With land tax increasing and its consequential effect on rent, more and more tenants are turning their minds to the question of whether the Retail Leases Act 2003 (Vic) applies to their leases.
A few month ago, fellow barrister Ben Kelly and I presented a paper on this topic to the Legal Practitioners Liability Committee. Given the ongoings interest in the topic from readers of this blog, I thought it would be useful to provide a link to the webinar and the paper on the LPLC website here.
There have been some other recent developments in this area that I will post about shortly.
In the recent decision of Paramount Investments Group Pty Ltd v Club Fogolar Furlan Melbourne [2025] VSC 90, Croft J in the Supreme Court considered VCAT’s power to vary conditions on an order for relief against forfeiture after the order was made and after the tenant had failed to comply with the conditions. His Honour reviewed the various powers in the VCAT Act and found that the Tribunal generally could not vary a final order, but held that relief from forfeiture was different and that the Tribunal did have the power to vary conditions placed on the grant of relief from forfeiture in the right circumstances.
His Honour also made reference to some other authorities that might become relevant to VCAT granting relief from forfeiture of commercial leases that are not regulated by the Retail Leases Act 2003 (Vic) (RLA 2003) that will be of interest to the lease nerds!
Background
The background to this case can be summarised as follows.
In December 2023, the tenant sought an interlocutory injunction to restrain re-entry by the landlord. The Tribunal dismissed that application but ordered that the tenant should be granted relief from forfeiture on the condition that it pay certain arrears of rent by a specified date. A copy of the Tribunal’s original decision is available here: Paramount Investments Pty Ltd v Club Fogolar Furlan Melbourne (Building and Property) [2024] VCAT 169.
The tenant missed those dates and then applied to the Tribunal for an extension of the time for compliance.
The landlord sought to appeal the July orders, arguing that:
the Tribunal did not have the power under ss 126(2)(a) or 98(3) of the VCAT Act to amend its original orders and was functus officio; and
even if the Tribunal did have the power to vary the original conditions, the Tribunal’s discretion to grant the extension was exercised wrongly.
In response, the tenant argued that:
the Tribunal has both the power to issue self-executing orders and set aside or vary them;
ss 130 and 131 of the VCAT Act grant the Tribunal a broad discretion to make orders or determinations with any conditions or further orders it deems appropriate; and
in any event, the Court should not interfere with the exercise of the Tribunal’s discretion.
Decision
The Court ultimately accepted that the Tribunal generally cannot vary final orders under the terms of the VCAT Act. However, it held that the Tribunal’s jurisdiction to grant relief against forfeiture of a retail premises lease carries with it the power to amend (in the right circumstances) conditions that are attached to the grant of that relief.
His Honour Justice Croft cited the following passage from Lord Greene (with whom Lord Clauson agreed), in Chandless‑Chandless v Nicholson [1942] 2 KB 321, 323–325:
The court, in exercising its jurisdiction to grant relief in cases of non‑payment of rent is, of course, proceeding on the old principles of the court of equity which always regarded the condition of re‑entry as being merely security for payment of the rent and gave relief if the landlord could get his rent. If an order of this kind, in which relief is granted on terms to be observed within a limited time, is to be treated as one which the court has no jurisdiction to modify in point of time even though circumstances justify modification, then the order becomes as vicious as the original forfeiture clause itself. I hold the view without hesitation that … an order of this kind, which gives relief on terms to be performed within a specified time, is one in respect of which the court retains jurisdiction to extend that time if circumstances are brought to its notice which would make it just and equitable that extension should be granted. …
…. It is not, of course, to be understood from anything I say that lessees who obtain orders for relief are entitled to treat the conditions laid down in them lightly. Any lessee who has obtained relief on conditions cannot expect to get further indulgence from the court in the matter of time unless good grounds are shown. Lessees must not think for one moment that they are entitled to be slack or casual about the performance of terms. If they are so and then endeavour to get further indulgence from the court, the court will know how to deal with them, but in a case where on all equitable grounds a period of limitation ought in fairness to be extended and its extension will do no more than apply the principle that the condition of re‑entry is nothing more than security for the rent, there is no reason why equity should not lend its aid notwithstanding the original order. …
Implications for practitioners
This case highlights that VCAT’s power to grant relief from forfeiture is both broad and flexible and allows the Tribunal to fashion a remedy to avoid injustice in the circumstances.
