I do not often say this, but sanity has prevailed in Victoria.
On 20 December 2024 Croft J delivered judgement on the appeal in Aldi Foods Pty Ltd v Northcote Shopping Centre Pty Ltd [2024] VSC 799.
Readers will recall that in this case the lease provided for annual CPI rent increases, capped at 3% per annum. On exercise of the options to renew, a market rent review applied, again with a cap on the amount of the increase. VCAT held that this structure ran foul of s35 of the RLA. Section 35(2) provides that on any rent review, only one method of review can be used: in effect, cpi; a fixed percentage increase; a specific dollar amount; or a market review. VCAT took the view that by imposing a cap on the amount of the increase, the lease applied more than one method of review, being cpi (or market review in the case of the options), plus a fixed percentage amount. This meant that the rent reviews had to default to a market review on each occasion in accordance with s35(7). This produced the ironic result in the case of the options, that the capped market reviews (which clearly benefited the tenant) had to be replaced by uncapped market reviews.
In a lengthy judgment, Croft J held that the history of the RLA, and the language and structure both of s35 and the RLA as a whole, do not suggest a legislative intention to prohibit caps on rent increases [at 52].
This is a sensible result, and is consistent with the doubts I have previously expressed about the VCAT decisions. My own view was that the lease provision really only applied one method of review, consistently with the requirements of s35(2). The lease then applied a limit to the amount by which the rent could be increased. Nothing in s35 made void a provision to limit the impact on tenants of a rent review.
For landlords, the decision removes some of the silver lining from the RLA cloud.
Download PDF here – Victorian court permits a cap to be imposed on rent reviews
Disclaimer: This article is a general summary with focus on issues of interest to the authors. It is not intended to be used as legal advice.
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