The uncertain fate of “ratchet” retail rent reviews has finally been decided – a law passed in parliament last week will soon come into effect – and it is not good news for landlords.

A ratchet rent review is one that allows for CPI or market review increases but specifies that the resulting rent must “not be less than the rent payable during the immediately preceding year”.

It had been generally accepted that these clauses were contrary to the intention of s 36 of the Retail Shop Leases Act 1994 (RSLA), until a 2009 Court of Appeal decision** found that they did not constitute a second basis of review and therefore did not contravene.

Following this ruling, ratchet rent reviews became an attractive provision for landlords seeking to ensure that their rental revenue did not diminish during the term of a lease.

The outcome of the Court of Appeal decision has always been considered politically tenuous, given that it stood in the face of what was widely regarded as the intention of the Act. Our November 2009 post urged landlords to exercise caution in the face of likely legislative review.

Such legislative re-assessment has finally arrived. As expected the new law expressly states that ratchet rent reviews in retail leases are void. Retail landlords who did not factor this reversal into their revenue calculations, may suffer significant commercial impacts.

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Fortunately for all landlords, the changes are not retrospective: they will only impact upon leases entered into after the date of commencement of the changes, a date soon but not yet specified.

This means there remains a very narrow window for landlords to protect their revenues in a potentially deflationary economy and to get their leases into order. Such action must be taken now before the window closes on the date of proclamation of the new law. NOTE: The amending Act came into force on 4 April 2011 – the window has now closed.

As always, Carter Capner Law is here to assist you with all your leasing requirements. Call Peter Carter on 1300 590 613 0r submit an on-line enquiry.

*Criminal Code and Other Legislation Amendment Bill 2010

**Connor Hunter v Keencrest P/L [2009] QCA 156