What are Market Rent Reviews?
A market rent review in Queensland is fundamentally a contractual mechanism by which the rent payable under a lease is adjusted to reflect the market rental value at a specified review date.
Its enforceability depends upon whether the lease provides a complete and certain mechanism for determining the rent.
In Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53, the High Court considered whether a renewal clause providing for rent to be agreed, and failing agreement, fixed by an arbitrator, was enforceable. The Court explained at [7]:
In the present case, the lease itself provides the entire mechanism for determining the rental for the renewed term. There is no further agreement required of the parties. It is true that if they do agree upon that rental, then there is no occasion to resort to the independent mechanism that the lease provides. But, there being no such agreement, all that is required is that the President name a person to fix a figure being not less than the minimum rental operative during the original term.
Although Booker Industries considered a renewal option, the reasoning applies equally to market rent review clauses.
Where the lease contains a defined procedure for fixing market rent, including referral to an independent third party, the clause may constitute a concluded and enforceable agreement, notwithstanding that the rent has not yet been quantified.
The High Court further emphasised that such mechanisms attract implied obligations necessary to give them business efficacy at [8]:
In order to give business efficacy to cll. 4.01 and 3.05(b) it is necessary to imply a term that, once the conditions specified in cl. 4.01 have been performed, both parties will do all that is reasonably necessary to procure the nomination by the President of an arbitrator.
In the context of market rent reviews, this principle confirms that parties may be required to take reasonable steps to facilitate the contractual process for rent determination, including participating in the appointment of an expert or valuer.
In this article, our commercial lease disputes lawyers will explain in greater detail.
The Structure of a Typical Market Rent Review Clause
Queensland courts have repeatedly analysed clauses which require rent to be assessed by reference to “market rental value” and comparable premises.
In Finishing Services Pty Ltd v Lactos Fresh Pty Ltd [2006] FCAFC 177, the Full Court reproduced the operative rent review clause in the following terms at [2]:
Upon any day being not more than six months prior to 1 March 2003 and (if the Lessee exercises its option to renew) not more than 6 months prior to 1 September 2006 and 1 March 2010. The Lessor or the Managing Agent may give written notice to the Lessee stating the sum which the Lessor assesses to be the proper rent for the premises for the ensuing period such rent being the market rental value for the premises on the assumption that the premises are tenanted and with all fixtures and fittings and partitions, plant machinery utensils shelving safes and other articles and materials in the nature as set out in schedule 2 of trade or tenants fixtures installed by either the Lessor or the Lessee and having regard to the rents being obtained for comparable premises within the same municipality …
This formulation illustrates several defining features of a market rent review:
- Identification of a review date;
- Service of written notice;
- Assessment of market rental value;
- Stated assumptions about the condition and configuration of the premises; and
- Reliance upon comparable leasing evidence.
The clause also demonstrates that market rent is not synonymous with the existing or passing rent. It is an objective standard determined by reference to comparable premises and market conditions at the review date.
Notice and Procedural Compliance
Market rent reviews are highly procedural. The validity of the review may depend upon strict compliance with notice requirements and time limits prescribed by the lease.
In Sentinel Asset Management Pty Ltd v Primo Moraitis Fresh Pty Ltd [2014] QSC 200, Alan Wilson J summarised clause 2.3 of the contractual process at [5]:
The Landlord may give the Tenant a notice of the Landlord’s assessment of the current annual market rent of the Premises at the relevant Market Review Date at any time, but not later than the first Market Review Date that occurs after the relevant Market Review Date
The judgment further recorded the automatic consequence of a failure by the tenant to respond within time:
Unless the Tenant gives the Landlord a notice stating the Tenant’s assessment of the current annual market rent of the Premises at the relevant Market Review Date within 30 days after the Landlord gives its notice, the Rent on and from the relevant Market Review Date is the current annual market rent in the Landlord’s notice
These passages demonstrate that a market rent review is not merely a valuation exercise. It is a structured contractual sequence, in which non-compliance with prescribed steps may result in the landlord’s assessment becoming binding by operation of the lease.
The Full Court in Finishing Services Pty Ltd v Lactos Fresh Pty Ltd [2006] FCAFC 177 also addressed whether a notice initiating a market rent review was valid, identifying the central issue as whether the notice was unequivocal and effective according to the terms of the lease.
