In determining the market rent for retail premises, valuers can’t take into account areas that are not part of the leased premises

The decision of Oasis Bakery Pty Ltd v Theodosiou (Building and Property) [2025] VCAT 632 provides an overview of the process for challenging a market rent determination, and a reminder that landlords cannot charge rent for areas which do not form part of leased premises—such as adjoining laneways, pavements or other outdoor areas—even if the tenant benefits from the use of such areas.

Determinations of market rent are a common feature of leases for retail premises in Victoria, whether for determining the annual rent under an initial term or (more commonly) for further terms under an option for renewal.

The valuer assesses the market rent for the premises. This valuation must be done in accordance with what Croft J described as the valuer’s ‘charter’ (Epping Hotels Pty Ltd v Serene Hotels Pty Ltd [2015] VSC 104 at [27]-[28], [55]).

This ‘charter’ consists not only of the terms of the lease, but also the terms set out in section 37 of the Retail Leases Act 2003 (Vic), which apply by law to any market rent provision in a retail lease.

A rental determination can only be set aside where there has been fraud, collusion or a mistake which shows that the valuation was not made in accordance with the valuer’s ‘charter’.

In Oasis Bakery, the applicant tenant successfully sought a declaration that a valuer’s determination did not bind the parties. The mistake in question was that the valuer had included an outdoor area which was used by the tenant, but not owned by the landlord, in calculating the market rent.

The Tribunal did not accept the landlord respondent’s submission that the valuer could take into account any external influences that may affect the value of the property. The valuer’s charter only empowered the valuer to assess the current market rent for the premises, not an area falling outside the premises.

As Member L Forde observed (at [23]): “It is the tenant’s good fortune that it might derive some benefit from the outdoor area. There is, however, no basis for incorporating that area into the leased area.”

The Tribunal declared that the rental determination was not binding on the parties.

Mr B Parker of counsel appeared for the applicant. The respondent appeared in person.

The decision is available here.