Incentives are near record highs, so the rent review formula matters more
Australian office landlords are offering some of the largest incentive packages in years, and that changes how much weight a rent review clause actually carries. CBRE's Q1 2026 office figures put incentives on Melbourne CBD leases at 47% of face rent for Premium stock, 48% for A-grade and 50% for B-grade, among the highest of any east coast market; Knight Frank separately recorded Melbourne CBD incentives reaching a record 48.1% during the June 2026 quarter. Brisbane sat well below that in the same CBRE dataset, at 33% for Premium and A-grade space and 37.5% for B-grade. When the gap between face rent and net effective rent (what a landlord actually collects once rent-free periods and fit-out contributions are spread over the term) is this wide, the formula written into the review clause does more work than it did a few years ago: a fixed or CPI review compounds on a face rent that may already be heavily discounted, and an incentive that isn't properly documented can be hard to claw back if a tenant leaves early.
The three ways rent reviews are typically structured
Commercial leases in Australia generally use one of three review mechanisms, or step between them over the term. A fixed percentage increase, commonly 3% to 4% a year, gives both sides certainty but ignores what's actually happening in the market. A CPI-linked review ties the increase to inflation, so it tracks the economy but can swing sharply or barely move in a low-inflation year. A market rent review resets the rent to current market value, typically assessed by an independent valuer if the parties can't agree, and is the only method that can genuinely move in either direction. Many leases run a fixed or CPI review through the early years of the term and a market review at the start of each option period.
For a retail lease, the review clause itself is regulated
Once a lease is a retail shop lease, the rent review clause can't be drafted however a landlord likes. In NSW, section 18(4) of the Retail Leases Act 1994 renders void a "ratchet clause": any provision that stops the rent from falling when the lease provides for a review that could produce a decrease, such as a market rent review. If a market review comes in below the current rent, the rent must be allowed to fall, and a clause trying to prevent that simply doesn't operate. Victoria's Retail Leases Act 2003 goes further on structure: section 35(2) requires a rent review clause to specify a single basis, a fixed percentage, CPI, a fixed amount, current market rent, or a formula prescribed by regulation, and section 35(3) bans a clause that sets a floor under which the reviewed rent can't fall. What section 35 didn't clearly settle is whether a ceiling, a cap on how far the rent can rise, counts as a second review method and is void for that reason, or whether it's simply a limit on the result of one compliant method. That question took three hearings and three years to resolve.
A three-year fight over what a "cap" actually is
Aldi's lease over a shop at the Northcote Central Shopping Centre in Melbourne's inner north, granted in 2008 for an initial 15-year term with two five-year options, capped CPI rent reviews at 6% and market rent reviews at 10%. When a review fell due, the landlord argued the caps meant the clause set out two review methods rather than one, an ordinary review and then a separate, capped review, which would make it void under section 35(2) and default the rent to an uncapped market review under section 35(7) instead. That argument succeeded at first instance: in Northcote Shopping Centre Pty Ltd v Aldi Foods Pty Ltd (2024) VCAT 641, the Tribunal found the caps created a second method of review and struck them out. Aldi appealed. In December 2024, Justice Croft overturned that finding in Aldi Foods Pty Ltd v Northcote Shopping Centre Pty Ltd [2024] VSC 799, holding that a cap sets a ceiling on the outcome of a single compliant review method rather than introducing a second one, so it doesn't breach section 35(2). Northcote Shopping Centre sought leave to appeal that ruling, and on 16 June 2026 the Court of Appeal refused it in Northcote Shopping Centre Pty Ltd v Aldi Foods Pty Ltd [2026] VSCA 140, confirming the Supreme Court's reasoning and settling the point for Victorian retail leases. The practical result for landlords is that a genuine cap on a single review method, capping CPI or capping a market review, is now confirmed as legitimate drafting; a floor or ratchet that stops the rent falling is still void under section 35(3), and blending two genuinely different formulas into one clause, the issue an earlier VCAT decision, Q St Kilda Tenancy Pty Ltd v Kane (Building and Property) [2023] VCAT 75, found void on its own facts, remains risky.
Structuring the incentive so it survives a dispute
The incentive side of the deal needs the same care as the rent review clause. Most incentives, whether a rent-free period, a cash contribution to the tenant's fit-out, or both, are offered on the understanding that the tenant sees out the lease term. A landlord who wants that protection needs a clawback provision that actually says so, set out in a deed of incentive or built into the agreement for lease rather than left to a side letter, specifying that some or all of the incentive is repayable on a pro-rata basis if the tenant defaults or exits early. Courts have generally accepted properly drafted clawback clauses as a genuine pre-estimate of the landlord's loss rather than an unenforceable penalty, provided the amount recoverable is proportionate and tied to the actual value of the incentive given, which makes the drafting as important as the commercial terms themselves.
What a fair structure looks like right now
With incentives this large and the gap between face and effective rent this wide, a defensible structure starts with naming one actual review method rather than blending two, and, for a retail lease, checking it against the NSW ratchet ban or Victoria's single-method and no-floor rules before it's signed. A cap on that single method is now settled law in Victoria, provided it caps rather than duplicates the review. And on the other side of the ledger, an incentive is only as recoverable as the deed or lease clause that lets a landlord claw it back if the tenant doesn't stay the distance.