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Commercial Leases: are you due for a rent decrease?

Commercial Law

The change in the Sydney All Groups consumer price index (‘CPI’) between the March quarter 2020 and the June quarter 2020 was -2.3%. The change between the June quarter 2019 and the June quarter 2020 was -1%.  Other Australian capital cities’ CPIs are also ‘in negative territory’.

Existing lease of commercial or industrial premises

If you have a lease of commercial or industrial premises that contains a CPI-based rent review provision (whether it applies during the term of the lease or on exercise of an option of renewal), it may result in a rent decrease when the rent is reviewed.  However, you should check whether the lease contains either:

  1. A clause stating that the review is to be to the greater of a fixed percentage or the change in the CPI; or
  1. A ‘ratchet’ provision that prevents the rent declining when there is negative movement in the CPI.

New lease of commercial or industrial premises

If you are negotiating for a new lease of commercial or industrial premises, then you should also seek agreement with the other party as to whether or not prevention of rent decreases is to apply.

Retail shop leases

In the case of a retail shop lease, section 18 of the Retail Leases Act 1994 prohibits provisions that prevent the rent decreasing if there is negative movement in the CPI or in market rent rates.

Atkinson Vinden can help you

If you are not sure whether your existing lease contains one of the provisions mentioned above or you want to be sure that the issue is addressed satisfactorily in a new lease, Atkinson Vinden Lawyers can assist you by reviewing and advising you on lease provisions or summaries of lease terms at the negotiation stage.  Please call Michael Tyler, Special Counsel on (02) 9411 4466.