The decision underscores that the legal character of a market rent review begins with the validity of the initiating notice.
Finality and Expert Determination
Market rent review clauses frequently provide for determination by an independent valuer or expert if the parties cannot agree. Queensland courts recognise the binding character of such determinations where the contract so provides.
In Zeke Services Pty Ltd & Anor v Traffic Technologies Ltd & Anor [2005] QSC 135, Chesterman J referred to a contractual provision stating at [2] that:
Any decision of the Expert will be final and binding on the parties and Middletons Lawyers will be granted an irrevocable authority to release the … Amount in accordance with the decision of the Expert.
While that case concerned a share sale agreement, the principle is directly applicable to market rent reviews.
Where a lease stipulates that an expert’s determination of market rent is final and binding, the Court will ordinarily give effect to that contractual allocation of decision-making authority, subject to limited grounds of challenge recognised at common law.
Retail Shop Leases and Statutory Constraints
In Queensland retail shop leases, market rent reviews operate within the statutory framework of the Retail Shop Leases Act 1994 (Qld).
The Act regulates the permissible structure of rent review clauses and prohibits certain forms of ratchet or multiple review.
In Connor Hunter (A Firm) v Keencrest Pty Ltd [2009] QCA 156, the Court of Appeal referred to the legislative purpose in relation to rent review provisions, as stated at [13]:
In relation to rent reviews, the Bill prohibits ‘ratchet’ and ‘multiple rent review’ clauses. On each occasion that the rent payable is to be reviewed, such review must only be undertaken by reference to a single basis …
Accordingly, in retail contexts, a market rent review must not be combined with alternative methods in a manner inconsistent with the Act.
A clause that contravenes the statutory requirements may be void to the extent of inconsistency, with statutory remedies affecting the operation of the review.
Statutory Framework Governing Market Rent Reviews in Queensland
Market rent reviews in Queensland retail shop leases are not governed solely by contract.
They operate within the statutory framework of the Retail Shop Leases Act 1994 (Qld), which establishes mandatory minimum lease standards and restricts certain rent review structures.
The purpose and policy context of the Act were examined by the Queensland Court of Appeal in Connor Hunter (A Firm) v Keencrest Pty Ltd [2009] QCA 156. In referring to the legislative materials, the Court recorded at [13]:
This imbalance in market power has manifested itself in practices such as – ‘ratchet clauses’ and ‘multiple rent review’ clauses in leases where ‘independently’ determined market rents can rise but not fall or where the lessor can ‘select’ the highest of a number of rental alternatives; …
This passage identifies two central statutory interventions in retail leasing:
- The prohibition of ratchet clauses (which prevent rent from decreasing on review); and
- The prohibition of multiple rent review mechanisms under which the landlord may select the highest of several calculation methods.
Under the Act, a retail shop lease must adopt a single permissible basis for each rent review. While a market rent review is an approved basis, it must stand alone unless structured consistently with the statutory scheme.
The Court of Appeal also noted that the Act’s object is to promote efficiency and equity in retail leasing relations by redressing the imbalance in market power between lessors and retail tenants.
The statutory regulation of market rent reviews must therefore be understood in that protective context.
Interaction Between Contract and Statute in Retail Leases
Although retail leases remain contractual instruments, statutory provisions may render certain clauses void or modify their operation.
In Connor Hunter v Keencrest, the primary issue was whether, when combined, clauses providing for CPI and market reviews were invalidated by the Act.
The Court approached the issue by applying orthodox principles of statutory construction, including purposive interpretation.
The judgment emphasised that the Act establishes mandatory minimum standards for rent reviews.
Accordingly, even carefully drafted market rent review clauses may be inoperative to the extent that they contravene statutory prohibitions.
The consequence is that, in Queensland retail leasing:
- The validity of a market rent review clause must be assessed both under general contract principles and under the Retail Shop Leases Act 1994 (Qld);
- Where inconsistency arises, the statute prevails; and
- Statutory remedies may affect the outcome of an invalid review.
Importantly, the statutory overlay does not displace the contractual mechanism for determining market rent. Rather, it regulates the permissible structure of that mechanism.
