Caps on rent reviews permitted but collars unenforceable – Supreme Court (Vic) decision
The Retail Leases Act (RLA) provides that any provision which seeks to prevent or limit the extent that rent can be reduced upon a rent review (e.g. a “collar”) will be void and unenforceable. There is, however, no express prohibition on a lease provision which seeks to impose a “cap” on increases to rent.
The decision in ALDI Foods Pty Ltd v Northcote Shopping Centre Pty Ltd [2024] VSC 799 in the Victorian Supreme Court has now confirmed that a cap on rent review is not prohibited under the RLA.
Previous VCAT position
The Supreme Court’s decision overturns a previous decision of the Victorian Civil and Administrative Tribunal (VCAT) which found that a cap on rent reviews was void under section 35(2) of the RLA.
VCAT’s decision held that, as section 35(2) of the RLA provides that the basis or formula on which a rent review is to be made must be one method of review (for example, one of a fixed percentage increase, market rent review, increase by CPI), any secondary method or formula for rent review (i.e. the cap on rent increase) would be unenforceable.
Supreme Court decision
In ALDI Foods Pty Ltd v Northcote Shopping Centre Pty Ltd, the landlord (Northcote Shopping Centre Pty Ltd) sought to argue that a 6% cap on CPI reviews under the lease was void as the cap was a second method of review, in contravention of section 35(2) of the RLA.
The tenant (ALDI Foods Pty Ltd) instead argued that:
- the cap was not void because there was no express prohibition in section 35(2) on caps on rent reviews;
- where the bargain struck between the parties in the form of lease provisions did not directly conflict with the RLA, the Court should not interfere; and
- as the RLA is a tenant-friendly and remedial form of legislation, holding that a cap on rent reviews was unenforceable would contravene the intention of the legislation by removing a protection in the lease in favour of the tenant.
The Court agreed with the tenant’s arguments and found that a cap on rent reviews is not prohibited by the RLA.
This decision gives greater certainty to parties in negotiating rent review mechanisms in future leases.
Please contact us if you have any queries about your rent review or your lease in general.