This may be a source of frustration for landlords who see a tenant who has both breached the terms of the lease in the first place and then has failed to comply with the conditions that the Tribunal placed on the grant of relief from forfeiture. Consequently, practitioners acting for landlords (particularly landlords who have not terminated a lease before) should advise their clients at the beginning of the process that VCAT has the power to grant relief from forfeiture subject to certain conditions and also has the power to vary or extend those conditions, and will exercise those powers in the right circumstances. It often helps to explain to a landlord that their right to re-enter is not there to punish the tenant for breaches of the lease, but to secure compliance with its terms.
That being said, as is highlighted by the second paragraph from the extract above, defaulting tenants (and practitioners acting for them) should not treat the conditions attached to the grant of relief from forfeiture as optional. A tenant that does not comply with those conditions does so at its peril and will need to provide to the Tribunal a good explanation for failing to meet the Tribunal’s conditions.
And one for the lease nerds…
There is an additional nugget for the lease nerds in his Honour’s reasons.
VCAT has a general jurisdiction to hear and determine disputes arising under commercial leases under the consumer and trader provisions of the Australian Consumer Law and Fair Trading Act 2012 (Vic) (ACL&FTA) (see Zeus and Ra Pty Ltd v Nicolaou (2003) 6 VR 606).
However, whether VCAT has power under the ACL&FTA to grant relief from forfeiture of commercial leases that are not regulated by the RLA 2003 has been an ongoing issue in recent years.
Readers may recall the paper ‘VCAT’s jurisdiction: An endangered species?’ by Robert Hay KC and Brett Harding, a copy of which was posted on this blog here. Paragraphs 45 to 57 of that paper raised the question of whether VCAT has the power to grant relief from forfeiture of a non-retail commercial lease under the ACL&FTA. The authors raised arguments that suggested that VCAT does not have that power, but ultimately left the question open.
In the Paramount case, His Honour made the following remarks:
[106] It is clear from the Tribunal Reasons and the orders that the Tribunal was exercising jurisdiction specifically conferred upon it to grant relief against forfeiture conferred by s 89 of the RLA. …
[107] It is also clear from earlier authorities with respect to the retail leases jurisdiction that such equitable jurisdiction and powers required an express legislative grant. So much is clear from the decisions of Ormiston J in Jam Factory Pty Ltd v Sunny Paradise Pty Ltd[1] and Klewet Pty Ltd v Lansdown.[2] True it is that these decisions were in the context of an arbitral dispute resolution scheme under the Retail Tenancies Act 1986 but, having regard to the jurisdiction to grant relief against forfeiture being a central and ancient part of the equitable jurisdiction, a matter clearly in the mind of Ormiston J, there is no doubt that a tribunal such as VCAT could not exercise any such jurisdiction without the enactment of provisions such as contained in s 89 of the RLA.
Section 89 of the RLA 2003 gives VCAT an express power to grant relief from forfeiture of a lease under the RLA 2003. There is no express reference to relief from forfeiture in the consumer and trader provisions of the ACL&FTA.
While his Honour was not expressly considering the Tribunal’s powers under the ACL&FTA and did not determine the issue, the passages extracted above support the argument that the Tribunal does not have the power to grant relief from forfeiture under the consumer and trader provisions of the ACL&FTA.
A number of readers have told me that are interested in following developments in the Wollert Lifestyle Community case, discussed in an earlier post here, and have requested updates on the case as it develops.
For those who are following the case, the respondents applied to VCAT for a stay of the Tribunal’s orders until hearing and determination of a foreshadowed appeal.
That application was heard and determined by VCAT on Wednesday by the President of the Tribunal, who declined to grant the stay.
A copy of his Honour’s reasons for refusing the stay are available here.
The Tribunal’s reasons refer to the orders made in the various proceedings by number (ie order 1, order 2 and order 3). To help interested readers follow the Presidents’ reasons, I have attached a copy of the orders made in one of the proceedings with those orders highlighted for easy reference.
