Tenants can determine their rent before Exercise of Option Under Retail Shop Leases (“RSLA”)

Under section 27A of the Retail Shop Leases Act a tenant can insist that the rent for the new term under a lease be determined before they exercise the option to extend the lease. A tenant does so by written notice to the landlord requesting the new market rental be determined.

When Can a Tenant Require Early Determination?

The tenant may give the landlord written notice during the ‘early determination period’ (‘the EDP’) requesting that current market rent be determined (unless current market rent has already been agreed between parties).

For a lease for less than 1 year the EDP starts 3 months and ends 1 month before the option expiry date (the last date under the lease by which the tenant must exercise its option.

For leases for more than one year, the EDP starts 6 months and ends 3 months before the option expiry date.]

Determination by Specialist Retail Valuer

If the tenant and landlord cannot agree on the current market rent within one month after the review date, the rent will be determined by a specialist retail valuer agreed between the parties. Each party will be entitled to make submissions about the current market rent to the valuer up until a date decided by the valuer.

The current market rent must be determined as at the date the request for early determination is made.

The tenant and landlord must bear the cost of the determination equally.

In What Circumstance is Early Determination Not Applicable?

A tenant has no right to request an early determination of rent if:

1)            the tenant is a ‘major lessee’ (a tenant of 5 or more retail shops in Australia);

2)            before entering into the lease the tenant gave a written notice to the landlord that early determination would not apply; and

3)            the lease provides for some other basis and timing for each review (i.e., fixed percentage increase).

We have considerable expertise and many years’ experience in advising on leases (whether retail, commercial or industrial) on behalf of both landlords and tenants.

This article only provides very general advice and should not be relied on without proper legal advice on your specific circumstances.

If you would like more information about an existing, or new lease, or an assignment of lease, please call us on (07) 5443 4744 or email info@pacifclaw.com.au