HG Alert: Lease Rent Review Methods Restricted under New Bill - 29 Nov 2010

The Criminal Code and Other Legislation Amendment Bill 2010 (Qld), introduced last week, is intended to change the way landlords can review rent under the Retail Shop Leases Act 1994 (Qld) by banning ratchet provisions.

We believe that the Bill as drafted does not have the effect intended, and have contacted the relevant Department to seek clarification.

Our thoughts on the Bill

The proposed definition of 'ratchet rent provision' in the Bill is, in our opinion, too broad. It could stop landlords from using many of the common methods of review altogether, including fixed percentage increases and fixed actual amounts.

The definition of 'ratchet rent provision' also means that there would still be a way to apply a partial ratchet review, as a clause is only void if it prevents a rent decrease or rent review. A clause that says that a review will only be triggered if something else happens (eg if there has been an increase in CPI) may not technically be void.

The intention of the Bill

The intention of the Bill is to change the consequences of a decision of the Supreme Court of Queensland in 2009, which held that particular types of ratchet provisions were allowed under the Act. For more information about that decision, see our 2009 Alert.

The new rules will apply to leases entered into after the amendment takes effect, but not existing leases. The amendments are intended to prevent landlords from putting clauses in leases which:

  • keep rent at a certain level (eg when rent is to be the higher of market rent and the previous year's rent);
  • put a 'floor' on rent decreases (eg a clause which says that rent must not decrease by more than 5 percent); or
  • allow landlords to not review rent where this will stop rent decreasing (eg a clause which says the landlord 'may' review rent if it chooses).

However, as outlined above, we believe the Bill will have an opposite and unintended result.

So what now?

We will issue further updates on the Bill in due course. In the meantime, we recommend that you:

  • take the intention of these proposed changes into account when negotiating rent for new tenancies;
  • remember, if you use a CPI review or a market review clause, you will not be able to stop rents going down as well as up (if the Bill has its intended effect);
  • check the wording of your existing leases. Whether you can apply a ratchet provision depends on the wording used; and
  • check the wording of your new leases and precedents. It's important to ensure that if a provision is void under the changes, you can still review rent.

For more information about the Criminal Code and Other Legislation Amendment Bill 2010 (Qld), please contact HopgoodGanim's Commercial and Retail Leasing team