Non-Retail Commercial Leases
By contrast, non-retail commercial leases in Queensland are not subject to the Retail Shop Leases Act 1994 (Qld).
In that context, the validity and operation of market rent reviews are governed by general principles of contract, certainty, construction and implication.
The High Court’s reasoning in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53 illustrates the approach.
The Court rejected the argument that a clause providing for rent to be fixed by a third party was void for uncertainty, explaining at [7]:
It is established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future. Consequently, if the lease provided for a renewal ‘at a rental to be agreed’ there would clearly be no enforceable agreement. On the other hand, it is also well established that the parties to a contract may leave terms – even essential terms – to be determined by a third person … In the present case, the lease itself provides the entire mechanism for determining the rental for the renewed term.
This principle applies directly to market rent reviews in non-retail leases. Where the lease supplies a complete mechanism including recourse to a valuer, arbitrator or expert, the clause is capable of enforcement, and the Court will give effect to it.
The High Court further clarified that, although fixation of rent may be a condition precedent to the grant of a renewed lease, the contractual obligation to facilitate the determination arises immediately, as stated at [9]:
There is a contract which immediately binds the lessor to perform his obligation to do all that is reasonably necessary to ensure that the rent is fixed, although the performance of the further obligation to renew the lease is conditional on the rent being fixed.
In the context of market rent reviews, this reinforces that parties may be under binding obligations to participate in the agreed process for determining rent, even before the rent figure is ascertained.
How Market Rent Is Determined Under Queensland Leases
The determination of market rent under a Queensland lease is not governed by a free-standing legal definition.
It is a matter of contractual construction informed by orthodox principles of interpretation, as articulated by the High Court and applied by Queensland courts.
In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7, the High Court reaffirmed that contractual rights and obligations are ascertained objectively by reference to the text, context and purpose of the contract.
The plurality stated at [35]:
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. It has been described as the objective approach to contractual construction. The rights and liabilities of the parties are determined objectively, by reference to the text, context and purpose of the contract.
Although Woodside did not concern a lease or rent review, its principles apply directly in Queensland to the construction of market rent review clauses.
The question is not what either party subjectively intended market rent to mean, but what the clause conveys to a reasonable commercial reader in its contractual setting.
This approach has been adopted in Queensland leasing disputes. In Harrison v Inala Plaza Pty Ltd [2002] QSC 293, Mullins J emphasised that lease provisions must be construed according to their ordinary and commercial meaning, informed by context rather than by post-contractual assertions of intention.
While that case concerned permitted use rather than rent, the same interpretive discipline governs market rent clauses.
The Role of the Valu er as an Expert
Market rent review clauses commonly appoint a valuer to determine rent as an expert rather than as an arbitrator.
The legal consequences of that distinction are well settled in Australian law and are applied in Queensland.
In Geoffrey Alan Holt and Anor v Robert Hedley Cox [1997] NSWSC 144, Mason P explained the contractual character of an expert valuation and the limits of judicial intervention:
There is no suggestion that Mr Adam failed to act honestly or impartially. Nor is it contended that there was any procedural miscarriage. It is also common ground that Mr Adam was acting as an expert rather than an arbitrator.
His Honour went on to identify the decisive issue in such cases:
This meant that the ultimate issue was whether Mr Adam had valued Mr Cox’s shareholding at ‘a fair price’.
Although Holt v Cox is a New South Wales decision, the principles it articulates have been applied in Queensland, including in cases concerning expert determination clauses in commercial contracts and leases.
Queensland courts recognise that where a lease appoints a valuer as an expert, the expert’s task is to apply judgment and expertise within the contractual mandate, rather than to resolve a dispute judicially.
Finality of Valuation and Limited Grounds for Challenge
Where parties agree that a valuation will be binding, courts will ordinarily enforce that agreement. The modern Australian position is that error alone is insufficient to invalidate an expert determination.
In Geoffrey Alan Holt and Anor v Robert Hedley Cox [1997] NSWSC 144, Mason P adopted and applied the principles stated by McHugh JA in Legal & General Life of Australia Ltd v A Hudson Pty Ltd, observing (at 335-6):
A valuation obtained by fraud or collusion can usually be disregarded even in an action at law… While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract.
