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Rent review time often arrives with more tension than either party expects. Tenants and landlords both walk into the process with a number in mind, and those numbers have been shaped by very different reference points. After a period of significant CPI volatility, the gap between those expectations has widened. Some tenants are bracing for increases they consider unfair. Some landlords feel they've been absorbing below-market rents and see the review as long overdue.
The review mechanism in your commercial property lease, whether it's CPI-linked, a fixed percentage, or a return to market, largely shapes how that conversation plays out. Understanding what each mechanism actually means, and what your specific lease says about it, puts you in a much better position before the review date arrives.
What is a rent review clause? A provision in a commercial lease that adjusts rent at set intervals, by reference to CPI, a fixed percentage, or current market rates.
When does it matter? At each review date, and critically, when negotiating your lease in the first place.
Key insight: The mechanism that works in your favour depends on economic conditions at the time of review — not the time of signing.
Why professional guidance helps: Review clauses interact with other provisions in your lease in ways that aren't obvious from a plain reading.
Before your next review date, locate the rent review clause in your lease and confirm which mechanism applies.
Check whether there's a ratchet clause, particularly if a market review is involved.
Objection windows exist in most commercial leases and are shorter than most people expect; the clock typically starts on receipt of the review notice, not when you respond to it.
If you're operating under a retail lease covered by the Retail Leases Act 1994 (NSW), the rules around ratchet clauses and review mechanisms differ from standard commercial leases, which is worth confirming if you haven't already.
The review mechanism is typically agreed at the start of a lease, often without much thought about how it will play out years later. At that point, both parties are focused on the base rent and the headline terms. The review clause gets agreed and largely forgotten.
Several years on, the environment looks different. CPI ran at elevated levels through 2022 and 2023 before moderating. Fixed percentage increases that seemed reasonable in a low-inflation environment look quite different in a high-inflation one. Market rents in many commercial precincts have shifted since leases were executed.
The result is that tenants and landlords often reach review dates with genuinely different views about what a fair outcome looks like. Because the lease mechanism largely determines who has the stronger position, understanding what you're working with matters more now than it did a few years ago.
A CPI-linked review ties rent increases to the Consumer Price Index. It sounds neutral, objective, tied to an external measure. In practice, it shifts risk between parties depending on inflation conditions.
In periods of low inflation, CPI reviews tend to favour landlords: increases happen automatically without negotiation, providing reliable compounding returns. When CPI runs high, the same mechanism delivers substantial increases that tenants may struggle to absorb, particularly if their revenue hasn't grown at the same rate.
Something that often catches tenants by surprise: CPI reviews can use different index measures or calculation periods depending on how the lease is drafted. The calculation method matters - annual, quarterly, or cumulative figures produce different outcomes, and which ABS measure applies adds another variable. Worth checking before assuming you know what the review will deliver.
A fixed percentage increase, commonly 3–4% per annum, provides the most predictability. The review isn't subject to negotiation; it's a formula. That certainty has genuine value for business planning on both sides.
The challenge is that economic conditions change, and compounding works quietly. A 3.5% increase applied annually means rent by year 5 sits noticeably higher than the figure a tenant focused on at signing - something that tends to surface at renewal when tenants compare where they started to where they are. In a low-inflation period, the same rate can look generous to a landlord; in a high-inflation one, much less so.
A market review resets rent to what the premises would achieve in the open market at the time of review. This is the most unpredictable mechanism, and the one with the most moving parts.
Market reviews introduce genuine uncertainty for both parties. For tenants, rent can go up or down depending on market conditions. For landlords, the same applies, which is precisely why ratchet clauses exist.
A ratchet clause prevents rent from falling below its current level on a market review, even if the market has softened. Under the Retail Leases Act 1994 (NSW), ratchet clauses are prohibited in retail leases. Commercial leases have no equivalent restriction. A commercial tenant under a market review with a ratchet clause can find themselves paying above-market rent with no legal mechanism to force it down.
Leases with mixed mechanisms, such as CPI reviews for years 1–4 with a market reset at year 5, require careful reading at each stage. The base from which the market review is calculated can produce unexpected outcomes depending on how rents have moved during the CPI period.
From a tenant's perspective, fixed increases offer the clearest cost visibility. CPI offers potential upside in low-inflation years but creates exposure when inflation is elevated. Market reviews introduce the most uncertainty, particularly in rising markets, or where a ratchet clause prevents any downward adjustment.
From a landlord's perspective, the calculus largely reverses. Market reviews with ratchet clauses offer strong protection in a rising market. CPI provides reliable compounding. Fixed increases offer stability but limit upside.
What actually matters most, though, is how the review mechanism interacts with the rest of the lease.
Caps and floors modify how much a review can move rent in either direction. A cap limits exposure on a CPI review in a high-inflation year, but it also limits the landlord's return. Floors prevent rent from falling below a threshold on a market review.
Objection windows create practical deadlines that can be surprisingly short. For market reviews, your lease will typically specify a period within which either party can object to the proposed market rent and trigger a formal determination process. Missing that window can mean the proposed figure (often set by the landlord) is treated as accepted. This is a genuine trap: I see leases where the objection period is 30 days, and tenants don't realise the clock has started until it's already expired.
The most common misconception is that a market review is inherently neutral. It sounds balanced, two parties simply finding out what the market says. But market rent assessments involve judgment: about comparable properties, about adjustments for lease terms and incentives, about what "market" means in a specific precinct at a specific point in time. Two valuers looking at the same premises can reach meaningfully different figures.
A second misconception is that the review mechanism agreed at lease execution is fixed for the life of the tenancy. Lease terms can be renegotiated, particularly at renewal, and the lease terms that prevent disputes are usually the ones that were properly considered at the outset. If you're approaching the end of a lease term and negotiating the next one, the review mechanism is on the table, including whether to introduce a cap, remove a ratchet, or shift from market to fixed.
One thing many tenants don't realise until it's relevant: leases with options to renew sometimes specify that rent for the renewed term is to be determined by market review, regardless of what mechanism applied during the initial term. Exercising an option expecting continuity and receiving a market review notice can come as a surprise.
Consider a commercial tenant who has been paying rent under a fixed 3% annual increase for five years. At the end of the initial term, they exercise their option to renew. The option clause specifies that rent for the renewed term is to be set by market review.
The landlord engages a valuer who assesses current market rent at a figure substantially above what the tenant is currently paying. The lease includes a ratchet clause, meaning rent cannot fall below current levels in any case. The tenant has 21 days to object.
The review notice is sent to an email address specified in the lease years ago, one the tenant rarely monitors. By the time they follow up, the objection window has closed.
This isn't necessarily catastrophic, but it's a materially different financial position than the tenant anticipated when they exercised their option. A different review mechanism at the initial negotiation, a current notice address in the lease, and earlier advice when the option was being considered would each have changed the picture.
Commercial rent reviews look straightforward on paper: a date arrives, a mechanism applies, a new rent is set. What I work through with clients is the layer beneath that. What does the mechanism actually produce in your specific circumstances? What provisions interact with it? What are your genuine options if the proposed review figure doesn't reflect what you expected?
For tenants, that means understanding your position before the review date arrives, not after you've received a figure you're unhappy with. For landlords, it means making sure the commercial leasing terms you're offering actually achieve the income outcome you're planning for, without provisions that create unnecessary disputes.
In either case, getting the lease right in the first place, and understanding what it says before review cycles start, avoids most of the issues I see in practice. My experience in property law means I look at these provisions from both sides of the transaction, which matters when you're trying to assess where you actually stand.
Rent review advice is particularly useful when you're negotiating a new lease or renewal — that's when your options are widest. It's also valuable before a market review date, particularly if your lease includes a ratchet clause or a short objection window. If you've received a proposed market rent figure that doesn't seem right, acting quickly matters, as dispute windows in commercial leases can be short and the mechanism for challenging a figure usually requires timely action. Let's discuss your lease before the next review date arrives.
Yes - and this is often the best time to address it. Review mechanisms, caps, floors and ratchet clauses are all negotiable at lease execution. Once the lease is signed, the mechanism it contains applies for the term, though it can sometimes be renegotiated at renewal.
A ratchet clause prevents rent from falling below its current level on a market review, even if market conditions have softened. Commercial leases can include them; retail leases under the Retail Leases Act 1994 (NSW) cannot. Whether it's a concern depends on your market outlook and the length of the lease - but it's worth knowing whether yours contains one before a market review arrives.
It depends on the lease drafting and the circumstances, but missing an objection deadline can result in the proposed market rent being treated as accepted. Check your lease as soon as you receive a review notice - don't wait to understand the timeframe.
If your premises fall within the definition of retail premises under the Retail Leases Act 1994 (NSW), different rules apply - including the prohibition on ratchet clauses and certain disclosure obligations around rent reviews. Not all food and beverage premises qualify, so confirming your status under the Act is worth doing if you haven't already. This is one of the questions I work through with clients as part of commercial leasing advice.
They can propose it as part of renewal negotiations. If you have an option to renew, the terms on which rent is set for the renewed term should be specified in the original lease - this is one of the most important provisions to review when you're considering whether to exercise an option, not after you've committed.
