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How new valuer policies mean market rent reviews can be frustrated

By John McKeown

There's a potential trap in market-reviews of rent that you need to be aware of, because it isn't dealt with adequately in the current standard leases.

While advising a tenant recently about undertaking a market review of rent, we became aware of a potential problem with engaging a valuer.

A recent risk management strategy adopted by registered valuers through their representative body, API, advises members to insist on getting agreements from landlords and tenants that they will not sue the valuer for negligence.  And unless they get that agreement from both parties, the valuer will refuse to accept the appointment to do the market review.

The reason for this strategy is that, in most leases, a valuer is appointed to act as an expert, not an arbitrator.  So the valuer does not enjoy the protection against being sued which is provided by section 51 of the Commercial Arbitration Act.

The need for that agreement, however, means that many market review mechanisms could be frustrated by one of the parties being unco‑operative and not signing the agreement.  You can imagine a tenant who fears a large increase in rent could frustrate the rent review process this way.  But either party is in a position to frustrate the process.

What could the other party do in this situation?

Involve us if a client of yours has a lease that is coming up for market-review, whether they are lessee or landlord.  We may be able to help them secure their interests.

Because while it is settled law that both parties to a contract must do all things reasonably necessary to secure its performance, there is doubt as to whether this would extend to requiring a party to give up a normal common law protection... the right to sue for negligence.

So the result of such a failure to determine a new rent would depend entirely on the terms of the lease, and their interpretation.

In the meantime, it's our view that the State Government should address this issue with an amendment to the Retail Shop Leases Act and/or the legislation dealing with valuers.