His Honour further emphasised the contractual focus of the inquiry:
In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract?
These principles have been adopted in Queensland. They align with the approach taken by the Supreme Court of Queensland in enforcing expert determinations, including in market rent review contexts, where the Court’s role is confined to ensuring compliance with the lease machinery.
Methodology, Judgement, and Error in Valuation
A recurring issue in market rent disputes is whether an alleged error of methodology invalidates the determination. Australian courts distinguish between impermissible departure from contractual instructions and permissible judgment calls.
In Geoffrey Alan Holt and Anor v Robert Hedley Cox [1997] NSWSC 144, Mason P stated:
Such a formula generally ensures that the methodology to be used is a matter for the judgment of the valuer. In that context, mistakes of methodology may be mistakes in the course of doing what the contract requires.
This reasoning is directly applicable in Queensland market rent reviews.
Where a lease requires rent to be determined at market rent or a fair rental, the selection between accepted valuation methodologies will ordinarily fall within the valuer’s discretion, provided the contractual assumptions and disregards are observed.
The same approach was taken in Orti-Tullo and Anor v Sadek and Anor [2001] NSWSC 855, where Bryson J held that disagreement with a valuer’s approach did not establish invalidity, once again quoting McHugh JA at [17]:
The question is not whether the valuation was right or wrong, but whether the valuer carried out the task entrusted to him by the lease.
Although Orti-Tullo is a New South Wales decision, Queensland courts apply the same distinction between substantive non-compliance and evaluative judgment when assessing challenges to rent determinations.
Departure from Contractual Instructions
A valuation may be set aside where the valuer fails to comply with the express or implied requirements of the lease.
In Geoffrey Alan Holt and Anor v Robert Hedley Cox [1997] NSWSC 144, the Court accepted that the valuation could be invalid if the valuer failed to perform the contractual task:
A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement.
The Court contrasted that situation with permissible evaluative error:
A valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement.
In Queensland, this distinction underpins judicial supervision of market rent reviews. The focus is on whether the valuer addressed the correct question, applied the mandated assumptions, and operated within the contractual framework.
Judicial Supervision and the Limits of Intervention
Courts will not re-determine market rent simply because a party is dissatisfied with the outcome.
In Geoffrey Alan Holt and Anor v Robert Hedley Cox [1997] NSWSC 144, Mason P observed that modern authority reflects judicial restraint:
It appears to me that the trend in recent years has also been influenced by a recognition that courts have no greater expertise than expert valuers; and that where parties have chosen voluntarily to commit the determination of valuation to an expert, judicial restraint is an appropriate response.
That reasoning has particular force in Queensland, where commercial certainty and enforcement of agreed valuation mechanisms are central to leasing practice.
The result is that a market rent determination will ordinarily stand unless it can be shown that the valuer failed to act honestly, impartially, or in accordance with the lease.
Procedural Mechanics, Timing and Consequences of Non-Compliance
The initiation of a market rent review commonly depends upon service of a valid notice. The content and clarity of that notice are therefore critical.
In Finishing Services Pty Ltd v Lactos Fresh Pty Ltd [2006] FCAFC 177, the Full Court considered whether a notice given under a market rent review clause was effective.
In addressing that issue, the Court focused on whether the notice was unequivocal and complied with the contractual requirements, rather than on whether it was expressed in any particular form.
The decision confirms that courts will assess rent review notices objectively, asking whether a reasonable recipient would understand that the notice was intended to invoke the review mechanism provided by the lease.
Queensland courts adopt the same approach. In Harrison v Inala Plaza Pty Ltd [2002] QSC 293, Mullins J emphasised that lease provisions that prescribe procedural steps must be complied with in accordance with their terms, and that departures from the agreed machinery may deprive a party of contractual rights.
Reasonable Time and Implied Obligations
Where a lease fixes specific timeframes for steps in a market rent review, those timeframes are ordinarily decisive. Where no time is fixed, the law implies an obligation to act within a reasonable time, informed by the contract and its commercial context.
The High Court’s reasoning in Reid v. Moreland Timber Co. Pty. Ltd. [1946] HCA 48, although not a leasing case, provides authoritative guidance on contractual machinery where time is not expressly stipulated. Latham CJ stated at [13]:
An implication of a reasonable time when none is expressly limited is, in general, to be made unless there are indications to the contrary.
