Can a landlord be prevented from charging old rent increases?

In the recent case of Q St Kilda Tenancy Pty Ltd v Bortnik (Building and Property) [2023] VCAT 1384, the Tribunal heard argument that a landlord who sought to apply increases to the rent that had not previously been charged either had waived the rent increases or was estopped from applying the old increases.  This has been tried before in a number of cases.  In a decision that is consistent with the approach taken in other cases, the Tribunal held that: 

1. merely charging a lower rent as the rent fell due did not waive the landlord’s right to later charge the rent increases for those months;  and 
2. in the absence of any other specific detriment, being charged rent increases late does not cause detriment for the purposes of an estoppel claim.

Similar arguments have been considered and rejected in a few VCAT cases that I am aware of (eg Cooltime Solutions Pty Ltd v Viva Energy Australia Pty Ltd (Building and Property) [2020] VCAT 83).  

The main difficulty for a tenant in this situation is that a landlord’s delay in charging rent increases means that the tenant has money in its pocket that it is contractually obliged to pay, so it is difficult to show that the tenant suffered any detriment (to the contrary, the tenant has had the benefit of money it was otherwise obliged to pay).  

Consequently, landlords who discover that rent increases have not been applied for some years can take comfort from those decisions – as can their managing agents!

That being said, many tenants in these circumstances still complain about the impact of the late rent increases on their cashflow (eg a tenant might suddenly find itself paying 5 years or more of CPI or fixed percentage increases).  

Practitioners advising tenants in these circumstances should consider the following:

First, the remedy for a promissory estoppel claim is the minimum to do equity in the circumstances.  If the only real adverse impact is on the tenant’s cashflow, the tenant may be entitled to an order that it pay the belated increases over an appropriate period of time.

Secondly, the tenant may be able to show that it set its prices by reference to its rent.  If so, then it may be able to argue that: 

1. it assumed that the rent was the sum invoiced by its landlord and set its prices accordingly;
2. it would have increased its prices to absorb the higher rent if the landlord had applied the rent increases at the right time;
3. it suffered detriment as a result of the late application of rent increases because it cannot retrospectively increase its prices to absorb the rent increases;  and
4. accordingly, the landlord should be estopped from applying historical increases.

I am not aware of the first of those approaches having been tested in VCAT.   The tenant adopted the second approach in the early stages of Christopher v Lemanda Pty Ltd (Building and Property) [2023] VCAT 1101 (22 September 2023).  However, the trial was ultimately fought on the application and effect of s 35 of the Retail Leases Act 2003 (Vic).  Given the attention that this section is currently receiving, I will do a separate post on that case at a later stage.

For those who want more detail about Q St Kilda Tenancy Pty Ltd v Bortnik (Building and Property) [2023] VCAT 1384, I have attached an excellent summary of the case by Eli Fryar, who started the Bar Readers’ Course on 4 March 2024.  Mr Fryar is signing the Bar Roll on 2 May 2024 and will be available to take briefs in retail and commercial leasing disputes.