On 4 April 2011, amendments were made to the Retail Shop Leases Act 1994 (“Act”) that can greatly benefit Retail Shop Lease holders when they renew their lease or enter into a new lease.

Section 36A(2) was inserted into the Act and makes  “ratchet clauses” in a Retail Shop Leases void.


The new amendments to the Act render a “ratchet Clause” void in Retail Shop Leases in Queensland and  will apply to all Leases entered into after 4 April 2011.

What is a “ratchet clause”?

A “ratchet clause” is a provision in a Lease that prevents the rental decreasing when the rent is reviewed under the lease provisions (usually on a CPI rental review or on Market rental review).  This means that if market rent is lower than the rental in the lease the tenant is still forced to pay the higher rent because the ratchet clause prevents the rent from being lowered on review.

Section 36A(3) defines a “ratchet clause” as a provision in a Lease that:

(a)  prevents, or enables the Lessor or another person to prevent, the rent decreasing under a rent review; or

(b)  limits or specifies, or allows the limitation or specification of, the amount by which the rent may decrease under a rent review; or

(c)  prevents, or allows the avoidance of, the rent review by the Lessor or another person for a purpose mentioned in paragraph (a) or (b).

Luckily,  a “ratchet clause” contained in any Retail Shop Lease entered into after 4 April 2011 will be void. It is important to note that these new provisions are not retrospective and so they do not apply to Leases that were in existence before the amending legislation was enacted.

What does this mean for my Pharmacy Lease and what should I do?

The abolishment of “ratchet clause” is good news for all Lessee’s of retail shops in Queensland as it allows for a fairer and more equitable review of Market rental (and rental reviewed by CPI), by ensuring that rents can fall (as well as rise) according to the current economic circumstances. No doubt this was provoked by the current economic times and the effect the Global Financial Crisis had on many Businesses. Before exercising your Options in leases that already exist before 4 April 2011 you must have a lawyer attempt to negotiate any ratchet style clause out of your lease as a condition of you agreeing to exercise the Option and to take advantage of the new amendments as they do not apply to leases entered into before 4 April 2011

For more information on “ratchet clause” or other leasing issues, please do not hesitate to contact Shawn Woolf of Woolf Lawyers on 07 3323 3331 or by email: shawn@woolflawyers.com.au.

Shawn Woolf
Principal
WOOLF LAWYERS