How to challenge a rental determination for a retail lease?
Have you recently received a rental determination for your retail lease that you believe is unfair or incorrect? The Victorian Civil and Administrative Tribunal (VCAT) allows tenants and landlords to challenge such determinations under the Retail Leases Act 2003 (Vic). In this article, we will guide you through the process of challenging a rental determination for your retail lease, ensuring that you understand your rights and options.
Understanding the rental determination process
The Retail Leases Act 2003 (‘the Act’) sets out the guidelines for determining the current market rent for retail premises. When a rental dispute arises, a specialist retail valuer is appointed to assess the market rent for the leased property.
This determination takes into account various factors, including:
- the provisions of the lease;
- comparable rents for similar premises;
- the landlord's outgoings to the extent which the tenant is liable to contribute to those outgoings; and
- rent concessions and other benefits offered to prospective tenants of unoccupied retail premises.
Grounds for challenging a determination
Rental determinations can be set aside if the valuer fails to provide detailed reasons as required under the Act or fails to take into account the prescribed matters.
There are several grounds you may base your challenge:
- The inadequacy of the valuer’s written reasons
Recent cases have seen rental determinations set aside because the specialist retail valuer failed to provide detailed reasons as required under s37(6) of the Act.
In the case of Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd (Building and Property) [2015] VCAT 1687, the valuer's reasons were found to be inadequate because the specialist retail valuer utilized the "profits method" as an alternative means of determining the rent. However, the valuer failed to provide detailed reasons explaining the calculation of the projected higher turnover figures for the new term. Consequently, the determination was set aside.
- Incorrect consideration of lease terms
The valuer must properly consider the provisions of the lease, including the length of the term and its effect on the current market rent, options for renewal, and any special conditions that may affect the rental value.
- Inaccurate assessment of outgoings
The determination should accurately assess the landlord's outgoings and the tenant's liability to contribute to those outgoings.
In Josephine Ung Pty Ltd v Jagjit Associates Pty Ltd (Building and Property) [2017] VCAT 2111, Member Edquist at VCAT set aside a rental determination based on the determining valuer's failure to explain how the unusual amount of fitout provided by the landlord was dealt with in his reasons. Additionally, the valuer incorrectly assumed the tenant's responsibility for repair and maintenance, without providing any explanation for considering the landlord's obligations under section 52(2) of the RLA 2003.
- Failure to account for incentives
The determination should take into consideration the amount of incentive that was applied and provide calculations to explain the treatment of incentives and show how the discounted cashflow treatment was given effect (if any).
- Failure to have regard to premises let for the same or similar use
The determination must take into consideration the lettings for the same or a substantially similar use to which the premises is put and take those lettings into account and provide detailed reasons to explain the treatment of those comparable evidence.
In Dalmatino Pty Ltd v Creative Laser Pty Ltd (Building and Property) [2017] VCAT 875,the Tribunal still set aside the determination due to the inadequate reasons provided by the valuer. The Tribunal highlighted that the valuer did not sufficiently explain the consideration given to properties with the same or similar use, and failed to provide particulars of the adjustments made when assessing rental value.
Initiating the challenge of your rental determination
To challenge a rental determination, you need to lodge an application with VCAT within the specified timeframe. It is advisable to seek legal advice and assistance to ensure that your application is properly prepared and presented as any challenge to a rental determination should be based on well-grounded legal principles.
The VCAT hearing
Once your application is lodged, a hearing will be scheduled at the VCAT. During the hearing, both parties will have the opportunity to present their arguments and evidence supporting their position. It is crucial to have all relevant documents, such as the lease agreement, witness statements, and any expert reports prepared and organised.
VCAT's decision
Following the hearing, the VCAT will consider all the evidence presented and make a decision. The decision may involve setting aside the rental determination, ordering a new determination, or upholding the original determination. The VCAT's decision is legally binding and must be followed by both parties.
Challenging a rental determination for a retail lease can be a complex process, but it is essential to protect your rights as a tenant or landlord. By understanding the grounds for challenging a determination and seeking professional legal advice, you can navigate the process with confidence.
For more information or assistance with challenging a rental determination, please get in touch with us.
