A valid market rent review?

The Issue:

When market rent reviews in Leases are undertaken, the determination as to the new rent will generally be final. However, this might not be so when the review has been completed in a manner inconsistent with the wording of the Lease.

What Happened?

In this case, the rent review in dispute was for a property at 101 Collins Street in the Melbourne CBD for the period of February 2004. The Lease stated that the rent was to be reviewed to establish the current annual market rental. This was the criteria for all rent reviews other than the review in July 2003 which required a determination of the current annual market rental value. The parties agreed that the July 2003 review was to be undertaken on an effective rent basis (i.e accounting for incentives received) but disagreed with respect to the February 2004 review. The Landlord argued that the 2004 review should be a face rent review while the Tenant argued that it should be an effective rent review. The valuer determined that the words 'current annual market rental' and 'current annual market rental value' were synonymous.

The Victorian Supreme Court of Appeal disagreed with the valuer and held that the 2004 review was to be conducted on a face rent basis. The Court considered that, in interpreting the terms of a lease, different phrases are to be accorded different meanings. The Court held that, although the criteria listed in the lease for the valuer to determine both the rent and the rental value were identical, this did not mean that the difference in wording could be ignored. The valuer's determination was therefore improper.

The Tenants sought to appeal to the High Court, and in May 2009, leave to appeal was denied as the Court determined that there would be insufficient prospect of success on appeal.

Practical Tip:

This case highlights the significance of subtle distinctions in the wording of a rent review clause. A properly drafted rent review clause is essential so that all ambiguity is eliminated. A valuer can then proceed to determine the new rent with greater certainty and the Landlord and Tenant can avoid costly litigation.

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The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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