Rent review clauses often get a quick read at lease signing, when the current rent feels like the only number that matters. But how future increases are calculated can significantly change the real cost of a lease over its term. It’s important to get trusted advice about your lease so you know what to expect. Here’s what we’ll work with you on to check before you sign.
1. Fixed Percentage Increases
A fixed annual increase (say, 3-4%) is predictable and easy to budget for, but it isn’t always the cheapest option. Over a longer lease term, it can outpace actual market rent, particularly in a slower-growth market, leaving you paying more than a comparable tenant on a market review.
2. CPI Reviews
A Consumer Price Index review moves rent in line with inflation. It can feel fairer over time, but it adds uncertainty. In a period of high inflation, increases can be larger than expected when the lease was signed.
3. Market Reviews
A market review resets the rent to current market value, usually by negotiation or, if you can’t agree, an independent valuation. It’s the fairest approach in theory, but it brings cost, time and the possibility of a genuine dispute over what “market” actually means for your premises. We’ll check how the lease defines market rent and what the valuer must take into account.
4. Ratchet Clauses
Some leases include a “ratchet” – a market review that can only increase the rent, never reduce it, even if the market has genuinely softened. These are often tucked inside a review clause that otherwise sounds neutral, so we’ll look for them specifically. In Queensland, ratchet clauses are prohibited in retail shop leases, but they can still appear in other commercial leases.
5. Retail Shop Leases
If your lease is a retail shop lease, the Retail Shop Leases Act 1994 (Qld) sets specific rules for rent reviews. Ratchet and dual method reviews are banned, and if you and the landlord can’t agree on market rent within one month after the review date, it must be determined by a specialist retail valuer, with the cost shared equally. At Legali, we’ll confirm whether the Act applies to your lease and whether the review clause complies with it.
6. Combination Reviews
Some leases combine methods. For example, the greater of CPI or a fixed minimum percentage, which can favour the landlord more than either method alone. We’ll work through the clause with you so you understand the actual worst-case outcome. If your lease is a retail shop lease, a clause like this may not be enforceable at all.
7. Timing and Notice Requirements
Missing a rent review deadline – particularly for triggering or disputing a market review can mean losing the right to challenge an outcome you don’t agree with. These deadlines are often tucked away in a schedule rather than the main body of the lease, so we’ll identify them and make sure you know exactly when they fall.
8. The Real Cost Over the Full Term
Before signing a commercial lease or retail lease, it’s worth working out what each review method could mean in dollar terms over the full lease term, including any option periods, rather than just comparing headline rent. A slightly lower starting rent with an aggressive fixed increase can end up costing more than a higher starting rent with a market review. Your accountant can help with the modelling, and we’ll make sure the numbers reflect what the lease actually says.
At Legali, we regularly help landlords and tenants understand exactly how rent will be calculated before they commit to a commercial or retail lease. The rent review clause shapes the real cost of a lease far more than the headline rent suggests – the details matter. If you’re a business owner or small business owner looking to sign a commercial or retail lease, reach out to our team and we’ll review the clause and what it means for you over the full term before you sign.