1. I declare that the market rental determination undertaken by Mr Russell Parrington of Parrington Property Valuers Pty Ltd sent to the parties on 12 September 2022 ('Determination') fails to comply with s 37 of the Retail Leases Act 2003 (Vic) and is set aside.
2. I declare that the Determination does not bind the parties.
3. Costs are reserved. Any application for costs must be made no later than 6 August 2025 taking into account s 92 of the Retail Leases Act 2003 (Vic).
4. The principal registrar is directed to refer any application for costs to Senior Member Forde for further directions.

1. This is a dispute about the rent payable by a tenant following the exercise of an option under a retail premises lease. The dispute was heard with a related proceeding, BP903/2021.
2. Panagiotis Theodosiou is the registered proprietor (landlord) of premises in Murrumbeena, Victoria leased to Oasis Bakery Pty Ltd (tenant). The tenant operates a bakery and retail outlet from the premises.
3. The dispute concerns a market rent determination undertaken by Mr Russell Parrington of Parrington Property Valuers Pty Ltd ('Valuer') sent to the parties by email on 12 September 2022 ('Determination').
4. The landlord seeks a declaration that the Determination does not bind the parties.
5. The premises are retail premises, and it is not disputed that the Retail Leases Act 2003 (Vic) ('RLA') applies.

1. It was a term of the lease that on 1 September 2020 the rental was subject to a market review as set out in clause 3(g) of the lease.
2. The parties could not agree on the rent and the Valuer was appointed to determine the current market rent of the premises.
3. The tenant says the Determination fails in two respects:
   1. Ground 1 - it is vitiated by error as in determining the amount of the rent by reference to the square meterage of the premises, the valuer failed, contrary to s 37(2)(a) of the RLA, to have regard to the actual square meterage of the premises, being a matter the valuer was bound to take into account by reason of s37(5) of the RLA; and/ or
   2. Ground 2 - it does not provide detailed reasons in accordance with s 37(6) of the RLA in so far as the Valuer:
      1. does not set out a mathematical calculation or provide specific reasons as to how he concluded that each of the values per square metre that he arrived at for the ground floor area, the mezzanine level in its current form and original form, and the partially covered outdoor dining area represented the market rent for the premises; and
      2. does not explain why he determined that the sum of those values to be the appropriate measure of the market rent for the premises.
4. For the reasons that follow I am satisfied that ground 1 has been established and on that basis the determination must be set aside. It is unnecessary to consider the second ground.

General principals - When can an expert determination be set aside?

1. The law as to when an expert determination can be set aside is well established. The starting point is to look at the terms of the contract (valuer's charter), express or implied. It is only when there has been fraud, collusion or a mistake which shows the valuation is not in accordance with the contract that a determination may be set aside.[1]

1. Clause 3(g) of the lease provides that if the tenant exercises its option for a further term, in the absence of agreement the rent must be determined by a qualified valuer and must not be less than the rental payable immediately before the review date.
2. The valuer must determine the rent accordance in accordance with s 37 of the RLA and to the extent it is not inconsistent, clause 3(g) of the lease. This is the Valuer's charter.
3. Section 37 of the RLA provides:

(1) A retail premises lease that provides for a rent review to be made on the basis of the current market rent of the premises is taken to provide as set out in subsections (2) to (6).

(2) The current market rent is taken to be the rent obtainable at the time of the review in a free and open market between a willing landlord and willing tenant in an arm's length transaction having regard to these matters-

(a) the provisions of the lease;

(b) the rent that would reasonably be expected to be paid for the premises if they were unoccupied and offered for lease for the same, or a substantially similar, use to which the premises may be put under the lease;

(c) the landlord's outgoings to the extent to which the tenant is liable to contribute to those outgoings;

(d) rent concessions and other benefits offered to prospective tenants of unoccupied retail premises -

but the current market rent is not to take into account the value of goodwill created by the tenant's occupation or the value of the tenant's fixtures and fittings.

...

(5) In determining the amount of the rent, the specialist retail valuer must take into account the matters set out in subsection (2).

1. In this case, there is no suggestion of fraud or collusion, therefore it must be considered whether the tenant has a basis to claim that the Determination is vitiated by a mistake because the Valuer has failed to consider the matters set out in s 37 of the RLA and the terms of the lease.
2. Nettle JA (as his Honour was then) in AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd & Anor2 stated:

[51] I agree with the judge that the question of whether it is open to review an expert determination on the ground of error is in the first place to be decided according to whether the determination answers the contractual description of what the expert was required to determine. I also agree with the judge that the question of whether an error in determination deprives the determination of compliance with the contractual description of what the expert was required to determine is in the first place to be answered according to whether the error occurred in respect of a task which the contract entrusted to the expert. As Mason, P. explained in Holt v. Cox, although mistake is not itself a ground for vitiation of a final and binding expert determination, a mistake may still be of such a nature that the resultant determination is beyond the realm of contractual contemplation - beyond anything which the parties may be supposed to have intended to be final and binding - and therefore susceptible to review.

[52] These and similar statements have been followed in numerous cases about challenging rental determinations.[2]

3. The questions to be considered by me when deciding if the Determination is vitiated by mistake are:
   1. What did the parties agree to remit to the expert?
   2. Did the valuer make a mistake, and if so, what was the nature of the mistake?

• c. Is the mistake of such a kind which demonstrates that the valuation was not made in accordance with the terms of the contract and accordingly does not bind the parties?[3]

1. The Valuer describes the "property" in the Determination as containing a ground floor area of approximately 460 square metres, a mezzanine level of approximately 88 square metres and a partially covered outdoor dining area of approximately 46 square metres.
2. The Valuer considered comparable rentals. One basis of comparison identified in the Determination was size of premises. He then adopted a figure of $100 per square metre for the partially covered outdoor dining area based on comparable premises. The calculation of $100 per square meter for the outdoor dining area was directly incorporated into the annual rent calculation.
3. The partially covered outdoor dining area is not owned by the landlord and is licenced by the relevant Owners Corporation to Makool Pty Ltd, the previous tenant of the premises.
4. The landlord acknowledged at the hearing that the partially covered outdoor dining area of 46 square meters does not form part of the premises.
5. The landlord contends that the tenant derives a benefit or profit from the outdoor area and on that basis it should be considered. He says the Valuer is entitled to take into account any external influences that may affect the value of the property.
6. I do not accept this contention. The outdoor area is not part of the lease. The Valuer is bound by the Valuers Charter. The determination must be made in accordance with the lease and s37 of the RLA.
7. It is the tenant's good fortune that it might derive some benefit from the outdoor area. There is, however, no basis for incorporating that area into the leased area. The Determination was based upon square meterage values and included a value for the outdoor area which falls outside of the lease.
8. There is an error in the determination. The Valuer made an error with regards to what comprised the leased premises the subject of his determination. He incorporated an area outside of the leased premises.
9. This is a mistake, to adopt the wording of Nette JA[4] that is "of such a nature that the resultant determination is beyond the realm of contractual contemplation - beyond anything which the parties may be supposed to have intended to be final and binding - and therefore susceptible to review".
10. The mistake is of the kind which demonstrates that the valuation was not made in accordance with the terms of the lease and accordingly does not bind the parties.

[1] Legal and General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314.

[2] [2006] VSCA 173. For the latest examples, see Redgum Developments Pty Ltd v G8 Education Ltd [2020] VSC 142 at [15] and Bevendale Pty Ltd v Lucky Eights Pty Ltd [2020] VSCA 312.

[3] As per Gillard J in Commonwealth of Australia v Wawbe Pty Ltd & Pinebark Park Pty Ltd [1998] VSC 82 at [45].