A group of residents were successful this week in an application brought against the operators of the Wollert Lifestyle Community (Lifestyle). The application concerned the validity of exit fees in residents’ Residential Site Agreements (RSA) and covenants that allow rent to be charged after a resident dies.
Residents typically buy a home from Lifestyle and rent land on which the home is located, and are then required to enter an RSA which requires them to pay an exit fee, calculated as a percentage of the price when they on-sell their homes. Also, on the death of a resident, the RSA says their estate must keep paying rent but they are not able to occupy the home.
VCAT President Justice Woodward delivered his ruling on Monday, 7 July 2025, finding that:
exit fees in RSAs could not be charged if the amount of those fees is not disclosed up front. As the amount of a resident’s exit fees is not known until sale, Lifestyle’s model of exit fees as a percentage of sale price can never comply with and cannot be charged under s 206S of the Residential Tenancies Act 1997 (Vic) (RTA); and
to require grieving relatives of a deceased resident to pay rent but not be able to occupy the home is ‘harsh, if not unconscionable’, and the RSAs are to be varied under s 206G of the RTA to allow the estate of a deceased resident to sub-let the home before sale.
The decision will have flow-on affects for residents not only at Wollert Lifestyle Community, but any resident at the 24 operating Lifestyle Communities in Victoria with these kinds of clauses in their RSAs.
See below links to Justice Woodward’s ruling and recent media coverage by The Age and Sam’s interview with ABC Radio National Breakfast.
Tenants with rent in arrears often try to reduce those arrears by setting them off against some other claim against the landlord. This has caused many landlords to introduce covenants that require the rent to be paid ‘without deductions’ or words to that effect.
While a contractual exclusion of set-off is generally effective, in the recent decision of AMTB Pty Ltd v Chan (Building and Property) [2025] VCAT 236, VCAT has recognised that such a clause may not be effective against a damages claim arising from an alleged breach of a covenant implied into a lease by the Retail Leases Act 2003 (Vic) (RLA 2003).
Some background on equitable set-off
To understand the implication of VCAT’s decision, you need some background on equitable set-off and how it works.
Generally, if a tenant owes, say, $1500 rent to its landlord, and the tenant has a separate claim against the landlord for $1000, those amounts could be netted off against each other, resulting in the landlord receiving $500. However, in the ordinary course, both of the underlying debts continue to exist – it’s just more convenient for the tenant to make a single payment of $500 to the landlord. This is how ordinary set-offs work. Importantly, in this situation, the landlord could still give the tenant a default notice and seek to terminate the lease for the full $1,500.
However, equitable set-off is different. When there is a particular connection between the two claims (more on that later), the Courts will recognise that the tenant’s counterclaim operates as a defence to the landlord’s claim. In the example above, if the tenant can establish an entitlement to an equitable set-off, the tenant’s primary liability to pay rent to the landlord is reduced to $500 – the counterclaim reduces the rent itself. Also, ordinary set-off only works in limited circumstances and is usually not available when the tenant has an unliquidated damages claim. However, those rules are a little more relaxed in the case of an equitable set-off and, importantly, an equitable set-off may be available when the tenant has a damages claim.
To establish an equitable set-off, the tenant’s counterclaim must ‘impeach’ the landlord’s rent claim. In substance, that means that there must be some form of causal or (for want of a better word) ‘moral’ connection between the landlord’s rent claim and the tenant’s counterclaim.
Generally speaking, while the categories aren’t closed, an equitable set-off may be available in the following circumstances: [1]
where the liability under the originating claim arose only because of the originating claimant’s breach of duty;
where the originating claimant’s behaviour is hindering or preventing the originating claim from being satisfied; and
where the originating claimant is in some way responsible for reducing or denying to the opposing claimant the benefit which was the quid pro quo for satisfying the originating claim, or the enjoyment of the benefit.
Usually, that will mean the tenant needs to show that it has a counterclaim against the landlord arising from the landlord’s breach of the lease, and possibly that its counterclaim caused or contributed to the tenant’s inability to pay the rent.
Landlords’ responses – ‘no deductions’ clauses
In response, it has become common for landlords to require a covenant in their leases that stipulates rent is to be paid ‘withoutdeduction or set-off’, or variations on that theme.