The Court further explained that the implication of reasonable time does not operate in a vacuum, but in light of the contractual structure and the nature of the obligation in question.
Applied to market rent reviews in Queensland, this principle means that where a lease does not specify when a party must initiate a review or respond to a notice, the obligation must be performed within a reasonable time, assessed objectively and in context.
Consequences of Failure to Act Within Time
Market rent review clauses frequently allocate risk by prescribing the consequences of inaction. Courts will ordinarily enforce those consequences.
Sentinel Asset Management Pty Ltd v Primo Moraitis Fresh Pty Ltd [2014] QSC 200 provides a clear illustration.
The tenant’s failure to respond within the stipulated period rendered the landlord’s assessed rent binding.
The Court treated that outcome as a contractual consequence agreed by the parties, not as a penalty or discretionary outcome.
This approach reflects a broader principle articulated by the High Court in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53, where the Court held that contractual machinery for fixing rent carries with it implied obligations to cooperate, and that failure to do so may attract contractual consequences.
Notices, Election and Termination
Although market rent reviews do not ordinarily involve termination of the lease, principles governing notice and election are relevant where failure to comply with procedural steps is alleged to result in binding outcomes.
In Perri v Coolangatta Investments Pty Ltd [1982] HCA 29, the High Court explained that where contractual performance is conditioned upon the occurrence of an event within a reasonable time, the consequences of non-fulfilment depend upon the contract’s structure.
Gibbs CJ observed that where a reasonable time has elapsed without fulfilment, a party not in default may elect to treat the contract as at an end without necessarily giving further notice, subject to the terms of the contract.
While market rent reviews rarely result in termination, the reasoning in Perri v Coolangatta informs the treatment of contractual consequences that arise automatically upon lapse of time or failure to act.
Common Risks and Misconceptions in Market Reviews
Market rent review disputes rarely arise from abstract disagreement about valuation theory. In practice, they are driven by incorrect assumptions about the court’s role, a failure to understand the contractual nature of the process, or non-compliance with the procedural machinery in the lease.
Parties frequently approach a review as though it were a merits-based contest about the “right” rent, when the legal inquiry is instead directed to whether the agreed mechanism has been properly invoked and carried out.
The following issues identify the most common sources of error and explain why the enforceability of a market rent outcome usually turns on construction of the lease and adherence to its process rather than on the substantive fairness of the figure determined.
The Court Will Correct an Unfair or Commercially Harsh Outcome
A common misconception in market rent review disputes is that courts will intervene when the outcome of a rent determination is deemed unfair, commercially unreasonable, or adverse to one party’s interests.
The authorities do not support that assumption. Where parties have agreed to contractual machinery for determining rent, courts enforce that machinery rather than reassess the commercial merits of the result.
In Badgin Nominees Pty Ltd v Oneida Limited [1998] VSC 188, Hansen J emphasised the primacy of contractual allocation of risk, as stated at [29]:
It is a trite proposition of law that parties may contract about anything and subject to the principles of public policy and illegality the agreement should be enforced unless there is some other vitiating factor.
Later in the same judgment, his Honour reinforced that courts are not concerned with whether the bargain struck was advantageous, stating at [32]:
It is their contract: and it should be enforced.
Although decided in Victoria, this reasoning has been consistently applied in Queensland cases concerning contractual machinery, including market rent reviews, where the focus remains on the enforcement of the agreed process rather than on substantive fairness.
A Valuation Can Be Set Aside Merely Because It Is Wrong
Another common error is the assumption that a market rent determination may be impeached simply because it is alleged to be incorrect.
The authorities draw a distinction between error affecting contractual compliance and error occurring within the valuation process itself.
In Kanivah Holdings Pty Ltd v Holdsworth Properties Pty Ltd [2001] NSWSC 405, Palmer J articulated the governing principle at [47]:
Where, as here, parties to a lease have provided that a rent review dispute is to be resolved by the determination of a valuer, acting as an expert and not as an arbitrator and that the determination is to be final and binding, then the determination may be successfully impeached as invalid only if it is shown to be tainted by fraud or collusion, or if it is shown not to have been made in accordance with the determination process, if any, specified in the lease.
