Understanding Rent Reviews in Commercial Leases

Introduction

Rent reviews are one of the most important and sometimes most misunderstood parts of a commercial lease. They determine how much you’ll pay over time and can dramatically affect your cashflow. In this article, we explain how rent reviews work, the different types you might see in a lease, and what to look out for before signing.

What Is a Rent Review?

A rent review is the mechanism for adjusting rent during the lease term or at renewal. The purpose is to ensure rent reflects current market conditions, inflation, or a pre-agreed formula.

Rent reviews are usually set to occur:

• Annually (e.g., every 12 months)

• At the start of a new option term

Common Types of Rent Reviews

Fixed Percentage Increases - Rent increases by a set percentage each year (e.g., 3% per annum). These increases are predictable and easy to budget for.

CPI (Consumer Price Index) Increases - Rent is adjusted according to inflation measured by the Australian Bureau of Statistics. May rise sharply during high inflation periods.

Market Rent Review - Rent is reassessed based on current market rental for comparable properties. Keeps rent fair relative to market but can lead to disputes if market conditions are unclear.

How Market Rent Is Determined

Typically, an independent valuer is appointed (agreed between landlord and tenant) to assess:

• Size, location, and condition of the premises

• Comparable leases in the area

• Incentives and fitout contributions

The lease should outline:

• Who pays the valuer’s fees

• How disputes are resolved

• Whether rent can increase or decrease

Why Legal Advice Matters

The rent review clause directly affects your bottom line for years. A few words of legal drafting can make thousands of dollars’ difference.

Greyson Legal reviews and advises on rent clauses to ensure you understand their meaning and are consistent with market practice.

Understand your rent obligations

Get practical legal advice from Greyson Legal before committing to a Lease. We’ll help you understand your rights and obligations in clear terms.

📞 Call 0411 248 885 | 📧 Email mail@greysonlegal.com