The letter arrives in the middle of a trading week. Your rent will increase, it says, from a date a few months away, and the new figure is higher than you budgeted for. If you run a shop, café, office or warehouse on a commercial lease, this is one of the more stressful moments of running the business. Before you reply, agree, or start pricing up a move, it is worth understanding exactly what the notice can and cannot do.
The legal position is more contained than it feels. A commercial landlord can only increase your rent the way your lease allows. The lease's rent review clause sets out when rent can change, how the new amount is calculated, and what notice you are entitled to. If your lease is a retail lease under state or territory law, a layer of statutory rules applies on top of the contract. The stakes are financial and time-based: a signed agreement to a higher rent binds you for the rest of the term, most of the protections available to you carry deadlines you can miss, and if you simply ignore the notice, the new rent generally becomes payable on the stated date. None of this needs to end in a court case. It starts with checking the lease and the notice before you respond to anything.
What to do when the rent increase notice arrives
Separate base rent from outgoings first
Before treating the notice as a rent increase, work out what is actually changing. Base rent is the fixed amount you pay for the premises. Outgoings are your share of the landlord's costs, typically council rates, building insurance, cleaning, security and common area maintenance. Many leases set outgoings as an estimate that is "reconciled" once a year against the landlord's actual bills, which can produce a large adjustment bill that looks like a rent increase but is not one.
Check the notice against the lease and ask yourself three questions:
- What line is changing: A reconciliation adjustment to outgoings is not a rent review, and it is usually governed by different clauses and different documentation.
- Is there a turnover component: Some retail leases set part of the rent by reference to your sales. A "turnover rent" charge can rise and fall with trading, which is different from a review of the base figure.
- What exactly is the landlord claiming: Ask for the notice in writing and for a breakdown of how the number was reached before you respond to it.
If the increase is genuinely to base rent, the rent review clause is where the fight, if there is one, will be won or lost.
Check whether the lease allows this increase
Find the rent review clause and read what it permits. The common mechanisms are a fixed percentage or dollar increase, an increase linked to an index such as the Consumer Price Index (CPI), a review to current market rent, or some combination across the term. Ask what method applies at this particular review date, and whether the lease requires any trigger such as a written notice from the landlord within a set window.
For retail leases, the statute backs up the contract in several states. In Queensland, if a retail shop lease provides for a rent review, s 27 of the Retail Shop Leases Act 1994 (Qld) requires the lease to state the timing of each review and the basis on which it is made, and the rent may not be reviewed more than once in any year. Each review must use a single stated basis, such as current market rent, an independently published index, a fixed percentage or a fixed amount. Victoria works similarly: s 35 of the Retail Leases Act 2003 (Vic) requires the lease to state when reviews occur and the basis or formula, and limits the permissible bases to a fixed percentage, an independent index, a fixed annual amount or current market rent. New South Wales takes a different approach. Under s 18 of the Retail Leases Act 1994 (NSW), a retail shop lease must not provide for a change to base rent within 12 months of the lease starting or within 12 months of the previous change, unless the change is by a specified amount or percentage. That stops a landlord running a market review every six months, while still allowing a fixed 3% rise each year.
Two provisions are worth knowing because they strike out common drafting tricks. In Queensland, s 36 of the Retail Shop Leases Act 1994 (Qld) makes void any clause that lets the landlord choose between two methods of calculating rent on a review, or that applies whichever of two methods produces the higher figure. In Victoria, s 35(3) of the Retail Leases Act 2003 (Vic) voids provisions that stop rent from falling on a market review, so a Victorian retail lease cannot lock in a "no decrease" ratchet.
You also need to know whether your lease is actually a retail lease, because the protections only apply if it is. The test varies by state. In NSW, the Act does not apply to shops with a lettable area of 1,000 square metres or more under s 5 of the Retail Leases Act 1994 (NSW). In Queensland, a retail shop is premises in a retail shopping centre or used wholly or predominantly for a retail business, but leases of shops with a floor area over 1,000 square metres are excluded under ss 5A and 5B of the Retail Shop Leases Act 1994 (Qld). Victoria defines retail premises by use rather than size: premises used wholly or predominantly for the retail sale or hire of goods or the retail provision of services, subject to exclusions such as premises with very high occupancy costs or tenants that are listed corporations, under s 4 of the Retail Leases Act 2003 (Vic). If your premises are outside the retail regime, the ordinary contract terms of the lease govern everything, which makes the drafting of the rent review clause all the more important.
If the lease does not authorise an increase at this time, or the landlord is using a method the lease does not provide for, the increase may simply be invalid. That is the point at which a carefully worded written response, rather than an argument, is most effective.
Verify the notice and the arithmetic
Even where the review is permitted, the landlord must follow the process. Check how much notice the lease requires, how it must be given, and what the notice must contain. Some leases require the review to be triggered by a notice within a set period before the review date, and a late or informal notice can invalidate the increase.
Then check the numbers. CPI-based reviews fail on the details: the wrong index period, indexation applied to a GST-inclusive amount, or a compounding error can inflate the figure. Market reviews fail on methodology. Under s 31 of the Retail Leases Act 1994 (NSW), current market rent is what a willing lessor and willing lessee would agree in an arm's length transaction on an effective rent basis, and it must ignore the value of the goodwill you have built up in the premises. Victoria's s 37 of the Retail Leases Act 2003 (Vic) is similar. If the landlord's figure appears to capitalise your own fitout, your customer base or your trading record, the methodology is wrong.