His Honour went on to explain that error within the reasoning process does not of itself invalidate the determination:
Further, if the determination has been made in accordance with the terms of the parties’ contract, a mistake by the valuer in the reasoning process by which the conclusion was reached will not vitiate the determination.
Queensland courts have adopted this distinction when assessing challenges to market rent reviews, treating it as a matter of contractual conformity rather than valuation correctness.
Courts Can Re-Weigh Valuation Inputs or Evidence
Parties sometimes proceed on the assumption that courts will re-examine valuation evidence, comparables, or methodology where the rent determined appears excessive or inadequate.
That assumption is inconsistent with the role of the court where expert determination has been agreed.
In Kanivah Holdings Pty Ltd v Holdsworth Properties Pty Ltd [2001] NSWSC 405, Palmer J described attempts to reopen valuation disputes as undermining the very purpose of the rent review clause at [55]:
The case had been conducted … as a valuation case involving a disputation between valuers, the very situation which the rental clause in the lease was, I should imagine, designed to avoid.
This reasoning reflects a broader judicial reluctance to permit rent review clauses to become vehicles for merits-based litigation, a principle applied in Queensland leasing disputes.
Expert Determination Attracts Rights of Appeal or Review
Another persistent misunderstanding is the belief that an expert determination under a lease confers rights of appeal comparable to those available in arbitration or judicial proceedings.
In Savcor Pty Ltd v State of New South Wales [2001] NSWSC 596, Einstein J drew a clear distinction between expert determination and arbitral process, stating at [35]:
There is no equivalent, in relation to a determination of an expert, of the judicial review and judicial enforcement jurisdiction conferred … in the case of an arbitrator’s award.
His Honour further explained the limited basis on which an expert determination may be challenged:
An expert determination declared by contract to be final and binding is open to challenge only to the extent that it is not in conformity with the enabling contract.
That distinction is routinely applied in Queensland, where rent review clauses specify expert determination rather than arbitration.
Queensland Perspective: Enforcement of Commercial Bargains
Queensland authority reinforces these principles. In AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2009] QSC 139, Douglas J rejected arguments that contractual dispute resolution machinery should be treated as unenforceable merely because it exposed parties to commercial risk.
His Honour emphasised that enforceability turns on the construction of the agreement rather than subjective notions of fairness.
Although not a rent review case, the reasoning reflects the Queensland courts’ consistent approach to enforcing contractual mechanisms that allocate risk between sophisticated parties.
Consequences of Non-Compliance
Where parties agree upon a particular mechanism for resolving disputes arising under a contract, courts enforce that structure rather than substitute their own assessment of the dispute.
This principle applies with particular force where parties have elected to remove issues from curial determination altogether.
In WMC Resources Ltd v Leighton Contractors Pty Ltd [2000] WASCA 388, Malcolm CJ emphasised the centrality of procedural integrity in non-curial dispute resolution, stating at [12]:
It seems to me that questions both in relation to bias or apprehended bias itself and in questions of suitability in a broader context fall to be determined in accordance with all of the relevant circumstances.
Although the case concerned arbitration, the reasoning applies by analogy in Queensland to expert determination and contractual rent review machinery, where the court’s role is confined to supervising compliance with the agreed framework.
Consequences of Departing from the Agreed Process
The authorities distinguish sharply between dissatisfaction with an outcome and failure to comply with the agreed process.
Relief is available only in the latter case.
In the context of market rent reviews, this principle informs the limited circumstances in which a court will intervene, not because a rent is perceived as excessive or inadequate, but because the contractual machinery has not been properly engaged.
Courts Will Not Relieve Against the Consequences of the Chosen Framework
A recurring theme in the authorities is that courts will not relieve parties from the consequences of the legal structures they have chosen, even where those consequences prove unfavourable.
In Glendale Chemical Products Pty Ltd v Australian Competition and Consumer Commission [1998] FCA 1571, the Full Court emphasised that statutory and contractual frameworks operate objectively, not according to the subjective expectations of the affected party:
The standard … is an objective one based upon what the public at large, rather than any particular individual, is entitled to expect.
