1. I declare that the undated rental determination of Mr David Tunbridge of CivicMJD Victoria Pty Ltd sent to the parties on 19 March 2024 in respect of hotel premises located in South Melbourne, Victoria (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 June 2025.
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.
2. Trakboard Pty Ltd is the registered proprietor (landlord) of premises in South Melbourne, Victoria leased to Shaun Stevens Pty Ltd (tenant). The tenant operates the City Park Hotel from the premises. The dispute concerns an undated market rent determination undertaken by Mr David Tunbridge of CivicMJD Victoria Pty Ltd ('Valuer') sent to the parties by email on 19 March 2024 ('Determination').
3. The landlord seeks a declaration that the Determination does not bind the parties.
4. The premises are retail premises and it is not disputed that the Retail Leases Act 2003 (Vic) ('RLA') applies.

1. In 2008 the then registered proprietor leased the premises to The Accommodation Company Pty Ltd for a term of five years with the option of four further terms of five years.
2. The landlord became the registered proprietor in 2011, and the tenant became the tenant in August 2019. The remaining term of the second renewal period was assigned to the tenant at a time when two of the four options had been exercised.
3. Following two deeds of variations to the lease, the second renewed term was extended to 19 May 2023 making that the date for the rent to be reviewed by way of market rent review for the third renewal.
4. In November 2022, the landlord gave the tenant notice of exercise of option under s 28 of the RLA. Shortly thereafter the tenant requested an early rent review pursuant to s 28A of the RLA.
5. In February 2023, the Valuer was appointed by the Victorian Small Business Commission as a specialist retail valuer to determine the current market rent for the premises for the purpose of the early rent review.
6. On 19 March 2024, the Valuer published the Determination and determined the market rent for the premises as at 19 May 2023 on a gross basis as $400,000 exclusive of GST.

1. I must decide whether the Determination is valid.
2. The landlord says the Determination fails in two respects:
   1. it is vitiated by error

1. it does not provide detailed reasons in accordance with s 37(6) of the RLA.

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. The lease provides that if the tenant exercises its option for a further term after the early rent review under s 28A of the RLA, the rent for the first year is to be the current market rent in accordance with s 37 of the RLA and to the extent it is not inconsistent, clause 11 of the lease. This is the Valuer's charter.
2. Clause 11.1.4 of the lease requires the valuer to consider any written submissions from the parties, determine the current market rent as an expert and make the determination in accordance with the criteria set out in s 37(2) of the RLA.
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 landlord 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 & Anor[2] 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.[3]

1. The questions to be considered by me when deciding if the Determination is vitiated by mistake are:

(i) What did the parties agree to remit to the expert?

(ii) Did the valuer make a mistake, and if so, what was the nature of the mistake?

(iii) 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?[4]

General principles - The requirement for detailed reasons

1. The RLA requires a specialist valuer to provide "detailed reasons".[5]
2. In Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd[6] Croft J held:

[38] In 756 Glenferrie Road Pty Ltd v Mountford Shoes Ltd, Senior Member Riegler said that s 37(6)(b) requires that there "are sufficient reasons that enable the parties to understand the basis on which the determination has been made". Other authorities are to similar effect, some of which are helpfully the subject of some more particular reference and discussion.

[39] In Adwell Holdings Pty Ltd v Bourne[7], Young CJ in Eq considered the requirement for evaluation to contain detailed reasons in the context of s 19 of the Retail Leases Act 1994 of New South Wales, as it was in force as at 1 August 2005. That provision was then in the following terms:

(1) A retail shop lease that provides for rent to be changed to current market rent is taken to include provision to the following effect:

...

(e) A valuation for the purposes of paragraph (b) is to be in writing, to contain detailed reasons for the specialist retail valuer's determination and to specify the matters to which the valuer had regard for the purposes of making his or her determination.

