Game-Changer for Retail Leasing: Supreme Court Confirms Rent Caps Are Valid in Victoria

What Was the Dispute About?

This case involved a lease between ALDI Foods (the tenant) and Northcote Shopping Centre (the landlord), where the lease included a clause capping Consumer Price Index (CPI) rent increases at 6%.

The landlord challenged the validity of that cap, arguing that the Retail Leases Act did not allow for additional constraints beyond the five permitted methods of rent review set out in section 35(2). Historically, tribunals such as VCAT had interpreted the law in a way that invalidated rent caps, reasoning that a cap amounted to a second rent review method something they believed the Act prohibited.

ALDI took the opposite view. They argued that the Act doesn’t expressly prohibit rent caps and that, unlike ratchet clauses (which are clearly banned), rent caps were simply a commercial term within the chosen review method (in this case, CPI).

What Did the Court Decide?

The Supreme Court ruled in favour of ALDI, concluding that the rent cap was valid and enforceable. The Court rejected previous VCAT interpretations and found that a rent cap did not constitute a separate method of review, but rather a valid limitation within the agreed CPI review mechanism.

This ruling clarifies a grey area that has impacted many leasing arrangements over the years.

Implications for Tenants and Landlords

For Tenants: A Win for Certainty

Retail tenants especially small businesses stand to benefit from this decision. The ability to negotiate a cap on future rent increases provides greater cost predictability and protects against unpredictable spikes in lease costs.

Tenants entering new leases or renegotiating existing ones should now feel more confident requesting a cap as part of the rent review process.

For Landlords: New Considerations for Lease Terms

Landlords should anticipate an increase in requests for rent caps, particularly in competitive retail environments. Whether or not to agree will be a commercial decision based on the property’s appeal, tenant quality, and broader investment strategy.

While caps may slightly constrain rental yield growth, they can also make a tenancy more stable and attractive over the long term.

Why This Matters Nationwide

Although this decision is based on Victorian law, the principles and commercial dynamics it touches on are relevant to retail leasing across Australia. Many Australian states have similar rent review provisions, and this case may influence how landlords, tenants, and courts in other jurisdictions approach similar clauses.

Whether you’re leasing a storefront in Perth, a café in Brisbane, or a retail suite in Sydney, now is the time to review your lease terms and understand your position.

Looking for Practical, Commercial Legal Advice?

At Jaide Law, we support clients with commercial leasing matters nationwide, from drafting lease agreements and rent review clauses to helping you navigate disputes or negotiations with confidence.

As a leading property law firm, we bring clarity to complex lease terms and ensure you’re protected from costly surprises. Whether you’re a tenant or landlord, our experienced team of property lawyers can help you structure your lease to suit your needs.

Let’s talk about your next lease before the ink dries.

📞 Contact us today or visit jaidelaw.com.au to speak with one of our experienced property lawyers.

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Disclaimer: This blog post is general information only and does not constitute legal advice. Please seek advice specific to your situation before acting on any information in this article.