Landlords… do you need to know how to increase your rent in a retail shop lease?

600_bigstock-brisbane-shopping-arcade-66798964In a retail lease you can only increase rent once every 12 months and only in the way the lease specifies (i.e. CPI, fixed percentage or review to market).  It is important to make sure you increase rent correctly over the life of the lease because otherwise it is void and you may not be able to increase rent at all, making it a very expensive mistake. You should ensure before entering into lease negotiations your rights and obligations are protected when it comes to increasing the rent over the life of the lease.

Unlike a commercial lease you cannot put CPI or 4% whichever is the greater as this is using two mechanisms to increase rent when you can only use one method in a retail lease.

It is common on the exercising of an option for the rent to be reviewed in alignment with the market.  Under retail shop legislation this is heavily controlled.  A specialist valuer can be called in to determine the market rent if you cannot agree on the reviewed market rent.  This can be an expensive exercise so you need to ensure when reviewing rent according to market you are in fact being realistic about the amount to avoid a dispute.

Another form of rent review which is outlawed under the retail shop legislation is the ratchet clause.  This clause prevents the rent decreasing.  Under retail shop legislation rent can decrease.  For example you might have a market review clause upon the exercising of an option and sometimes the result is the rent goes down.  In a commercial lease there is normally a provision that prevents this occurring by having a fixed rate increase if the market rate goes down.

It makes good business sense to have your leases reviewed by a Retail Leasing Lawyer.

If you have any questions about leasing your premises please call Peter Lee on 07 3186 6666 for an obligation free conversation.