In relation to these provisions, his Honour said:

However, I would agree with Mr Sharpe that the contract required the valuer to give "detailed" reasons; this goes further than merely requiring "sufficient" reasons and requires the valuer to set out details as to how he or she arrived at the determination. Further, when it says that it is to specify the matters to which the valuer had regard, that does not just mean setting out by rote what is in the Act, but actually dealing with how those matters were considered in the process of making the valuation.

[40] It is clear that it is not sufficient for a valuer to "leap to a judgment": the valuation must disclose the steps of reasoning. This position is, in my view, reinforced by the provisions of s 37(6) of the Retail Leases Act. Not only does para (b) of this sub-section require "detailed reasons" for the valuer's determination, but in para (c), adds the requirement that the valuer "specify the matters to which the valuer had regard". These provisions are relevantly the same as the New South Wales equivalent provisions considered in Adwell. Clearly, both the Victorian and New South Wales provisions eschew and do not entertain any "blinding flash of light" as satisfying their "requirements".

1. The landlord challenges the Determination on the following three grounds:-
   1. ground 1 - treatment of repair and maintenance costs;
   2. ground 2 -determination of rent on gross basis; and
   3. ground 3 -other shortcomings in the Determination.

Ground 1 - treatment of repair and maintenance costs

1. The landlord says the Valuer incorrectly attributed the sum of $200,000 per annum for repair and maintenance costs as an expense of the hypothetical tenant in breach of s 37(2)(a) and s 37(2)(c) of the RLA or alternatively failed to provide detailed reasons for attributing that sum for repair and maintenance costs.
2. Section 52 of the RLA states that:

(1) A retail premises lease is taken to provide as set out in this section.

(2) The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into -

(a) the structure of, and fixtures in, the retail premises; and

(b) plant and equipment at the retail premises; and

(c) the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services.

1. Relevantly in relation to repairs and maintenance, the lease provides:-

3.1.1 keep the premises in the same condition as at the start of the lease, except for fair wear and tear; and

3.1.2 comply with all notices and orders affecting the premises which are issued during the term.

b) In addition to its obligations under clause 3.1, the tenant must -

3.2.1 refinish all finished surfaces in a workmanlike manner with as good quality materials as previously at least once every 5 years during the term and any further term.

3.2.2 keep the premises properly cleaned and free from rubbish, keep waste in proper containers and have it removed regularly.

3.2.3 immediately replace glass which becomes cracked or broken with glass of the same thickness and quality.

3.2.4 immediately repair defective windows, light fittings, doors, locks and fastenings, and replace missing or inoperative light-globes and fluorescent tubes, keys and keycards.

3.2.5 maintain in working order all plumbing, drainage, gas, electric, solar and sewerage installations.

1. The landlord says that the Valuer when calculating estimated EBITDAR,[8] without explanation of how he comes to that figure or why, included a cost of $200,000 for repairs and maintenance in his assessment of the hypothetical tenant's profits as follows:

Adopted total revenue $1,914,575 % of total revenue

...

Less Expenses

Repairs & Maintenance $200,000 10.4%[9]

1. At p 31 of the Determination the Valuer states:

I have made my rental determination in accordance with the provisions of the Lease and Retail Leases Act 2003. The current dispute between the Landlord and the Tenant relating to the water ingress into several rooms and other areas of the hotel is a matter to be resolved between the parties rather than by adjusting the rent as determined herein and therefore expecting the Determining Valuer to decide as to which party is responsible for the issues and who is liable to remediate the repair of same. My determination has been made on the basis that each party is responsible for its obligations as directed by the Act and the Lease.

1. The Valuer further states at p 42 of the Determination:

Compliance with Section 52(2) of the Retail Leases Act 2003

I recognise Section 52 of the Act and advise the responsibility of

the Landlord for maintenance and repairs of the premises.

