Chris Drayton
12 January 2016

Disregarding value of tenant’s fitout

Chris Drayton


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Charities and Not-For-Profits

Corporate and Commercial



We commented on a recent decision which considered the circumstances in which the determination of a valuer may be considered as not being final and binding.  Another recent decision in the NSW Court of Appeal provides further guidance on dealing with the interpretation of a reasonably standard lease clause.

The decision in 122 Pitt Street Pty Ltd v Universal 1919 Pty Ltd [2015] NSW CA390 deals with the determination of a valuer pursuant to a commercial lease.

In the circumstances of the case before the court a valuer made a determination of base rent for the premises as at the relevant market review date.  The appellant lessor asserted that the valuer’s determination did not comply with the terms of the Lease and therefore should not be binding.

The non-compliance alleged was that the valuer took into account the “value of the tenant’s Fixtures or fitout” by having regard to the value of the fitout work that the lessee was required to do under the lease after 1 June 2014 (the market review date) in order to fulfil its obligation to spend a minimum of $1 million on fitting out the leased premises.  The valuation criteria stated in the relevant lease noted that the valuer was not to take into account the value of the tenant’s fixtures or fitout. 

It was the position of the lessee that future work did not fall within the relevant valuation criterion.  The Court of Appeal held that there was nothing in the relevant clause of the lease or elsewhere in the lease to suggest that reference to the tenant’s fixtures or fitout included a reference not only to the condition of the premises at the relevant date, but also to work to be carried out in the future under the minimum spend obligation in the Lease. 

The decision of the Court of Appeal is instructive and provides guidance in dealing with the interpretation of a reasonably standard market rent review criterion.  It is also instructive in affirming that a requirement to take the provisions of a lease in to account would include a term of a lease requiring a tenant to undertake certain future works.

Please do not hesitate to contact us should you have any queries or concerns in relation to rental provisions in commercial leases or issue with commercial leases generally.

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