Introduction
Landlords typically want tenants to sign long-term leases because they guarantee the landlord a reliable rental income stream. On the flip side, tenants generally prefer to have a short term lease with lots of options to give them flexibility.
A potential downside of options for tenants however is that they are normally accompanied with a market rate review which may lead to higher than expected rent.
Early Determination of Current Market Rent
Section 27A of the Retail Shop Leases Act can provide a solution to tenants who may be held to ransom where their rent is being reviewed to market. It provides that a tenant may give notice to its landlord that it requires the market rent to be determined in an "early determination period" which depends on the term of the lease:
-if the term of the lease is less than one year, the early determination period is between 3 months and 1 month before the option expiry day; or
-if the term of the lease is greater than one year, the early determination period is between 6 months and 3 months before the option expiry day. Note that the market rent is to be determined at the date the request is made.
The advantage of determining the market rent early is that a tenant can ascertain how much the rent will be before they have to exercise their option and committing themselves for a further lease term.
It should also be noted that if the rent review process is delayed, the tenant may exercise its option on the day which is 21 days after the tenant receives written notice of the current market rent or the day the lease ends (whichever is earlier).
Final Comment
Leases are serious commercial matters. An investment in experienced legal advice may save you a lot of time and money. If you are seeking advice regarding your lease, please call Nathan Hardman at MDRN Solicitors ph: (07) 3370 5100.
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