Although arising in a different context, this reasoning reflects a broader judicial approach evident in Queensland leasing disputes: outcomes are assessed against objective legal standards, not post hoc perceptions of fairness.
The consequences of non-compliance with market rent review mechanisms are contractual, not discretionary.
Courts enforce the agreed framework, supervise only departures from it, and otherwise leave the commercial outcome undisturbed.
Parties who elect expert determination or other non-curial processes accept both the efficiencies and the risks inherent in that choice.
Frequently Asked Questions – Market Rent Reviews
The following questions address the issues most commonly raised by landlords, tenants and advisers when a market rent review is approaching or in dispute.
They distil the legal principles discussed in this article into practical guidance, with particular emphasis on the contractual machinery of the lease, the statutory overlay for retail shop leases, and the limited supervisory role of the court.
Understanding these points at an early stage is critical, because rights and liabilities in a market rent review are often determined by timing, notice and procedural compliance rather than by the valuation outcome itself.
What is a market rent review?
A market rent review is a lease mechanism that adjusts rent to reflect the prevailing market rental value at a specific review date. Instead of increasing rent by a fixed percentage or CPI, the rent is reassessed by reference to comparable premises and market conditions. The process and outcome depend on the wording of the lease and, for retail shop leases.
How is market rent determined under a commercial lease?
Market rent is determined in accordance with the rent review clause in the lease. Typically, the parties attempt to agree on the rent, failing which an independent valuer is appointed to determine market rent. The valuer must follow the assumptions, disregards and methodology specified in the lease. Courts generally enforce the result if the contractual process is followed.
Does market rent always go up?
No. Market rent reflects prevailing market conditions at the review date and can increase, decrease or remain the same. In retail shop leases in Queensland, legislation restricts “ratchet clauses” that prevent rent from falling on review. In non-retail commercial leases, whether rent can decrease depends entirely on the lease wording.
What happens if the landlord and tenant can’t agree on market rent?
Most leases provide a dispute resolution mechanism if the parties cannot agree, usually referral to an independent valuer acting as an expert. The valuer’s determination is commonly expressed to be final and binding. If the lease contains such machinery, courts generally require the parties to follow it rather than litigate the rent amount.
Can a market rent determination be challenged in court?
A market rent determination cannot usually be challenged simply because it is considered wrong or unfair. Courts will only intervene in limited circumstances, such as where the valuer failed to follow the lease, acted outside their authority, or where there is fraud or procedural non-compliance. Courts do not re-assess valuation evidence or substitute their own view of market rent.
What is the difference between expert determination and arbitration?
Expert determination involves an independent expert (often a valuer) applying their expertise to reach a decision, without conducting a hearing or resolving a dispute judicially. Arbitration is a formal dispute resolution process with procedural rules and rights of review. Market rent reviews usually involve expert determination, which offers finality but very limited scope for court intervention.
What if a party misses a deadline in a market rent review?
Missing a deadline can have serious consequences. Many leases specify that if one party fails to respond within a set time, the other party’s proposed rent applies automatically. Queensland courts enforce these provisions according to their terms. Silence or delay is therefore not neutral and may determine the rent outcome without further valuation.
Do retail shop leases have different rules for market rent reviews?
Yes. Retail shop leases in Queensland are subject to the Retail Shop Leases Act 1994 (Qld), which restricts certain rent review structures and aims to prevent unfair outcomes. For example, the Act limits ratchet and multiple rent review clauses. These statutory rules override inconsistent lease terms and must be considered before applying the rent review mechanism.
Can the court fix the rent if the lease process breaks down?
Courts generally will not fix the rent themselves. If the lease provides a mechanism for determining rent, courts enforce that mechanism rather than replace it. If the machinery is incomplete or poorly drafted, courts are reluctant to fill gaps. This makes precise drafting of market rent review clauses critical in both retail and commercial leases.
Why do market rent reviews often lead to disputes?
Market rent reviews often involve large financial consequences and subjective judgment by valuers. Disputes commonly arise over timing, notice, valuation assumptions, or perceived unfairness of the outcome. Many disputes, however, turn on procedural compliance rather than valuation methodology. Understanding the lease mechanics and statutory framework reduces the risk of costly disputes.