Generally, the Courts have held that such a clause will be effective to prevent a party relying on an equitable set-off (see Citibank Pty Ltd v Simon Fredericks Pty Ltd [1993] 2 VR 168 at 175; Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1 WLR 501; 4 All ER 834 (CA); and Main Roads Construction Pty Ltd v Samary Enterprises Pty Ltd [2005] VSC 388 at [47]).
This leaves tenants whose rent is in arrears but who have a genuine grievance against their landlord in a difficult position.
VCAT’s recent decision
In the AMTB decision, the Tribunal granted an injunction restraining the landlord from terminating a lease and re-entering the leased premises. The tenant claimed an equitable set-off reducing the alleged rent arrears arising from losses incurred by the landlord’s breach of its statutory implied repair obligations under s 52 of the RLA 2003, despite the lease containing a ‘no deductions’ clause.
The tenant was operating a nightclub the second floor of premises leased from the landlord. To enter the nightclub, patrons could enter via a stairwell or a lift. The lift had been unreliable for some time and from mid-2024 was largely inoperable, which the tenant says led to significant losses in trade. The tenant stopped paying rent from October 2024 and in December 2024 was served with a notice of default claiming rent arrears upwards of $80,000.
The tenant applied to VCAT for an injunction to prevent the landlord from re-entering the premises and argued that its damages claim could be set off against the alleged arrears.
The landlord argued that the rent clause contained in the lease excluded any right to equitable set-off. The rent clause stated (emphasis added):
5. Payment of Rent
… The said rent is to be paid clear of all deductions or abatements of all or any kind whatsoever and not otherwise except with the consent in writing of the Lessor…
The landlord also referred the Tribunal to the case of Paramount Investments Pty Ltd v Club Fogolar Furlan Melbourne [2024] VCAT 169, where the Tribunal held:
[22] I accept that in some circumstances, a tenant who has a legitimate claim against a landlord may set-off that claim against a competing claim for rent in arrears. However, that right of set-off is subject to the terms of the lease.
In response, the tenant argued that the ‘no deductions’ clause was not effective against a claim for damages arising out of a breach of a covenant implied by the RLA 2003 because the parties to a retail premises lease cannot contract out of that Act.
The tenant’s claim arose from alleged breaches of s 52 of the RLA 2003, which states that:
52 Landlord’s liability for repairs
(1) A retail premises lease is taken to provide as set out in this section.
(2) The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into –
…
(b) plant and equipment at the retail premises; and..
Section 94 of the RLA 2003 states that:
94 The Act prevails over retail premises leases, agreements etc.
(1) A provision of a retail premises lease or of an agreement (whether or not the agreement is between the parties to a retail premises lease) is void. To the extent that it is contrary to or inconsistent with anything in this act (including anything that the lease is taken to include or provide because of a provision of this Act).
(2) A provision of a retail premises lease or of an agreement (whether or not the agreement is between the parties to a retail premises lease) is void. To the extent that it purports –
(a) to exclude the application of the provision of this Act; or…
The tenant argued that as a result of s 94 the parties could not contract out of the covenant implied by s 52. If they cannot contract out of a covenant implied by the Act, they similarly cannot contract out of the remedies that flow from a breach of that covenant. It must also follow, so the tenant argued, that the parties cannot contract out of an equitable set-off that flows from a breach of that covenant.
The tenant relied on the decision of Deputy President Macnamara (as his Honour was then) in C & A Delaveris Pty Ltd v Bretair Pty Ltd [2009] VCAT 1663, in which his Honour contemplated the corresponding provisions of the now repealed Retail Tenancies Reform Act 1998 (Vic) (1998 Act), and held that:
79. … a provision in a retail lease is void to the extent that it claims to ‘exclude the application of any provision of this Act’. In my view, the inclusion of the words ‘without deduction’ in the covenant to pay rent is avoided by Section 47 to the extent that it limits the effect of the statutory implied covenant to repair would otherwise have, hence a breach of the repair covenant would be available as a set off in the present case.
…
84. … It is in accordance with well established practice to allow a set off of the liquidated sum incurred by a tenant in meeting a repair obligation owed by the landlord and reducing the rental liability accordingly.
Section 47 of the 1998 Act is in similar terms to s 94 of the RLA 2003.
