A rent review is a clause, not a conversation. It sits in the lease, it operates on a date fixed years earlier, and when it arrives it resets what the tenant pays for the rest of the term. On a long lease with options, one market review can matter more than the original rent negotiation did. Both sides usually arrive at that date with a figure in mind and no shared basis for it. Supplying the basis, and standing behind it, is what a valuer is engaged to do.

How review clauses work

Most commercial and retail leases review rent by one of three mechanisms, often alternating through the term. An indexed review moves the rent by a published measure, usually the Consumer Price Index, applied to the rent then payable. A fixed review moves it by an agreed percentage or dollar step, which gives certainty and makes no reference to the market at all. A market review asks a different question, being not what the rent has been but what the premises would command if they were offered today.

The first two are arithmetic. The third is an opinion of value, and it is the one that generates disputes, because it is the only review that can move the rent materially in either direction. Timing then matters as much as method. Review clauses usually require notice within a stated window, some make time essential so a landlord who serves late loses that review, and some deem the landlord’s figure accepted if the tenant does not object in time. The first step is reading the clause and putting its dates in the diary.

What market rent means in a lease

Market rent is not a free-standing number attached to a building. It is the rent for those premises on the terms of that lease, and the clause usually says so. A typical definition asks for the rent a willing lessee would pay a willing lessor for the premises offered vacant and available, on the same terms as the existing lease apart from rent, with both parties knowledgeable and neither under compulsion.

The lease terms are therefore part of the brief, not background. A five year term with two options is not the same product as a two year term with none, and a tenant paying all outgoings is buying something different from one on a gross rent. Permitted use, make good obligations, car parking and who carried the fitout cost all bear on what a hypothetical tenant would pay.

Market rent clauses also carry assumptions and disregards. Common ones require the valuer to assume the premises are fit for occupation, and to disregard the goodwill built up in the tenant’s business along with the value of the tenant’s own fixtures and fitout. A tenant who has traded well for a decade is not asked to pay rent on its own success.

Face rent, effective rent and incentives

The rent stated in a lease is the face rent, and it is frequently not what the tenant is really paying. Landlords compete for tenants with incentives, including rent-free periods, contributions to fitout, cash payments and abatement spread across the term. Take the incentive out and spread it over the term and the result is the effective rent, the actual economic outcome of the deal.

That gap is the most common error in do-it-yourself rent evidence. A schedule of lettings at strong face rents can sit over a market where effective rents are materially lower, because each deal carried an incentive that never appears in the registered lease. Analysing a comparable letting means establishing what actually changed hands: the face rent, the incentive and its form, the term, the outgoings basis and the area the rent was struck on, since a rate per square metre calculated on a different area basis is not a comparison at all.

When the parties cannot agree

Well drafted review clauses assume disagreement and provide for it. The usual mechanism is determination by an independent valuer, appointed by agreement or, failing that, nominated by the president of a professional body named in the lease. Each party makes a submission, the valuer inspects and considers the evidence, and the rent is set at the figure determined. Costs are commonly shared.

The distinction that matters is whether the valuer acts as an expert or as an arbitrator, and the lease will say. An expert determination is not litigation. The expert reaches a conclusion on their own knowledge and investigation, assisted by what the parties put forward, and it is generally final and binding on both. A court will not revisit the figure because one side thinks it is wrong, and challenges succeed only on narrow grounds, essentially that the expert did not carry out the task the contract set.

Retail premises in Queensland

Retail tenancies sit under an additional layer. Queensland’s retail shop leasing legislation applies to leases of retail shops and overlays terms on the lease the parties signed. It cannot be contracted out of, and where the lease conflicts with it, the legislation prevails.

In broad terms it regulates how a current market rent is determined for a retail shop, including who is qualified to determine it, the information the parties must give that valuer, and matters the valuer must take into account or disregard. It also limits how review provisions may be framed. A retail review is therefore not governed by the lease alone, so both sides should confirm early whether the premises fall inside the legislation. That is a question for the parties' solicitors, and better asked before a review notice goes out.

What each side should bring

A determination is made on what the parties put up, so the submission is the one real chance to shape the outcome. Acting for either party, a valuer needs:

  • The lease and every variation. Including the schedule, the review clause, the outgoings provisions and any side letter recording an incentive. The clause, not the market, defines the question.
  • The measured area. A current measurement on the recognised basis for the property type. A rent per square metre is only as reliable as the area underneath it.
  • The fitout and incentive history. Who paid for what, when, and on what terms. This drives what must be disregarded and what the existing deal is worth.
  • Outgoings and recoveries. What the tenant pays beyond rent and how it is apportioned.
  • Recent leasing in the building or centre. Landlords hold this and tenants usually do not, which is one reason the retail legislation requires a landlord to give the determining valuer details of comparable lettings.

If a market review is approaching on premises you own or occupy, or a figure has been put to you and you want the evidence behind it tested before you accept it, call the practice on 07 5550 4055 and talk it through.