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  • Gabriella Ferraro

Market Rent Reviews – how do I know if I’m paying a fair rental?

Written by Catherine Micallef

When you enter into a commercial tenancy, rent is ordinarily agreed between the parties for the first term of the lease. You may have agreed that each year the rent will increase by either a fixed amount or fixed percentage or by the increase in the Consumer Price Index (CPI) for that particular year.

When it is time to consider whether to renew your tenancy for a further term, the review is often based on a market review.

Ordinarily when a market review is due upon renewal, the landlord will give the tenant a notice to review with the rent it proposes to charge for the further term. This new market rent should be based on the rent obtainable at the time of the review in a free and open market between landlord and tenant in an arm’s length transaction.

If a tenant disagrees with the rental proposed but wishes to renew, they should respond to the landlord with a rental counteroffer.

If the landlord and tenant are unable to reach agreement on the new market rental, the Law Institute of Victoria leases make provision for the landlord and tenant to appoint a independent valuer to determine the market rent. The cost of the valuer is to be shared between the parties, and the parties are able to submit submissions to the valuer based on what they think the new rental should be. Submissions would include evidence as to the economic climate and the rate that similar size/use premises are being rented for in the area.

If the parties are unable to agree on which valuer to appoint, the parties can apply to the Victorian Small Business Commissioner to appoint a valuer.

The valuer’s rental determination is binding upon the parties and so the parties must determine whether it is worth going through the procedure for a formal rent review.

The information provided in this article is general advice only. It is recommended that if you are renewing a lease, or considering applying for market review valuation, you contact our office for legal advice that is suitable to your specific situation. You can contact a member of our team on (03) 9311 8911.

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