Written by In the recent case of Hanave Pty Ltd v Nomad Sydney Pty Ltd (formerly Wine Nomad Pty Ltd) [2023] NSWSC 265, the NSW Supreme Court considered a rental dispute between Nomad Restaurant in Surry Hills and its tenant, Hanave. This was the first case to consider the standard of review required of a valuer under the Retail Leases Act 1994 (NSW).
The parties entered into a retail lease for a term of 12 years commencing in July 2012. The lease was subject to yearly rent increases of 4%, as well as a review of rent every fourth year. In 2020, the lease was subject to rent review and a valuer was appointed to prepare a valuation. Various disputes arose concerning whether the tenant was entitled to have the rent reviewed, whether the valuation was valid and whether the tenant was entitled to a refund of license fees.
The Court found that the “current market rent” must be determined on an “effective rent basis” by considering the factors set out in Section 31(1)(a) of the Act including:
- The terms and conditions of the lease itself;
- The rent that would reasonably be expected to be paid for the premises if it were unoccupied and rented out for substantially similar use;
- The gross rent, less the landlord’s outgoings payable by the tenant;
- Any incentives frequently or generally offered to prospective tenants of unoccupied retail shops (e.g. rent abatement).
Any such valuation must also exclude the value of any goodwill attached to the tenant’s occupation or any value of fixtures. The weight to be given to each of these factors is a matter for the valuer to determine. In addition, the Court has confirmed for a valuation to be valid under the Act, it must be provided in writing and must set out legally adequate reasons for its ultimate determination.
This serves as a useful reminder on how current market rent reviews are to be determined, and the relevant factors to consider.