After considering those arguments, the Tribunal in AMTB accepted that the tenant’s position was arguable and granted the injunction, holding that:
[21] …the principal question for trial is whether a claim for unliquidated damages arising from a breach of s 52 of the RLA can be set-off against a claim for rent and outgoings in arrears if the lease contains a “no deductions” clause or, alternatively, whether s 94 of the RLA renders such a clause void.
Implications
Both landlords and tenants should be aware that a ‘no deductions’ clause does not work in all circumstances, and that an equitable set-off arising from breach of a covenant implied by the RLA 2003 (or another statute that the parties are prohibited from contracting out of) can provide a work-around for a tenant seeking to remain in the leased property (at least at the interlocutory injunction stage).
This can be quite a powerful tool for tenants, as it can keep the tenant in the property and trading while it pursues its counterclaim and seeks to negotiate some form of resolution with the landlord with respect to the alleged arrears. This can, and often does, allow a tenant to trade out of its difficulties and, if necessary, refinance or otherwise restructure to save a distressed business on the brink.
Sam Hopper SCand Dylan Matthews
Dylan Matthews is a final-year Bachelor of Property and Real Estate / Bachelor of Laws student from Deakin University.
[1] See Young, Croft and Smith, On Equity (Thomson Reuters, 2009) at p 997.
This decision overturns the VCAT decision in Northcote Shopping Centre Pty Ltd v Aldi Foods Pty Ltd [2024] VCAT 641, which is one four decisions from the Tribunal holding that a ‘cap’ on either a current market rent review or rent review by CPI or similar published index is a form of mixed review that is prohibited by sub-s 35(2) of the RLA 2003. For discussion on the various VCAT decisions , see: here, here, here and here).
This decision is likely to be significant as there appear to be a significant number of retail premises leases in Victoria that have a ‘cap’ on rent increases in their terms.
As always, I will keep readers of this blog abreast of any further developments on this issue.
In a decision handed down this week, the Tribunal held that an obligation in a retail premises lease to repaint and re-carpet periodically is not inconsistent with the landlord’s obligation to maintain the premises under s 52 of the RLA 2003.
In the decision of Deng and Deng Pty Ltd v McPhee and Anor (Building and Property) [2024] VCAT 1025, the Tribunal granted an injunction to a tenant who had been locked out of its motel business by its landlord. One of the breaches relied on by the landlord was an alleged failure by the tenant to:
paint the Premisses internally every 3 years and externally every 5 years; and
replace the carpet every 5 years.
The Tenant argued that the repainting and recarpeting clause was inconsistent with s 52 of the RLA 2003.
Section 52 of the RLA 2003 states that:
(1) A retail premises lease is taken to provide as set out in this section.
(2) The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into:
(a) the structure of, and fixtures in, the retail premises; and
(b) plant and equipment at the retail premises; and
(c) the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services.
Section 94 of the RLA 2003 renders void any provision in a retail premises lease that is inconsistent with a provision of the RLA 2003.
The tenant argued that:
the landlord was responsible under s 52 of the RLA 2003 to maintain the paint and carpet in the retail premises in a condition consistent with their condition when the lease was entered into; and
by purporting to require the tenant to repaint and re-carpet periodically, the landlord was in substance contracting out of that obligation.
The Tribunal did not accept that argument, and found that the repainting and re-carpeting clause was not inconsistent with s 52, holding that:
[37] … it is immaterial [under the terms of the lease] whether the paint or carpet has deteriorated to a condition which is not commensurate with the condition when the retail premises lease was entered into. In other words, it has no comparator, which appears to be an essential element under s 52 of the RLA.
[38] Unlike clause 8 [of the lease], which is directed at repairing or maintaining an element of the Premises, the obligation to paint at a point in time and irrespective of the condition of the paintwork at the time the Lease was entered into; and an obligation to re-carpet at a point in time, again irrespective of the condition of the carpet at the time the Lease was entered into, is more likely to be work of a capital nature. The obligation to repaint and re-carpet does not crystallise in order to maintain the Premises in a condition consistent with their condition when the retail leases premises lease was entered into. Rather, the obligation crystallises irrespective of that condition.
