Rent increase disputes
When there is a disagreement about market rent between a landlord and a tenant, the Victorian Small Business Commission (VSBC) can assist parties by appointing a specialist retail valuer (the valuer) to determine the rent. The appointment of the valuer is a last resort if the landlord and tenant are unable to agree on rental value and are also unable to agree on the choice of retail valuer.
It is a good idea to weigh up your options before requesting a specialist retail valuer.
Questions to ask when considering a specialist retail valuer
Before you seek the assistance of the VSBC to appoint a specialist retail valuer, ask yourself has there been substantial effort to:
- reach an agreement on a rental amount?
- reach an agreement on a valuer?
If you have been unsuccessful in agreeing on a rental amount as well as the choice of a valuer, contact the VSBC. In these cases, the Retail Leases Act 2003 (the Act) sets out certain requirements for the appointment of a specialist retail valuer.
The cost of a rental determination by a specialist retail valuer
The cost of a rental determination is set by the specialist retail valuer appointed by the VSBC.
This cost is divided equally between the landlord and the tenant. It can be significant, as it is based on the time and effort by the valuer to satisfy his or her obligations under the Act.
This means that for some premises, even though the rent may be low, the cost of the valuation may be relatively high.
As a result, it may be better for both parties to continue negotiating the rent, particularly if the premises in question has relatively low rent.
Certain factors will determine the valuer’s costs, including:
- the availability of relevant comparable premises
- the availability of rental data from comparable premises
- geographic location
- complexity of the premises.
Either party may wish to seek advice from their own valuer to enable them to make informed submissions to the specialist retail valuer. These costs should be factored into the overall cost of the determination.
Requesting the appointment of a specialist retail valuer
When you request the appointment of a specialist retail valuer, the following will take place:
Applying for a valuer
Either the landlord or the tenant can apply to the Victorian Small Business Commission for a valuer. The VSBC will confirm that the landlord and the tenant cannot agree on a rental value or the choice of valuer. If the criteria are met, the VSBC will provide details of the premises and a copy of the lease provided with the application to the Australian Property Institute or the Real Estate Institute of Victoria. The VSBC will request a suitably qualified and experienced valuer undertakes the determination.
Receipt of a nomination
The VSBC will provide the contact details of the specialist retail valuer to the landlord and the tenant. The valuer will request the parties agree to their terms and conditions of appointment. The terms will contain the cost of the determination, indemnities and confidentiality provisions. The VSBC is not involved in these terms.
If one party does not agree to the valuer’s terms, the other party may seek an injunction at the Victorian Civil and Administrative Tribunal (VCAT), requiring the uncooperative party to sign the agreement.
The specialist retail valuer will determine the rent for the premises as an independent expert. When the determination is complete, the valuer will inform the VSBC. The VSBC has published guidelines on Current market rent and engaging specialist rental valuers.
Rent is determined
The rent that is determined by the specialist retail valuer becomes the rent for the retail premises.
Disagreeing with the specialist retail valuer’s determination
A dispute about a valuer’s rent determination is not usually suitable for mediation. This is because one party is likely to accept the determination while the other does not accept the determination. In these situations, the possibility of the mediation reaching a settlement is low. In such cases the party disagreeing with the determination may need to apply to VCAT for an injunction or can request orders to ‘set aside’ the determination. If a party applies for an injunction at VCAT they do not need a VSBC certificate to be provided to VCAT. However, if both parties are willing to be flexible and make a genuine attempt to resolve the dispute, the VSBC can offer mediation.
Relevant case study
The situation: A tenant has an initial three-year lease with options for two further terms for her small accounting practice. At the end of the first three-year term, the tenant exercises her option for the second lease term. Under the terms of the lease, the rent for the new term is to be determined by a market rent review.
The landlord wants to increase the rent, while the tenant believes it should remain the same. The parties are at a stalemate as neither party can agree, nor can they agree on a valuer to independently determine the rent. The landlord makes an application to the VSBC to appoint an independent specialist retail valuer (SRV).
The process: The VBSC asks either the Australian Property Institute (API) or the Real Estate Institute of Victoria (REIV) to nominate a valuer to determine the rent. The landlord and tenant are advised of the valuer’s details and pay the costs of the rent determination in equal shares and sign terms of appointment. In some cases the VSBC will appoint the valuer even though the parties have not signed the valuer’s terms of appointment.
The resolution: Once the valuer has been formally appointed they have 45 days to complete the rent determination, unless time is extended by the landlord and tenant, or the VSBC. The valuer may ask the landlord and tenant for information or a submission to assist in reaching a determination. Once the determination is made by the valuer the determined rent becomes the new rent for the premises.
The Victorian Civil and Administrative Tribunal (VCAT) has handed down a number of decisions on the appointment of a specialist retail valuer:
- Victorian Education Foundation Ltd v Brislugan Pty Ltd (Retail Tenancies)  VCAT 317 (25 February 2009)
- 1144 Nepean Highway Pty Ltd v Abnote Australasia Pty Ltd 2009 VSCA 308 (18 December 2009)
- Figgins Holdings Pty Ltd v Williamson Place Pty Ltd (Retail Tenancies)  VCAT 243 (25 February 2010)
- Serene Hotels Pty Ltd v Epping Hotels Pty Ltd  VSCA 228 (27 August 2015)
- Keriani Pty Ltd v Long (Building and Property)  VCAT 1212 (7 August 2015)
- Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd (Building and Property)  VCAT 1687
- Dalmatino Pty Ltd v Creative Laser Pty Ltd (Building and Property)  VCAT 875
- Josephine Ung Pty Ltd v Jagjit Associates Pty Ltd (Building and Property)  VCAT 2111
- Di Dio Nominees Pty Ltd v JVR Enterprises (Vic) Pty Ltd  VCAT 772
You can speak to someone in person by calling us on 13 VSBC (138722) or emailing us.