Szabo & Associates News & Updates
Understanding Your Market Rent Review Clause
The NSW Court of Appeal has recently considered the effect of a market rent review clause in Strike Australia Pty Ltd v Data Base Corporate Pty Ltd (2019).
Strike Australia is a sub- sub-lessee of premises in King Street Wharf, Sydney, operating a bowling alley. The company gave notice to its lessor, Data Base Corporate Pty Ltd, that it wished to exercise its first option to renew the rental agreement. It is not uncommon for such agreements, in these circumstances, to involve a market valuation of the rent to be undertaken by an independent, qualified valuer.
In order to determine the current market rent, the valuer had considered four “comparable” properties, in Macquarie Park, in Bondi Beach and two in Sydney’s CBD. The clause in question required the valuer to “have regard to ... market rents ... for comparable premises in the vicinity of the premises.”
The Court of Appeal decided that the terms of the lease meant that the valuer needed to consider only those premises in the vicinity of the bowling alley, whereas the valuer's comparator properties had resulted in a lower rent than would have been the case. The valuer had not complied with the requirements of the review clause, and the valuation was not valid.
This decision demonstrates the importance of understanding the precise wording of the market rent clause and whether the valuer has complied with its requirements.