Hi Everyone Just doing a due diligence on a property. Reading the lease, there's a ratchet clause on the market review(at the end of the 5 year term and before the 5 year option is taken up) The lease was written in 2014. My Western Australian lawyer claims that ratchet clauses are illegal in all states(the subject property is in Sydney) Is he right? Regards from W.A.
The ratchet works in favour of the owner and it is not illegal for certain types of properties. It's more common with industrial properties. It is not legal with retail properties http://www.cbp.com.au/publications/2014/september/retail-rent-reviews-restrictions-on-timing-and-b Seek legal advice for NSW depending on what type of asset you are buying. You haven't specified what type of commercial property it is **Edit** Inserted link
@WAcountry - as per @Player, ratchets are not permitted in retail leases (you may need to refer to the Retail Leases Act NSW to confirm if a medical practice may be deemed to have a retail lease due to location in a shopping centre). (I would question my solicitor if he was advising that ratchet clauses were not legal).
Know you are talking about Syndey but in reference to the "all states" comment in Vic, ratchet clauses are prohibited under the Retail Leases Act 2003. If its a non Act lease (industrial, some retail etc) then a ratchet is fine.
Most medical leases would be commercial and yes ratchet clauses are legal in those types of leases. In over 13 years of working in Healthecare properties I have never done nor seen one done as a retail lease. Send me a PM @WAcountry. Happy to assist.
Talk to Dazz about this one - I remember he liked to include them in his leases . I personally would use it to cover myself ,but then would work out what was fair for both landlord and the tenant at renewal time. (and both were agreeable to to secure the long term lease) I have not experienced them in my retail commercial as mentioned earlier.
Will depend whether the lease is captured by the Retail Leases Act 1994 - RETAIL LEASES ACT 1994 RETAIL LEASES ACT 1994 - SCHEDULE 1 If it's covered, ratchet clause is void. If it is not covered, ratchet clause is fine.