A commercial lease rent review is the process set out in your lease for adjusting rent during the term.
Australian leases use three main methods: CPI reviews tied to inflation, fixed reviews that rise by a set percentage, and market reviews that reset rent to the current market value.
The method you agree to, and the exact wording around it, decides how much your rent can change and whether it can ever fall.
Getting that wording right before you sign can be the difference between a predictable cost and a costly surprise years down the track.
How Does a Rent Review Work in a Commercial Lease?
A rent review is a clause in your commercial lease that states when and how the rent can change across the term.
Most Australian commercial leases use one or more of three methods: a CPI review, a fixed review, or a market review.
The review date, the chosen method, and the notice rules are all set by the lease itself, so the document controls the outcome rather than any general sense of fairness.
In a non-retail commercial lease, the parties are mostly free to agree whatever review structure they like, which makes the drafting of the clause the single most important factor.
The table below compares the three main rent review methods across the points that matter most to a tenant or landlord.
| Review type | How the new rent is set | Predictability | Can the rent fall? | Typical timing |
| CPI review | Rent moves in line with the ABS Consumer Price Index | Moderate, follows inflation | Only if CPI falls and no ratchet applies | Each year |
| Fixed review | Rent rises by a set percentage or dollar figure agreed in advance | High, known from day one | Usually no, where the fixed-increase clause is valid | Each year |
| Market review | Rent resets to the current market value for comparable premises | Low, depends on valuation | Yes, unless a ratchet clause prevents it | At an option or every few years |
The main trade-off across all three methods is certainty against flexibility.
Fixed reviews give both sides a number they can plan around, while market reviews track real conditions but bring far more room for dispute.
Many longer leases blend the methods, applying CPI or fixed increases each year and a market review at the start of each option period.
What Is a CPI Rent Review and How Is It Calculated?
A CPI rent review adjusts your rent in line with inflation, measured by the Consumer Price Index that the Australian Bureau of Statistics publishes.
The new rent is worked out by applying the percentage CPI movement over the period named in the lease to your current rent.
For example, if your rent is $50,000 a year and CPI for the relevant period was 4%t, the reviewed rent becomes $52,000.
Most leases compound this each year, so the next review applies the new CPI figure to the higher rent rather than to the original base rent.
Inflation has been a live issue for tenants recently, with the ABS reporting that the Consumer Price Index rose 4.2% in the twelve months to April 2026, down from 4.6% in the year to March.
A well-drafted CPI clause must state which CPI series applies, which city or national figure is used, and the exact quarter or month measured.
This detail matters because the ABS now publishes a complete monthly CPI as well as the older quarterly figures, and many existing leases still point to the quarterly series.
Some CPI clauses also include a cap, which limits how high the increase can go, or a collar, which sets a minimum rise even when inflation is low.
A cap protects the tenant in high-inflation years, while a collar protects the landlord when inflation stalls.
What Is a Fixed Rent Review?
A fixed rent review increases the rent by a set amount agreed before the lease is signed, often expressed as a fixed annual percentage such as 3 or 4 per cent.
The figure is fixed, so both parties know exactly what the rent will be for every year of the term.
If your rent is $50,000 and the lease sets a 4% fixed increase, year two becomes $52,000, and year three becomes $54,080 on a compounding basis.
This certainty is the main appeal for tenants who want to budget with confidence and for landlords who want a guaranteed return.
The downside is that a fixed figure can drift away from reality over the long term.
In a low-inflation period, a 4% annual rise can push rent above the market rate, while in a high-inflation period, the same figure may leave a landlord behind.
Because the increase is locked in, neither side can adjust it later without agreeing to vary the lease, so the figure should be chosen with the full length of the term in mind.
What Is a Market Rent Review and Who Decides the New Rent?
A market rent review resets the rent to the current market value for comparable premises, and where the parties cannot agree, an independent valuer usually decides.
This is the most disputed form of review because the outcome depends on commercial judgment rather than a fixed formula.
The valuer must follow the lease mechanism and, for protected retail leases, any applicable statutory requirements, which is why the wording of the clause carries so much weight.
Australian courts will generally enforce a market review mechanism as long as the lease provides a workable process for fixing the rent.
In Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd, where the rent was to be fixed by an arbitrator if the parties did not agree, the High Court supported the broader principle that a rent mechanism is not void merely because the final figure is to be set later through an agreed third-party process.
The Court also accepted an implied obligation on both parties to cooperate in activating the agreed appointment mechanism.
