Renewing your retail lease sounds simple enough. You’ve come to the end of your term, you want to stay, and you’ve got an option to renew. But what many tenants don’t realise is that those renewal rights often come with a twist, often in the form of a market rent review. And if you’re not prepared for it, it can turn into an unpleasant surprise.
Understanding your option to renew
In Victoria, most retail leases will give tenants an option to renew. That means you’ve got the right, but not the obligation, to extend the lease for another period, usually three or five years.
The key is that the lease must actually say so. There’s no automatic right to renew. If it’s not in the lease, you’ll generally be relying entirely on the goodwill of the landlord.
But let’s assume the lease gives you a proper option. Once you decide to exercise it, things move quickly, and timing becomes critical. You need to follow the exact steps in the lease. That usually means giving notice in writing by a specific date, sometimes six months before the lease ends.
Miss that deadline, and you might lose the option altogether.
The Market Rent Review Trap
Here’s where it gets interesting. Many leases tie the renewal to a market rent review. In other words, you can stay, but the rent might change—and not always in your favour.
Instead of a fixed increase or a CPI adjustment, you’re now looking at a rent set by what’s “reasonable in the market” at the time. This can go up, stay the same, or, in some cases, even go down.
It sounds fair on paper. However, the reality is that market rent reviews often lead to disputes, especially when landlords and tenants have very different views about what the premises are worth.
That’s why the law gives tenants a bit of a safety net.
If your lease provides for a market rent review at the start of the renewed term, you can actually request an independent rent determination before you decide whether to renew.
It’s a really useful tool. You make the request, and if you and the landlord can’t agree on the rent, a valuer is appointed to work it out.
The idea is to give you the clarity you need before locking in for another five years.
Plan Ahead and Get Advice
But you don’t get this automatically. You need to ask. And there are timeframes involved. The landlord has to remind you of this right in writing, well before your option date comes around.
If they don’t do that, they’re in breach. If they do, and you ignore it, you could miss the chance to get that independent rent determination.
It’s also important to know that the valuation process can take some time. If you leave it too late to engage in the process, you might find yourself in limbo, not sure what the rent will be, and needing to make a call about the future of your business.
That’s why it’s so important to stay on top of the timing and plan ahead.
Another point tenants sometimes overlook is what “market rent” actually means. It doesn’t just mean whatever the landlord wants it to be. A proper valuation will consider things like:
- The location
- The size and condition of the premises
- Current demand
- Comparable rents in the area
The valuer is supposed to be independent and take all of that into account. But it still pays to get advice, especially if you think the proposed rent is way off base.
Now, even if the rent comes in higher than you’d hoped, you’re not locked in yet. If the rent determination happens before you’ve formally exercised your option, and you don’t like the result, you can walk away.
That’s the benefit of having the determination early—it gives you the chance to make a proper business decision. Stay on at the new rent, renegotiate, or look for a new site altogether.
What you don’t want is to be caught by surprise after you’ve committed to another lease term.
So, what’s the takeaway?
If your lease is coming up for renewal, don’t leave it to the last minute. Check what it says about the option process, the notice periods, and the rent review mechanism.
Understand whether a market rent review applies and whether you can trigger an independent determination. And most importantly, ask questions.
This is your chance to lock in certainty for the next phase of your business.
You want to make that decision with eyes wide open.
Questions?
If you’ve got questions about your lease renewal or think the market rent being offered doesn’t reflect reality, we can help you review your lease, clarify your rights, and negotiate the process.
Let’s make sure the next term works for your business.