The Tribunal ultimately found that the requirement to repaint and re-carpet fell into the exception on the recovery of capital costs in s 41(2)(a) of the RLA 2003 and that there was no arguable case or serious issue to be tried that the repainting and re-carpeting requirement was inconsistent with s 52.
The Tribunal held that there was a serious issue to be tried on other grounds, and granted the injunction to the tenant, so it does not look like the tenant will be able to appeal that decision.
However, obligations to paint during the term of a lease are common and, in fact, can be found in some versions of the LIV standard lease. The argument that those provisions are inconsistent with s 52 of the RLA 2003 and void by operation of s 94 of that Act has been in circulation for some time and I am aware of at least two other cases in which the point is currently being pressed. Consequently, despite the finding of the Tribunal in this case, I expect that this will not be the last time the point argued.
VCAT just published another decision in which a Tribunal member held that market rent review cause with a ‘cap’does not comply with sub-s 35(2) of the Retail Leases Act 2003 (Vic) (RLA 2003).
In the case of Cote Noire Pty Ltd v Roberts Family Enterprises Pty Ltd (Building and Property) 2024 VCAT 810 Deputy President Riegler considered a market rent review clause that included the following text:
(h) Notwithstanding any such agreement or determination and unless otherwise excluded pursuant to the Act, the annual rental payable in the first year following any Market Rent Review Date shall in no circumstances be less than 103% and no more than 105% of the annual rental paid in the year immediately prior to the Market Review Date in question.
The Tribunal cited the reasoning of Member Nash (as the Acting Senior Member was then) from the decision in Roberts Family Enterprises Pty Ltd v Meddles Bekirofski and Reshar Bekirofski (Building and Property) [2023] VCAT 121, discussed here, and held that:
[9] I accept and adopt the reasoning of Member Nash set out above. In my view, clause 3.5(h) constitutes a hybrid method for calculating rent review and is contrary to those methods which are prescribed under s 35(2) of the RLA. It is a “mixed rent review” or hybrid version of either a fixed annual amount (s 35(2)(c) of the RLA) because it purports to fix variables between 3.5 and 5 percent of the exit rent; or purports to restrict current market rent within those parameters (s 35(2)(d) of the RLA).
This is now the fourth decision from VCAT holding that a rent review clause with a ‘cap’ is not permitted by sub-s 35(3) of the RLA 2003.
As discussed in an earlier post here, a decision on the same point of law in Northcote Shopping Centre Pty Ltd v Aldi Foods Pty Ltd [2024] VCAT 641 has been appealed to the Supreme Court. The Court has now listed that appeal for a hearing on 21 November 2024.
Acting Senior Member Nash at VCAT today handed down an interesting decision about the operation of s 28 of the RLA 2003 in the case of Pagica Pty Ltd atf the Oscinah Trust v Inlet Property Pty Ltd (Building and Property) [2024] VCAT 830.
In summary, the Tribunal found that:
a s 28 notice is invalid if the rent for the new term is the current market rent and the notice only states the landlord’s proposed rent for the new term;
the notice was not held to be invalid because it referred to the tenant’s ability to call for an early rent review in only one line of the notice; and
a tenant of a retail premises lease canont exercise its option until it receives a valid s 28 notice.
So far as I am aware, this is the first substantive decision about the new provisions in s 28 and it will certainly prompt a lot of debate in the leasing community.
Backgound
In the Pagica Pty Ltd case, the tenant had an option to renew the lease for a further term with a market rent view for the first year of the renewed term.
Section 28 of the RLA 2003 says (emphasis added):
(1) This section applies if a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term.
(1A) The landlord, at least 3 months before the last date that an option to renew the lease may be exercised, must give the tenant written notice setting out—
(a) the date by which the option to renew the lease may be exercised by the tenant; and
(b) the rent payable for the first 12 months under any renewed term of the lease; and
(c) the availability of an early rent review under section 28A; and
(d) the availability of a cooling off period under section 28B; and
(e) any changes to the most recent disclosure statement provided to the tenant, other than any changes in relation to rent.