The practical lesson is that a market review clause needs a clear fallback: who appoints the valuer, what the valuer must assume, and who pays the cost.
Where that machinery is missing or unclear, the clause becomes a breeding ground for argument, and a court will be reluctant to rewrite it for the parties.
What Is a Ratchet Clause and Where Are Ratchet Clauses Prohibited?
A ratchet clause is a provision that stops the rent from falling at a review, even when CPI is negative or a market valuation comes in lower than the current rent.
In a non-retail commercial lease, a ratchet clause is generally allowed, so a tenant under a market review can end up paying above-market rent with no way to bring it down.
In retail leases, the position is very different, because retail leasing legislation in Australian states and territories generally restricts or voids ratchet-style rent review clauses, though the exact rules and exceptions depend on the jurisdiction.
In New South Wales, the Retail Leases Act 1994 (NSW) makes void any clause that reserves a discretion over which review method applies, or that locks in whichever method gives the higher increase.
Victoria applies a similar prohibition under the Retail Leases Act 2003 (Vic), and Queensland does the same under the Retail Shop Leases Act 1994 (Qld), subject to jurisdiction-specific exceptions, including Queensland’s major-lessee exception where the tenant gives the required notice.
These statutory rules override anything inconsistent in the lease, so a ratchet clause written into a retail lease will simply have no effect.
The catch is that the definition of a retail shop can be technical and has been broadened in some states to capture businesses such as gyms and small bars, so it is worth confirming whether your premises fall under retail protection before assuming a ratchet clause is safe.
If your lease is genuinely non-retail, the only protection against a ratchet is to negotiate it out before signing.
Which Rent Review Type Is Best for Your Commercial Lease?
There is no single best rent review method, because the right choice depends on the length of the lease, your business margins, and how volatile the local market is.
A tenant on tight margins often prefers a fixed review or a CPI review with a cap, since both make future costs easier to predict.
A landlord with premises in a strong location usually favours a market review, because it keeps the rent aligned with rising demand.
Blended structures are common in longer leases, with annual CPI or fixed increases through the base term and a market review at the start of each option period.
Before agreeing to any structure, it helps to model the total occupancy cost, including outgoings, not just the headline rent, because a small percentage rise can add up once everything is counted.
It also pays to diarise every review date and notice deadline, since depending on the lease and any applicable retail lease legislation, missing a response window can limit your right to challenge the figure.
The time to manage your rent exposure is before you sign, when the clause can still be negotiated, rather than years later when the review date has already arrived.
Need Help With Commercial Lease Rent Reviews?
Rent reviews are decided by the wording of your lease, so a clear CPI, fixed, or market clause, free of any unlawful ratchet, is the best protection for both tenants and landlords.
As commercial lease lawyers working with businesses across Australia, my law firm can review your rent review clause, explain what it really means for your costs, and negotiate fairer terms on fixed-fee pricing.
Call my law firm today on 1300-529-888 to have your lease checked before the next review date catches you out.
Frequently Asked Questions
Can my commercial rent go down at a review?
Your rent can fall at a market review if comparable rents have dropped, but only when no ratchet clause applies. In a non-retail commercial lease, a ratchet clause that prevents reductions is usually valid, so the rent stays level or rises. In many protected retail leases, a market or CPI review cannot become a no-decrease review through a ratchet clause.
How is a CPI rent increase calculated?
A CPI rent increase applies the percentage movement in the Consumer Price Index, over the period named in your lease, to your current rent. If rent is $50,000 and CPI rose 4%, the new rent is $52,000. Most leases compound this yearly, applying the next CPI figure to the higher amount rather than the original base rent.
What happens if the landlord and tenant cannot agree on market rent?
If the parties cannot agree on market rent, the lease usually refers the question to an independent valuer who acts as an expert. The valuer applies the assumptions and method set out in the lease, and the result is generally binding. Australian courts will enforce that process where the lease provides a workable mechanism for fixing the rent.
Are ratchet clauses legal in Australia?
Ratchet clauses are legal in non-retail commercial leases, where the parties are free to agree that rent cannot fall at a review. In retail leases, they are generally void or restricted under state retail leasing legislation, subject to jurisdiction-specific exceptions. Whether a ratchet applies depends on whether your premises qualify as a retail shop.
Which rent review method gives the most certainty?
A fixed rent review gives the most certainty, because the increase is agreed in advance and both parties know the rent for every year of the term. CPI reviews are moderately predictable since they follow inflation. Market reviews offer the least certainty, as the new rent depends on a valuation that can rise, fall, or stay the same.