Can my landlord increase the rent on my commercial lease?

Nikolina Milošević
May 15
5 min read

Yes, your landlord may be able to increase the rent on a commercial lease, but only in accordance with the rent review clause in your lease.

The method, timing, and amount of any rent increase depend entirely on what your lease says. Some leases allow modest, predictable increases. Others allow the landlord to reset the rent to whatever the market supports, with very limited ability for the tenant to challenge it.

If you have a commercial lease, understanding your rent review clause is essential. The rent you start paying is rarely the rent you end up paying, and the method of increase can make the difference between a manageable cost and one that forces you out of the premises.

Another clause that is essential to understand is the make good clause. Click here to read more about it.

The three most common types of rent review in Australia

There are three standard ways rent is reviewed in Australian commercial leases, and most leases use one or a combination of them.

Fixed percentage reviews increase the rent by an agreed percentage each year, for example three or four percent. This is the most predictable and tenant friendly option. The tenant knows exactly what their rent will be at every stage of the lease and can budget accordingly.

CPI reviews increase the rent in line with the Consumer Price Index for a specified period. CPI is a published figure, so the increase is tied to inflation rather than the landlord's discretion. CPI reviews can produce larger increases than expected in high inflation years, but they are still constrained by an external benchmark.

Market reviews reset the rent to the current market rate at the time of review. The landlord typically commissions a valuation and proposes a new rent based on what comparable premises are leasing for. Market reviews are the most tenant unfriendly option, particularly where there is no cap, because the rent can jump significantly in a single review, with limited ability for the tenant to challenge the outcome.

Ratchet clauses

Many commercial leases include a ratchet clause, which prevents the rent from decreasing at a review. Even if the market rate has dropped, a ratchet clause means the tenant continues to pay at least the previous rent. Ratchet clauses are restricted or prohibited in some states under retail leasing legislation, but they remain common in commercial leases outside retail legislation.

Before signing, tenants should look for ratchet wording and push back on it, particularly in leases with market reviews. A market review without a ratchet is fair to both parties. A market review with a ratchet operates entirely in the landlord's favour.

If you are not sure what kind of rent review clause is in your lease, book a call with us:

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Combined rent review mechanisms

Many commercial leases combine rent review mechanisms across the term. A common structure is fixed percentage reviews each year with a market review at a specific point, for example at the end of the initial term or upon exercise of an option to renew.

This is where tenants often get caught out. The initial years are predictable and manageable, and the tenant assumes the rest of the lease will be the same. Then the market review hits, the rent jumps significantly, and the tenant is locked in with little room to negotiate.

If your lease has a market review built into it, even just at one point in the lease, you need to understand when it happens and plan for it.

Retail lease protections

If your lease is a retail lease under the relevant state legislation, there are additional protections around rent reviews. In most Australian states, a retail lease cannot have more than one rent review mechanism applying at the same time, ratchet clauses are prohibited or restricted, and the tenant has formal rights to dispute a market rent review through the state tribunal.

These protections do not apply to commercial leases. This is one of the most important reasons to understand whether your lease is classified as a retail lease or a commercial lease before you sign.

What happens if the rent review is not conducted properly

Rent reviews must be conducted in accordance with the lease. If the landlord does not follow the process, for example by missing a notice period, failing to obtain a proper valuation, or trying to review the rent outside the permitted review date, the review may be invalid.

Tenants who receive a rent increase notice should check the lease before paying the new rent. If the process has not been followed, there may be grounds to dispute the increase and continue paying the previous rent.

What you can negotiate before you sign

Rent review clauses are among the most important clauses to negotiate before signing a commercial lease. Positions to push for include fixed percentage reviews rather than market reviews, a cap on any market review, for example no more than a certain percentage above the previous rent, removal of ratchet clauses, clear notice periods and procedural requirements for any rent review, and the right for the tenant to obtain an independent valuation at the landlord's cost if a market review is proposed.

Landlords expect negotiation on rent review clauses. Tenants who accept the first draft almost always pay more than they needed to over the life of the lease.

If you want advice on negotiating your rent review clause, book a Strategy & Advice Consult with us.

What to do if your landlord has just increased your rent

If your landlord has just issued a rent increase and you are not sure whether it is valid, do not pay the new rent without getting advice first. Paying the increased rent can be treated as acceptance of the increase. Instead, check what the lease says about rent reviews, confirm the process has been followed, and if there are grounds to dispute the increase, raise them promptly in writing.

If your lease is a retail lease, you may have additional options through your state tribunal. If it is a commercial lease, your options are limited to what is in the lease and what the landlord will agree to commercially.

The bottom line

Your landlord can increase the rent on your commercial lease, but only in the ways your lease allows. Fixed percentage increases are predictable. CPI reviews are tied to inflation. Market reviews are the most unpredictable and the most important to negotiate before signing.

Do not assume your rent is locked in at the amount you start paying. The rent review clause in your lease determines what you will pay for the rest of the term. Understand it before you sign.

Get your lease reviewed before you sign

If you have a commercial lease with a rent review coming up, or you are about to sign a new lease, book a call with us to review it: