Another interesting case about s 35 of the Retail Leases Act 2003 (Vic)

An earlier post on this blog here discusses two cases from Member Nash at VCAT in which the Tribunal held that a rent review covenant with a cap (or, in one case, a cap and collar) was inconsistent with sub-s 35(2) of the RLA 2003. In another decision handed down today, Acting Senior Member Nash (as the Member is now known) considered a similar issue in another lease.  

In the decision of Northcote Shopping Centre Pty Ltd v Aldi Foods Pty Ltd [2024] VCAT 641, the Tribunal considered a series of leases which contained covenants for: 

1 . the annual review of the rent by CPI with a cap of 6%; and 

2 . market rent reviews on the exercise of an option with a cap of 10%.

In applying the same reasoning as she did in the cases discussed in my earlier post, the Tribunal held that each of those rent covenants were inconsistent with sub-s 35(2) of the RLA 2003, stating that:

[35]    The Tenant’s focus of argument has been around the ameliorating aspect of the legislation. It is said that this aspect of the legislation was not considered in detail in the previous decisions.

…

[38]    The legislature used the phrase “must be one of the following” deliberately. If it had intended to permit the use of multiple formulae, it would have used the phrase “must be any of the following”. 

[39]    The limitation of the rent review calculation provides certainty for both Landlord and Tenant, they know exactly how each year’s rent will be determined. This assists in budgeting, finance and valuation of each parties’ interest for business purposes. To permit two alternative methods to apply depending on which one is the lesser removes that certainty. 

[40]    The purpose of the RLA is clearly set out in s 1. The nature of the legislation is to “improve the fairness of the dealings between landlords and tenants”. That does not mean that a Tribunal or court is required to undertake language gymnastics to achieve an ameliorating effect when the words of the statute are clear. This is particularly so where to do so would achieve the opposite effect and create greater uncertainty and unfairness in such a relationship.

[41]    While always taking account of the ameliorating nature of the RLA, the concept of fairness also includes certainty and that certainty cannot exist if the parties are unsure of what rent will be payable each year as it is dependent on two different calculations. 

This decision is the third from VCAT holding that a ‘cap’ on a rent review covenant in prohibited by sub-s 35(2) of the RLA 2003. This suggests that the issue is settled at the VCAT level (albeit that the decisions are from the same member).  

However, the issue has not been raised on appeal at this stage.

I will add a note to this blog in the event that the tenant files an appeal.