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Market rent reviews and other critical dates in your lease

Warren Wackerling and Jodie Burnett Ė 30 June 2016

 

Introduction

 

Itís important any party leasing commercial property to know the contents of their lease to ensure timeframes are not missed, in particular market rent reviews.

 

A dispute can arise between landlord and tenant concerning market rent review if deadlines are missed, more often than not to the tenantís detriment.

 

Facts

 

Typically, a landlordís notice will issue setting out an assessment of the current annual market rent for a premises and proposing a percentage increase (the Landlordís Notice).

 

A dispute resulting in proceedings in the Supreme Court last year found a Landlordís Notice issued specifically referred to a premises, the lease, a particular clause in the lease relating to rent, the date upon which the new rent would take effect and the amount assessed by the landlord.

 

Under the lease, the tenant had 30 days to provide its own market assessment. The tenant failed to respond to the Landlordís Notice within the 30 days and only after the expiration of the notice period did the tenant advise that it was seeking its own market rent assessment. The tenantís assessment was not provided to the landlord until some two months after the Landlordís Notice.

 

The tenant argued that the Landlordís Notice was ineffective as it:

         did not specifically advise the tenant of its right to obtain its own assessment within 30 days;

         did not contain a warning that, if the tenant failed to obtain its own assessment, the landlordís assessment would be deemed to be the current market rent;

         did not state strict compliance with the 30 day limit and therefore the landlord failed to represent that the time limit was an essential term; and

         that the percentage increase was not a reasonable or genuine assessment of the kind that the lease required and the figure incorrectly included a land tax component.

The Landlord relied on the terms of the Lease between the parties in response to the Tenantís arguments.

The Court opined the relevant test was whether Ďa reasonable recipient, who is credited with knowledge of the terms of the lease, and taking into account the surrounding circumstances, would have doubt as to the meaning of the notice or have regarded it as equivocalí.

 

The Landlordís Notice was Ďfit for the purposeí and the tenantís arguments were without merit. The tenantís application failed and the new rent was determined to be the amount stated in the Landlordís Notice.

 

What do I need to be careful about?

 

Be aware that, subject to the terms of a lease which may state otherwise, it is generally not the responsibility of a landlord to advise a tenant of their rights in regards to timeframes provided for in a lease.

 

Further, it is critical that dates for giving notices and for exercising rights or replies be recorded and readily obvious to any person involved in the management of property with ample time to prepare or reply where necessary.

Download the decision here.

This article is for general information only and should not be relied upon as a substitute for specific legal advice.