prevent or limit rent decreases are prohibited under the Retail Shop Leases Act 1994 (Qld).
What happens if the landlord and tenant cannot agree on market rent?
For Queensland retail shop leases, if the parties cannot agree on current market rent within one month after the review date, a specialist retail valuer must determine the rent. If the parties cannot agree on the valuer, QCAT can appoint one.
Should a tenant get advice before exercising an option to renew?
Yes. A tenant should review the option deadline, notice requirements, rent review mechanism, market rent exposure, outgoings, make-good obligations and any existing breach before exercising an option.
Can a landlord use both CPI and market rent review?
It depends on the lease and applicable law. In Queensland retail shop leases, dual method rent reviews are prohibited under the Retail Shop Leases Act 1994 (Qld).
