Skip to content.

Home

Allens

Client Update: Ratchet provisions void again

7 December 2010

In brief: New Queensland legislation seeks to prohibit the use of ratchet provisions in rent reviews for retail leases and ensure that assignees are entitled to compensation for misrepresentation. Partner Grant Higgins and Special Counsel Christine Adamson report.

Introduction

The Criminal Code and Other Legislation Amendment Bill 2010 (Qld) (the Bill) was introduced on 24 November 2010 and seeks to amend the Retail Shop Leases Act 1994 (Qld) (the Act) to make it clear that ratchet provisions under the Act are void. This is to overcome the previous decision in Connor Hunter (a firm) v Keencrest Pty Ltd & Ors1 and restore the legislation's original intention to prohibit the use of ratchet provisions in rent reviews for retail leases.

In addition, the Bill amends section 43 to ensure that assignees are entitled to compensation under it. This amendment to the Act has been introduced to overcome the previous decision of Logan City Shopping Centre Pty Ltd v Retail Shop Leases Tribunal and Another2, which held that s43(2) could not be relied upon by an assignee from the lessee.

Return to top

The Keencrest decision

The Queensland Court of Appeal held in Keencrest that a clause in a lease that allows 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. This decision meant that landlords were not prevented from including ratchet provisions in their leases.

We noted in our Focus: Rent review decision – dilemma for landlords that we expected this case would prompt legislative change. Landlords who relied on that decision will need to bear this in mind.

Return to top

The Logan City decision

The Supreme Court held in Logan City that the benefit of s43(2), which provides that a lessor can be liable to pay compensation to a lessee for loss or damage suffered by a lessee because it entered into a lease on the basis of a false or misleading statement, or misrepresentation, made by a lessor or someone acting under the lessor's authority, is available to assignees.

Return to top

The Bill

The Bill seeks to amend the Act to:

  • restore the Act's original intention, by ensuring that rent review provisions do not prevent decreases in rent; and
  • extend the compensation provisions of s43(2) to assignees.

Section 27 is to be amended by including a new s36A, which makes it clear that ratchet provisions in retail shop leases are void. 'Ratchet Provision' is defined to mean any provision in a lease to the extent to which it:

  • prevents the rent from decreasing under a rent review;
  • limits the amount by which the rent may decrease under a rent review (ie collar); or
  • prevents or allows a rent review to be avoided by the lessor, for the purposes of preventing the rent from decreasing or limiting the amount by which the rent may decrease.

If a lease entered into after the Bill is enacted includes a ratchet provision, that provision is void only to the extent of the ratchet. It does not mean that the entire review is void.

Section 43 is also amended to make 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.

Return to top

When are these amendments effective?

The new clause 36A will apply to retail shop leases entered into after the commencement of the new s36A. Likewise, the amendment to s43 will apply to a retail shop lease assigned or entered into after the section commences.

It appears that the legislation's intention is that the Keencrest decision is to apply to leases entered into before the Bill is enacted but not apply to any lease entered into after the Bill is enacted.

The Bill does not specifically refer to leases granted under an option where that lease was entered into before the Bill is enacted (ie during the Keencrest era). Consistently with the above analysis, it is likely that such leases would be grandfathered, given that they were negotiated before the enactment of the new s36A prohibiting ratchet provisions; however, this is not clear.

Accordingly, if lessors amended their standard retail leases on the strength of the Keencrest decision, they should again review and amend those standard leases to exclude ratchet provisions in leases entered into after the Bill is enacted.

Footnotes
  1. [2009] QCA 156.
  2. [2006] QSC 172.

For further information, please contact:

Return to top

Share with

What are these?

 

 

Recent Real Estate publications