Are you the landlord in a commercial lease? Or maybe you are the tenant of business premises? You should be aware of the potential complications surrounding market rent reviews and how they can be avoided.
The recent case of Data Base Corporate Pty Ltd v Strike Australia Pty Ltd (2019), involving a well-known bowling chain, is an example of why it is important to be familiar with the terms of your lease, whether you are the landlord or tenant, and that legal advice should be sought at each stage of the lease, not just at its commencement.
In this case, Strike was the tenant and had just renewed their lease in Darling Harbour under an option. A valuer was appointed to determine the fair market rent for the upcoming period. The valuation was lower than the landlord expected, who then made a claim that the valuation was not carried out in accordance with the provisions of the lease, and that the rental determination should be set aside. The valuation was conducted by a qualified valuer, but it was found by the NSW Supreme Court not to have adhered to the terms of the lease as it did not "have regard to market rents for comparable premises in the vicinity" as the valuer had taken into account market rents for a bowling alley in Macquarie Park and a supermarket in Bondi, both of which had significantly lower rents than tenants in the Darling Harbour precinct. The Court held that the valuation was not in accordance with the requirements under the lease and was set aside. Strike appealed saying that the judge had erred in finding that the valuation was not in accordance with the terms of the lease but lost that appeal and were ordered to pay the costs of the landlord.
Legal advice ahead of the time to exercise the option may have assisted and reduced the risk, and avoided costly court disputes. The experienced Commercial Business team at Watkins Tapsell, led by Business Law Accredited Specialist Peter Rusbourne, is able to help with all aspects of the leasing process. We can advise you on rent review methods and exercising options including for retail space.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.