Challenging rental determinations because the valuer did not provide ‘detailed reasons’

Clients often want to challenge a determination of the current market rent under a retail premises lease.

The grounds for setting aside a rental determination are quite narrow. However, three recent cases have seen rental determinations under the RLA 2003 set aside because the specialist retail valuer failed to provide ‘detailed reasons’ as required under s 37(6) of that Act. These cases highlight that:

1. valuers undertaking a determination should be careful to ensure that their written reasons fully detail the reasoning processes; and
2. those looking to challenge a determination should consider whether the specialist retail valuer’s written reasons are adequate.

A summary of the three recent cases is set out below.

First, in Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd (Building and Property) [2015] VCAT 1687, a valuer’s reasons were held to be inadequate because the specialist retail valuer used the ‘profits method’ as an alternative means of determining the rent. When using that method, he looked at the sitting tenant’s turnover figures and formed the view that another hypothetical tenant bidding for the lease could generate over $500,000 more revenue than the sitting tenant was currently generating.

The determination was set aside for a number of reasons. One of the reasons was that the valuer did not provide detailed reasons that explained how he calculated the higher turnover figures that he projected for the new term.

The decision was upheld on appeal before Croft J in Higgins Nine Group Pty Ltd v Ladro Greville Street Pty Ltd [2016] VSC 244.

Both cases discuss in depth the principles surrounding detailed reasons.

Secondly, in Dalmatino Pty Ltd v Creative Laser Pty Ltd (Building and Property) [2017] VCAT 875, the landlord challenged a rental determination on the basis that the specialist retail valuer took into account rent paid for properties that were put to a different use to the use that the tenant was allowed to put the property under the lease. The Tribunal rejected the grounds on which the landlord sought to challenge the determination.

However, the Tribunal went on to criticise of the specialist retail valuer’s reasons and set aside the determination of the basis that the determining valuer’s reasons were inadequate.

In particular, the Tribunal held that (see paras [69] to [76]):

1. s 36 of the RLA 2003 requires the valuer to have regard to the rent paid for properties that are put to the same or a substantially similar use to which the leased property is being put. The valuer had regard to some leases that were for the same or a similar use and some that were not. His reasons did not allow the reader to determine what consideration (if any) was given to the properties that were being put to the same or a similar use as the leased property; and
2. having identified a range of rents payable for comparable properties, the valuer made “inevitable adjustments for all factors which influence market rental value”but did not provide any particulars of those adjustments.

Thirdly, in the case of Josephine Ung Pty Ltd v Jagjit Associates Pty Ltd (Building and Property) [2017] VCAT 2111, handed down last just before Christmas, Member Edquist at VCAT made orders setting aside a rental determination on the grounds that (among others):

1. the determining valuer did not explain in his reasons how he dealt with the unusual amount of fitout that the landlord provided to the tenant under the terms of the lease; and
2. the determining valuer incorrectly assumed that, except for fair wear and tear, the tenant was responsible for repair and maintenance at the leased premises and did not give reasons for explaining his consideration of the landlord’s obligations to repair and maintain the premises under s 52(2) of the RLA 2003.

Sam Hopper and Callum Dawlings