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Determining the “current market rent” in accordance with the Retail Leases Act 1994 (NSW): what criteria must a valuer satisfy?

DETERMINING CURRENT MARKET RENT

The Supreme Court has provided guidance on the standard of review expected of a valuer under the Retail Leases Act 1994 (NSW) (the Act), with specific emphasis put towards the factors a valuer must take into account when determining market rent. The decision in Hanave Pty Ltd v Nomad Sydney Pty Ltd (formerly Wine Nomad Pty Ltd) [2023] NSWSC 265 (Nomad) is significant for retail landlords and tenants in NSW that have market rent review provisions in their leases.

Current market rent

Pursuant to the Act, “current market rent” must be assessed on an “effective rent basis”, meaning the valuer must consider the factors that are set out in section 31(1)(a) of the Act which include the:

  • actual terms and conditions of the lease;
  • reasonably expected rent that would be payable if the premises were unoccupied and rented out for a substantially similar use;
  • gross rent less the landlord’s outgoings payable by the tenant; and
  • any incentives typically offered to prospective tenants of unoccupied rental shops.

The valuation, which is often conducted by an independent valuer, must exclude the value of any goodwill relating to the tenant’s occupation or any value of fixtures.

Standard of review

In Nomad, the Court determined that a valuer’s sole focus when determining the “current market rent” should only be on the factors set out in section 31(1)(a) of the Act, and that the valuation will be considered as a “legitimate methodology” provided the valuation adequately considers the section 31(1)(a) factors. The weight to be given to each of the factors is not a legal test and is a matter for the valuer to determine.

Providing reasons

In Nomad, the Court confirmed that for a valuation to be legally binding on the landlord and tenant under the Act, the valuer must provide legally adequate reasons for its determination. As per section 31(1)(e) of the Act, the valuation must be in writing and must explain how the relevant section 31(1)(a) factors influenced the valuer’s determination in detail.

Importantly, where a factor has not been included in a valuation itself, courts and tribunals will infer that it was not considered as part of the valuation, and valuers should now ensure that they expressly note and explain why a factor has been omitted to ensure the valuation meets the standard of compliance now required as a result of the decision in Nomad. Courts and tribunals are now empowered to scrutinise valuations that do not adequately justify the reasons for a valuer’s determination of “current market rent”, and landlords and tenants should be mindful of the now heightened scrutiny available to these judicial bodies in this regard to invalidate a valuation.

Comparable leases and rent incentives

It is ultimately up to a valuer to adopt whatever methodology of valuation provided such method adequately considers the section 31(1)(a) factors and the valuer provides reasons for its determination in detail. In Nomad, the Court confirmed that whether a valuer needs to consider the provisions of comparable leases ultimately depends upon the selected methodology (i.e., if a valuer adopts the direct comparison method, comparable leases will need to be considered pursuant to section 31(1)(a)(i) of the Act).

With respect to rent incentives, if a valuer chooses to consider some but omits referring to other incentives provided for comparable properties, the valuer must provide an explanation for those omissions to ensure compliance with the need to “have regard to” rent incentives as per section 31(1)(a)(iv) of the Act. However, where incentives are identified, the weight given to the same is ultimately up to the valuer to determine.

Matthews Folbigg Lawyers has an experienced team dedicated to property related matters.

If you would like more information or advice in relation to the determination of “current market rent” under your retail lease, or another property related matter, please contact our Property team on  (02) 02 9635 7966 or email info@matthewsfolbigg.com.au

DISCLAIMER: This article is provided to clients and readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as definitive or complete statement of the relevant law.

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Significant Changes to NSW Duty and Land Tax in 2024

Key changes to NSW Duty and Land Tax take effect as of 1 February 2024, from the Treasury and Revenue Legislation Amendment Bill which assented on 27 September 2023.The reform introduces substantial amendments aligned with the NSW Government’s 2023-24 Budget. Key changes are set to impact land tax, corporate reconstruction, consolidation transactions and landholder duty, demanding attention and strategic planning from affected individuals, businesses and investors.

Summary of some of the key reforms include: [...]  READ MORE →

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Strata – Electric Vehicle Ready Buildings Grant

The NSW Office of Energy and Climate Change (as part of the Net Zero Plan Stage 1) has introduced a grant with a quota to assist over 125 residential strata apartment buildings in NSW to install electric vehicle (EV) charging infrastructure within their carparks. Applications are now opened.

What this means is that owners corporation apartment residents may be able to charge their electric vehicles at home (within their building) without seeking electric ports elsewhere!

Eligibility Criteria (briefly) [...]  READ MORE →

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Recent developments in the appointment of strata managers and their validity

There are recent judicial developments concerning the validity in the appointment of strata managers arising from the case of Walker Corporation Pty Ltd v The Owners – Strata Plan No 61618 [2023] NSWCA 125.

In the Walker case, the NSW Court of Appeal clearly establishes the Court’s preference to uphold the lot owners’ rights to choose their own strata managers for their own strata scheme.

Case Background

In the Finger Wharf Development at Woolloomooloo, the Wharf was subdivided into 8 stratum lots. Seven of these were subsequently subdivided by way of a strata plan thereby forming the seven respective independent strata schemes. [...]  READ MORE →

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Tax refunds available! Surcharge purchaser duty and surcharge land tax in breach of international tax treaties

Certain foreign persons are no longer required to pay surcharge purchaser duty and surcharge land tax (“the Surcharges”) when purchasing residential land in NSW. Those who paid are now eligible to receive refunds on any Surcharges paid on or after 21 July 2021.

