Early determination of market rent

Lady looking at charts on paper

A retail lease may include an option to renew the lease on the same terms. The lease may also state that the rent is to increase to the current market rent.

Under the Retail Leases Act 1994 (the Act), the tenant has the right to ask the landlord what the new rent will be – an early determination or agreement on the current market rent – before they are locked in to another lease.

Current market rent is what the tenant and the landlord agree it is, or what a specialist retail valuer says it is.

The tenant must request the early determination in writing between six and three months before the last day that the option can be exercised. This is usually between nine and six months before the end of the lease.

Current market rent

Current market rent is the rent that would be paid for the shop if unoccupied and available for rent for the same or similar use.

It doesn’t take into account the value of any goodwill created by the current tenant or the value any fixtures and fittings installed on the premises by the tenant.

Negotiate the rent

You can negotiate with the landlord about what the current market rent will be. Do some research on rents for comparable properties to back up the new rent that you are willing to pay.

When you and the landlord have reached agreement i.e. the market rent has been 'determined' early, you must exercise the option within 21 days after receiving the agreed or determined market rent.

The early determination process overrides the timeframe for exercising the option set out in the lease.

Use a valuer

If you and the landlord can’t reach agreement, you can appoint a specialist retail valuer to determine or value the rent to be paid. Using a specialist retail valuer can be expensive so make sure that the difference between your idea of the appropriate rent and the landlord’s idea makes it worth pursuing this option.

Get advice from the Dispute Resolution Unit in the NSW Small Business Commissioner if you are thinking of using a specialist retail valuer.

If you and the landlord can’t agree on which valuer to appoint, ask the NSW Small Business Commissioner to appoint one for you. You and the landlord share the cost of the determination.

The Act outlines what the specialist retail valuer must consider when determining rent and allows for the valuer’s determination to be reviewed if the parties disagree with it.

Either party can request a review of the specialist retail valuer’s decision.

To apply for the appointment of a specialist retail valuer or the review of a determination, download the application forms.