Western Australia Commercial Rent Increase Laws

Commercial rent increases in Western Australia are governed by the terms of the lease agreement, with significant statutory protections for retail shop tenancies under the Commercial Tenancy (Retail Shops) Agreements Act 1985. While non-retail commercial leases generally follow the contract, retail shop leases are subject to a mandatory 12-month minimum interval between rent reviews (s 11(1)).

Retail Shop Lease Rent Reviews

For leases covered by the Retail Shops Act, rent review mechanisms must be clearly stated in the lease and disclosed in the pre-lease disclosure statement. Key statutory requirements include:

• 12-Month Frequency Cap: Under s 11(1), rent cannot be reviewed more than once in any 12-month period.
• Single Basis Requirement: For each occasion a review is made, the lease must specify a single basis for that review (e.g., CPI, fixed percentage, or market). Clauses allowing the landlord to choose the "higher of" two methods (e.g., "CPI or 5%, whichever is greater") are void (s 11(1)).

Common Review Methods

Note: For retail leases, only one method can be applied per review event.

Market Rent Reviews

Market rent reviews are the most significant—and most contentious—form of commercial rent adjustment. The process typically involves:

1. The landlord proposes a new rent based on a market valuation.
2. The tenant may accept or dispute the proposed figure.
3. If the parties cannot agree, they must appoint a specialist retail tenancy valuer.
4. If the parties cannot agree on the appointment of a valuer, the valuer is appointed by the Small Business Commissioner (s 11(3)(a)).

Important: Market rent reviews can result in rent decreases as well as increases, depending on market conditions. Under Section 11(2) of the Act, "ratchet clauses" that prevent the rent from falling below the current level are prohibited in retail leases.

Turnover Rent

Some retail leases include a turnover rent component, where the tenant pays a base rent plus a percentage of gross sales above a defined threshold. The lease must clearly define what constitutes "gross turnover" and how it is calculated.

Non-Retail Commercial Lease Rent Reviews

For commercial leases outside the Retail Shops Act, the rent review mechanism is primarily governed by the terms of the lease agreement and the Property Law Act 1969. These tenancies do not have the same statutory protections as retail shops.

Key considerations for non-retail leases:

• No statutory frequency cap: Unlike retail leases, non-retail commercial leases do not have a statutory 12-month frequency cap; the timing is dictated by the contract.
• Ratchet clauses are permissible: Unlike retail leases, non-retail commercial leases can legally include clauses preventing rent from decreasing below the current level.
• No statutory right to dispute: Without the Retail Shops Act's protections, the tenant's primary recourse for disputes is the standard court system or agreed private arbitration.

Best Practices for WA Commercial Landlords

1. Disclose rent review mechanisms in the disclosure statement: For retail leases, this is mandatory. Failure to disclose accurately can give the tenant grounds to challenge the review.
2. Use qualified valuers: For market rent reviews, engage a licensed valuer experienced in the relevant property type and location.
3. Plan reviews well in advance: Start the review process early to avoid disputes delaying the rent adjustment.
4. Keep market evidence: Maintain a file of comparable lease evidence to support your proposed rent at review time.

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