(2) If the landlord fails to give the tenant all of the information required by subsection (1A) or to give written notice within the time specified by that subsection—
(a) the retail premises lease is taken to provide that the date after which the option is no longer exercisable is instead 3 months after the landlord notifies the tenant as required; and
(b) subject to subsections (2A) and (2B), if that date is after the term of the lease ends, the lease continues until that date on the same terms and conditions as applied immediately before the lease term ends, unless the landlord and tenant otherwise agree; and
(c) the tenant, whether or not the landlord has by then notified the tenant as required, may give written notice to the landlord terminating the lease from a specified day that is—
(i) on or after the date on which the term of the lease ends; and
(ii) before the date until which the lease would otherwise have continued because of paragraph (b).
(2A) If the tenant requests an early rent review under section 28A and the rent determination under that review is less than the rent payable under the lease during a term extended under subsection (2)(b), the rent payable during the extended term is to be equal to the rent determination.
(2B) If the tenant does not request an early rent review under section 28A but the rent specified in a written notice under subsection (1A) is less than the rent payable under the lease during a term extended under subsection (2)(b), the rent payable during the extended term is to be equal to the rent specified in the notice.
(3) If the tenant gives the landlord a notice of termination under subsection (2)(c), the lease terminates on the day specified in the notice.
(4) If an option to renew is exercised because of subsection (2)(b) after the term of the lease ends, the lease for the further term commences on the expiry of the previous lease, disregarding for this purpose any period during which that lease continued because of that subsection.
To comply with s 28(1A)(b) and (c) of the RLA 2003, the landlord gave to the tenant a notice (Renewal Notice) that contained the following text:
Commencement rent:
The commencement rent for the further term will be: $110,000.00 per annum + GST
Early rent review:
An early rent review is available to the Tenant (section 28A)
After the Renewal Notice was received, there were various discussions between the landlord and the tenant and a number of attempts were made by the tenant to exercise its option.
Ultimately, the tenant argued that the Renewal Notice was not valid and that it had validly exercised its option, and the landlord argued that the Renewal Notice was valid and that the tenant had lost its opportunity to renew the lease.
Findings
There are three interesting findings in the case.
First, there was to be a market rent review at the start of the renewed term. However, the landlord’s notice specified the sum of $110,000 plus GST as the rent for first year of the new term. The Tribunal held that this did not comply with sub-s 28(1A)(b) of the RLA 2003, holding that:
[61] Section 28 of the RLA requires the notice to state the commencing rent for the further term. The Lease states that the commencing rent for the further term is to be determined by a market rent review unless otherwise agreed by the parties. The Renewal Notice states the commencing rent for the further term is $110,000 per annum plus GST. That statement on its face is clearly incorrect and misleading. The commencing rent had not been agreed by the parties, and was not the product of a market rent review.
[62] In those circumstances, I find that the Renewal Notice did not comply with the notice requirements of s 28 of the RLA and is therefore invalid. A consequence of that finding is that it renders the Renewal Notice as a nullity and therefore, no notice under s 28 has been given by the landlord to the tenant.
Secondly, the tenant also argued that the one-line reference to an early rent review was inadequate. The Tribunal did not accept that argument, holding that:
[63] With respect to the early rent review, the Renewal Notice states that an early rent review is available and then refers to the relevant section of the RLA. The tenant argues this is insufficient and the Renewal Notice should be a stand-alone document that contains all the information necessary for a tenant to understand its rights and make informed choices.
[64] A renewal notice should set out sufficient information to allow the tenant to make an informed decision about whether to exercise the option for a further term or not. Where the lease provides that there is to be a market rent review, the availability of an early rent review must be recorded in the renewal notice.[1]
[65] As set out above, the stating of a fixed rent amount as the commencing rent and then a reference to the tenant being entitled to an early rent review is inconsistent with s 28 of the RLA. It is this inconsistency that I consider renders the notice invalid and therefore not compliant with s 28 of the RLA.
Thirdly, the landlord’s notice had a section for the tenant to sign to acknowledge receipt of the notice. On 31 January 2023, after various discussions between the parties, the tenant signed the acknowledgement of receipt and returned the notice to the landlord within the period for exercising the option under a letter stating “please find attached signed Notice of renewal of Lease”, apparently under the misapprehension that signing the acknowledgement of receipt operated to exercise the tenant’s option.
