Rent increase disputes
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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 if there been substantial effort to:
- reach an agreement on a rental amount
- reach an agreement on a valuer.
If you can’t agree on a valuer, before contacting the VSBC, a landlord or tenant should consider whether a joint application for the appointment of a valuer can be made direct to either the Real Estate Institute of Victoria (REIV) or the Australian Property Institute (API).
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.
Cost of a rental determination
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
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 VSBC 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 API or the REIV. The VSBC will request a suitably qualified and experienced valuer undertakes the determination.
To apply for a specialist retail valuer, visit our help portal.
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 a 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.
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.
Rent increases after the Commercial Tenancy Relief Scheme has ended
If an eligible lease containing annual rent reviews or rent increases provided for an increase in rent or a review of the rent during the Scheme, that review or increase is voided and can never be claimed by the landlord.
In this situation, the landlord:
- cannot claim back rent that was lost due to the freeze on rent increases during the Scheme
- following the end of the Scheme, will need to wait until the next rent review or increase date listed in the lease to review or increase the rent.
For more information, you can speak with a member of our team by calling 1800 878 964 or emailing us.