The Queensland Parliament has passed legislation to prohibit the use of ratchet clauses in retail shop leases. The Criminal Code and Other Legislation Amendment Bill 2010 (Qld) was passed by Parliament on 24 March 2011, received royal assent and commenced on 4 April 2011.

The new legislation has been passed to close a ‘loophole’ created by the Court of Appeal decision in Connor Hunter (A Firm) v Keencrest Pty Ltd [2009] QCA 156, which upheld the validity of certain ratchet clauses in a retail shop lease that prevented a rent decrease. This decision ran contrary to the widely held view that all ratchet clauses in retail shop leases were prohibited.

The new laws provide that any ‘ratchet rent provision’ in a retail shop lease is void. The types of ‘ratchet rent provisions’ that will be caught are provisions that:

• prevent the rent from decreasing under a rent review
• limit or specify the amount by which rent may decrease under a rent review, or
• prevent or allow the avoidance of a rent review, for the purpose of preventing or limiting the amount of a rent decrease.

The changes do not apply retrospectively; the changes will, therefore, apply to retail shop leases entered into after the commencement of the changes. Prestige Legal & Corporate Services recommends that landlords of retail shopping centres in Queensland review the rent review provisions in their standard leases to ensure that these comply with the new legal provisions.

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