If you and the landlord cannot agree on market rent, the statutes provide for independent determination. In Queensland, either party can have the rent set by a specialist retail valuer if the parties cannot agree within one month of the review date under s 28 of the Retail Shop Leases Act 1994 (Qld). In NSW, a determination by a specialist retail valuer can be reviewed by two further valuers appointed through the Registrar, if you apply within 21 days of receiving the determination, under s 32A of the Retail Leases Act 1994 (NSW). That 21-day window is a hard deadline, and it is the kind of date that disappears if you are not watching the calendar.
Negotiate before you commit
A permitted increase is still negotiable in practice, because most landlords would rather keep a reliable tenant than wear vacancy costs. Treat the conversation as a package rather than a yes or no on the number. Useful tradeables include:
- A longer term or a stronger option to renew: in exchange for the increase.
- A rent-free period or a phased increase: such as half the increase now and half in six months.
- Fitout contributions or repairs: the landlord has been avoiding.
- An outgoings cap or better outgoings reporting: which can be worth more than a small rent concession.
- Relaxed permitted use or trading hours: that let you make more use of the premises.
The strength of your position depends on evidence, not tone. Comparable rents for similar premises, vacancy rates in the building or area, and your own trading figures, if you are willing to share them at a high level, all give the landlord a reason to move. If the landlord claims the new figure is "market", ask how that market was assessed and what comparable transactions support it.
Retail lease legislation also hands tenants specific negotiating levers at renewal. In Victoria, the landlord must give you written notice at least three months before the option expiry date setting out the rent payable for the first 12 months of the renewed term and the availability of an early rent review, under s 28 of the Retail Leases Act 2003 (Vic). You can then request an early market rent review within 28 days of that notice under s 28A, and if you exercise the option you have a 14-day cooling-off period to withdraw under s 28B. In NSW, if your option to renew is at current market rent, s 32 of the Retail Leases Act 1994 (NSW) lets you request an early determination of market rent any time from six months to three months before the option deadline, and the option period is extended to 21 days after the determination is notified to you. These windows exist so you can negotiate from an informed position rather than signing under pressure.
Document the deal, or map your way out
If you negotiate a different rent, a different review method, or a deferred start date, get it documented. A variation deed signed by both parties updates the lease terms; a new lease or renewal document does the same for the next term. An email exchange or a handshake is worth little if the property manager changes or the landlord's position hardens later. If a variation is needed, have a lawyer draft or review it so the document says what you think it says.
If the increase is genuinely unaffordable, the options are broader than paying it or moving:
- Negotiate temporary relief: such as a rent reduction for a fixed period, a deferral of part of the rent, or a reduction in outgoings contributions. Landlords often prefer a structured concession to an empty tenancy.
- Assign or sublet: If the lease permits, you can transfer the lease to a new tenant or sublet part or all of the premises. Check the landlord's consent requirements and whether assignment provisions in the lease or legislation apply.
- Negotiate an exit: If the lease has a break clause, understand what it requires. Leaving without a legal basis can leave you liable for rent for the remainder of the term, so a negotiated surrender, properly documented, is usually the safer path.
- Account for make good: Before deciding to stay or go, cost your make good obligations, which can require restoring the premises to a specified condition. Make good is also a legitimate negotiating chip, such as trading a rent increase for a make good waiver at the end of the term.
If a dispute is unavoidable, know where it goes. In NSW, retail tenancy disputes are determined by the Civil and Administrative Tribunal, and a retail tenancy claim must be lodged within three years of the liability arising under s 71 of the Retail Leases Act 1994 (NSW), with the Tribunal's monetary jurisdiction capped at $750,000 under s 73. Queensland and Victoria have their own dispute bodies and timeframes. A claim lodged a day late can be shut out, which is another reason not to let the notice sit in a drawer.
Getting legal help before you respond
A commercial lawyer can move through this checklist faster and more accurately than a busy business owner. In practice, a practitioner would:
- Read the rent review clause: confirm whether the increase is authorised, by which method, and with what notice.
- Determine whether the lease is a retail lease: the relevant state or territory legislation determines which statutory protections apply.
- Check the notice and the calculation: against the lease and the statute, including any deadlines for challenging a valuer's determination.
- Run the negotiation: with the landlord or their agent, and stress-test the deal against the lease and your walk-away costs.
- Draft the variation, renewal or surrender documents: so the agreed position is enforceable.
- Lodge or defend any application: if the matter goes to a tribunal, within the applicable time limits.
Check the rent review clause before you check your budget
The single most useful habit when a rent increase notice arrives is to read the rent review clause before you react to the number. The landlord's right to increase your rent is defined by that clause and, for retail leases, by the statute that sits over it. Most increases that get rolled back fail not on emotion but on the basis of the review, the notice, or the calculation, and every one of those can be checked on a quiet afternoon with the lease in front of you. The deadlines, by contrast, do not wait: option exercise dates, the 21 days to challenge a valuation in NSW, and the three-year limit for tribunal claims all run whether or not you have read the lease.
If the clause permits the increase, negotiate the package rather than the number. If it does not, say so in writing. And if the increase is unaffordable, weigh relief, assignment and a documented exit before you sign anything. A lawyer's review early in that process costs far less than a lease you are stuck with, or a dispute you started without checking your rights.