The NSW Government determined that the State’s Surcharges were infringing upon international tax treaties, which Australia is a party of and are in force under federal law. As a result, Citizens of New Zealand, Finland, Germany, and South Africa can make a claim for a refund of the Surcharges they had paid. Otherwise, NSW Revenue is proactively searching for and contacting those who may be eligible. [...]  READ MORE →

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Historic Property Tax Legislation in NSW Passes in Parliament

Thousands of first home buyers in New South Wales will now be able to unlock the dream of home ownership sooner after the Property Tax (First Home Buyer Choice) Act 2022 (“the Act”) received assent from the Governor on 11 November 2022.

The Act allows an eligible person to opt to pay an annual property tax rather than stamp duty when buying their first home.

The concept of the property tax was first raised by NSW Premier Dominic Perrottet in July 2020 as a mechanism to abolish stamp duty and land tax and replace it with a single annual property tax. The concept relies on a long transitional period initially  beginning with first home buyers who can choose to place the property being purchased into the property tax system. [...]  READ MORE →

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New laws in NSW significantly expands the types of transactions subject to duty

New legislation has been enacted in NSW which makes some important changes to the NSW duties and land tax provisions. The State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 (the Act), which received Royal Assent on 19 May 2022, has seen a number of taxpayer-unfriendly changes made to the Duties Act 1997 (Duties Act) and Land Tax Management Act 1956, which include but are not limited to:

changes in beneficial ownership (beyond those transactions already listed under current rules) will become subject to duty; [...]  READ MORE →

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New Health Orders and police powers for Apartment Buildings

COVID-19 Laws – New Health Orders and police powers for Apartment Buildings

On 6 September 2021, the Minister for Health and Medical Research introduced a new COVID-19 Health Order. The revised Order includes additional provisions to facilitate government lockdowns of specific apartments.
In short, the Order offers the Minister the power to declare a building as a “high COVID-19 risk premises”. This declaration can be made if at least one dwelling in the building is considered a COVID-19 risk premises and there is a risk of transmission of COVID-19 between the residents. The declarations will be made on the NSW Health website.
Unless the Minister revokes the declaration, a building will remain a high COVID-19 risk premises for 14 days. During this time residents must not leave their residence unless they are instructed to do so by an authorised medical practitioner or the police, or in the case of an emergency. [...]  READ MORE →

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Short-term letting restrictions and how they impact you

Short-term letting restrictions – PART 2

Short-term letting restrictions and how they impact you

We have previously written an article about the short term letting issues affecting property and strata participants back on 6 March 2021 (You can read it here). In short, it dealt with Part 1 of the legislative framework to regulate the short term letting situation. It involves the NSW Fair Trading’s mandatory code of conduct (which regulates the conduct of short term letting, presuming it is permissible) and the Strata Legislation (which allows the strata schemes to ban short term letting in lots that are not a principal place of residence of the owner or occupier). [...]  READ MORE →

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Strata Laws on Pets and Animals

New strata laws on pets and animals

Attention pet lovers (and the not-so-much pet lovers)! There may well be more furry additions coming your way to your nearest strata building soon.
From 25 August 2021, the amendment to the Strata Schemes Management Act 2015 (NSW) prevents a blanket ban on pets in a strata scheme. Section 137B of the Act effectively nullifies a by-law to the extent that bans or prohibits the keeping of animals in a strata scheme unless it “unreasonably interferes with another occupant’s use and enjoyment of the occupant’s lot or the common property.” [...]  READ MORE →

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Phasing out of Certificates of Title and the expansion of electronic conveyancing

On 11 October 2021, all certificates of title were cancelled and all dealings are now being lodged electronically over an electronic property dealing lodgment network such as PEXA.

PEXA is an electronic conveyancing platform, which at present, is the most widely used electronic lodgment network in NSW. It has recently listed on the Australian Stock Exchange.

What this means for land owners:

  • No more certificates of title after settlement or after paying off mortgages.
  • The public cannot lodge dealings on land without assistance from a property lawyer or conveyancer.
  • People wishing to lodge a dealing over land must have their identity verified by the PEXA subscriber and must establish their right to deal with their land.
  • Verification of identity involves an in person meeting with the PEXA Subscriber and inspection of identification documents.
  • Establishing the right to deal with land involves providing evidence of ownership (e.g. current rates notice, land tax assessment etc).

Short-term letting – Updated Code of Conduct

The Code of Conduct for the short-term rental accommodation industry was updated on 28 May 2021. Landlords providing short term rental accommodation must comply with the Code of Conduct or face penalties [...]  READ MORE →

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Phasing out of Certificate of Titles and the expansion of electronic conveyancing

On 11 October 2021, all certificates of title will be cancelled and all dealings will be lodged electronically.

What this means for land owners:

  • No more certificates of title after settlement or after paying off mortgages;
  • The legal remedy for requiring the return of certificates of title from others is abolished;
  • The public cannot lodge dealings on land without assistance from a property lawyer or conveyancer (most are PEXA subscribers).
  • People wishing to lodge a dealing over land must have their identity verified by the PEXA subscriber and must establish their right to deal with their land.
  • Verification of identity involves an in person meeting with the PEXA Subscriber and inspection of identification documents.
  • Establishing the right to deal with land involves providing evidence of ownership (e. g current rates notice, land tax assessment etc).

Short-term letting – Updated Code of Conduct

The Code of Conduct for the short-term rental accommodation industry was updated on 28 May 2021. Landlords providing short term rental accommodation must comply with the Code of Conduct or face penalties of up 1,000 penalty units for corporate owners or up to 200 penalty units for individuals (one penalty unit is equal to $110).

The key elements of the Code of Conduct are: [...]  READ MORE →