In a letter dated 5 April 2023, the tenant’s solicitor argued that the landlord’s notice was invalid and that the letter of 31 January 2023 was the valid exercise of its option, and concluded by saying (emphasis added):
If I am wrong and the tenant has not exercised its option then I am instructed and authorised by the tenant, and hereby give notice on behalf of the tenant that the tenant exercises its option for the further term of 5 years.
The Tenant argued it validly exercised the its option, either by the letter of 31 January 2023 or the letter of 5 April 2023.
However, the Tribunal held that the option was not capable of being exercised until a valid s 28 notice was provided, for the following reasons:
[69] The consequence of the Renewal Notice being invalid is that the landlord has not complied with s 28 of the RLA.
[70] Prior to 2019, if the landlord did not serve a notice in accordance with s 28 of the RLA on a tenant, the tenant could still serve its own notice to exercise the option. Section 28(1) provided, insofar as is relevant:
(1) If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term, the landlord must notify the tenant in writing of the date after which the option is no longer exercisable—
(a) at least 6 months; and
(b) no more than 12 months—
before that date but is not required to do so if the tenant exercises, or purports to exercise, the option before being notified of the date.
(emphasis added)
[71] However, these provisions of the RLA were amended in 2020 …
[72] The effect of these amendments has been to remove the section which specifically dealt with the situation where a tenant seeks to exercise an option for a further term but the landlord has not served a valid notice under s 28.
[73] As a consequence, the lease will continue on foot until such time as the landlord issues a valid notice. Under the previous iteration of the legislation, the tenant could exercise an option for a further term without being fully apprised of the financial commitment it may be entering into as a market rent would not occur until after the tenant had committed itself to the further term. The amendment to the RLA has resulted in the tenant’s proprietary interest in the premises being protected until such time as it has all the information that the landlord is required to give it, which ought to be sufficient information for the tenant to determine whether or not exercising the option for a further term is a business decision it wishes to make.
[74] In those circumstances, under the provisions of the RLA the lease continues and the option is exercisable by the tenant up to 3 months after a valid notice is given by the landlord to the tenant.
[75] The 5 April letter is a clear and unequivocal expression of the tenant’s intention that it wishes to exercise its option for a further term of the lease but until such time as the landlord serves a valid notice, the circumstances in which a valid exercise of the option do not arise.
[76] I therefore find that while the tenant has expressed its intention to exercise the option, the 5 April letter was of no legal effect.
For similar reasons, the Tribunal found that it did not need to consider whether the letter of 31 January 2023 validly exercised the tenant’s option (see para [66]).
Comments
There are a number of take-home points:
Practitioners drafting s 28 notices should be aware of the first and second findings above. Of particular importance is the finding that only stating the landlord’s proposed rent for the new term does not comply with s 28 if the rent for the new term is a market rent.
That being said, sub-s 28(2B) seems to suggest that a landlord should state a figure for the proposed new rent in the s 28 notice when there is a market rent review. I think it would be prudent for landlord’s drafting s 28 notices to state both that the rent for the new term will be the current market rent as agreed between the parties or determined by a specialist retail valuer and the figure that the landlord proposes for the new term. I am told that the current version of the LIV copyright s 28 notice suggests that landlords do both.
The third finding above might raise a few eyebrows in the leasing community, and there is likely to be some debate about the finding and its implications. For what it’s worth, I would add the following to the debate:
on the one hand, the purpose of the amendments to s 28 and the ability for a tenant to call for an early rent review under s 28A is to address the perceived mischief of a tenant being required to exercise its option in a rising market without first knowing what the rent for the new term would be. If a diligent but uninformed tenant could exercise its option before receiving a valid s 28 notice, it would inadvertently lose that right; and
on the other hand, a tenant might find itself in a difficult position if a landlord does not provide a s 28 notice when rents are falling, as the tenant is unable to exercise its option to bring about a market rent review.
In an earlier post here I discussed another decision from VCAT holding that rent review by CPI or to the current market rent with a ‘cap‘ on increases is inconsistent with s 35(2) of the RLA 2003.
A number of readers have told me that they are following this issue closely and I noted on my last post that I would update readers if an appeal is filed.
The unsuccessful party in the VCAT case has filed an application for leave to appeal in the Supreme Court. The appeal does not yet have a hearing date.
Sam Hopper Barrister 
October 28, 2025
0 Comments