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Client Update: Amending ratchet provisions in retail leases

7 April 2011

In brief: Those individuals or businesses in Queensland who may be affected by sections of the Retail Shop Leases Act that deal with ratchet provisions in retail lease rent reviews and compensation for assignees in the event of misrepresentation should be aware of amending legislation recently passed by the Queensland Parliament. Special Counsel Christine Adamson (view CV) and Lawyer Mark Steele explain.

Background

In Connor Hunter (a firm) v Keencrest Pty Ltd & Ors, the Queensland Court of Appeal held that a clause in a lease allowing for rent to be the higher of the rent current as at the date of the review and the rent as reviewed (whether by market or CPI) is not void. It had been argued in that case that such a clause offended section 36(e) of the Retail Shop Leases Act 1994 (Qld) in that it effectively allowed for the review of rent on more than one basis. However, the Court of Appeal held that a clause that had the effect of preventing rent from falling below a specific amount was not a review; it simply preserved the status quo so that no review would apply if the relevant method of rent review did not produce an increase in rent. This effectively meant that landlords were not prevented from including ratchet provisions in their leases.

In Logan City Shopping Centre Pty Ltd v Retails Shop Leases Tribunal and Another, the Supreme Court of Queensland held that s43(2) of the Retail Shop Leases Act could not be relied upon by an assignee from the lessee where the assignee suffered damage because it entered into the lease on the basis of a false or misleading statement or misrepresentation by the lessor.

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Amendments

As indicated in our Client Update: Ratchet provisions void again, the amendments (through the Criminal Code and Other Legislation Amendment Bill 2010 (Qld)) are designed to overcome the decisions in Connor Hunter and Logan City Shopping Centre Pty Ltd. This is done by restoring the original intention of the Retail Shop Leases Act to ensure that rent review provisions do not prevent decreases in rent and that the compensation provisions of s43(2) are extended to assignees.

Specifically, s27 is amended by the insertion of a new s36A that states that ratchet provisions in retail shop leases are void. Section 43 is amended by making it clear that an assignee is entitled to compensation for any loss or damage suffered by the assignee because the assignee entered into the assignment of the lease on the basis of a false or misleading statement or misrepresentation, made by the lessor to the assignee.

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How does it affect you?

New ss 36A and 43 will apply to retail shop leases entered into on or after the commencement of the amendments on 4 April 2011 when the legislation was assented. A lease entered into on or after that date that includes a ratchet provision will only be void to the extent of the ratchet. It does not make the entire rent review void. For leases entered into before 4 April 2011, it would appear that the intention of the legislature is for the decision in Connor Hunter to stand.

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What do you need to do?

Landlords should be aware that new amendments commence on 4 April 2011 and that the new provisions will apply to all leases entered into after that date.

For further information, please contact:

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