1. The landlord says either the Valuer has given effect to clauses 3.1 and 3.2.1 to 3.2.5 of the Lease and not given effect to s 52 of the RLA, or the reader is left wondering about whether and to what extent the Valuer has given effect to the covenants implied by that section. This is said to be a vitiating error.
2. The tenant relies upon the Valuer's compliance statement at page 31 of the Determination where he states that the Determination was made in accordance with the provisions of the lease and RLA. It also relies upon the Valuer's expertise and authority in valuations.
3. The tenant says the $200,000 is calculated by reference to an industry standard of 10.4% of turnover. The Valuer does not explain this adoption of an industry standard in the Determination or reference any industry standard.
4. The reader cannot be satisfied of the reasoning behind the adoption of the $200,000 figure.
5. Being an expert valuer and acknowledging that he has complied with the RLA does not obviate the requirement in s 37(6)(b) for detailed reasons to be provided in the Determination.
6. The tenant submitted that the landlord's own valuation submission adopted a similar hypothetical approach. That might be so, but it does not take away the obligations imposed by s 37 of the RLA.
7. I accept the landlord's submissions. It is unclear where the Valuer sourced the figure of $200,000. Simply acknowledging s 52 of the RLA and the provisions of the lease does not provide any guidance as to how those provisions were applied.
8. The Valuer does not explain how s 52 of the RLA and the repair and maintenance provisions in the lease were considered in the process of making the valuation. Merely referring to the provisions of the valuer's charter and no more is not sufficient. The Determination must show what was and what was not taken into account and why.[10]
9. The reader is left wondering. Did the Valuer consider s 52 of the RLA and if so how was it considered when looking at the tenant's repair obligations in clause 3 of the lease? Where did the figure of $200,000 come from?
10. In relation to ground 1, I find and declare that the Determination is vitiated by error.

1. At page 42 of the Determination, after determining the rent at $400,000 p.a plus GST the Valuer states "It is also acknowledged that the rent is on a gross basis with the lessor being responsible for the outgoings in accordance with the lease agreement".
2. On page 16 of the Determination, the Valuer notes that the lease is structured on a net basis with the tenant being responsible for the payment of usual outgoings.
3. The parties agree that the lease is a net rent lease and not a gross rent lease.
4. The landlord says that by determining the rent on a gross basis the Valuer failed to have regard to the covenant implied by ss 37(2)(a) and (c) of the RLA and made an error in the construction of the lease.
5. The tenant says the reference to gross basis is an obvious inadvertent typographical error by the Valuer. It should have been net basis in accordance with the lease.
6. The tenant wrote to the Valuer on 24 February 2025 seeking clarification about the gross basis comment.
7. The Valuer responded by email to the tenant on 24 February 2025 saying the word "gross" should have read as "net" and attributed the error to not removing the statement from the template.
8. The Valuer has not notified the landlord of the error or sought to amend the Determination.
9. I have not taken into account the Valuer's email to the tenant. It is not part of the Determination. It is not a supplementary report. It is not a clarification or elaboration of the Determination. It is a significant change to what is concluded in the Determination and is contained in a private email to the tenant almost a year after the Determination was published.
10. The tenant relies upon other provisions in the Determination where there is a reference to "net". For example:
    1. "net rental" in reference to comparable rent transactions;
    2. net operating profit in relation to a hypothetical tenant's projected turnover;
    3. reference to the Valuer's analysis having been "undertaken on a net effective rent basis" being a reference to the comparable transactions to which the valuer had regarded;
    4. reference to the rent having been determined "net of the usual outgoings" in paragraph 41; and
    5. reference to rent being assessed excluding GST on page 40.
11. Of the passages relied upon by the tenant to claim it was clear the rent was assessed on a net basis, only the reference on page 41 referencing outgoings is on point. The other references to "net" do not refer to the rent of the tenant.
12. The Valuer clearly states at the conclusion of the Determination in the section where he is determining rent that the rent is on a gross basis. A reference to rent being net of the usual outgoings earlier in the Determination does not cure the defect.
13. The Valuer's charter required a determination of rent on a net basis. The Valuer gave a determination which stated the rent on a gross basis.
14. I find and declare that the determination is vitiated by error.

Ground 3 -other shortcomings in the determination.

1. Given my finding on ground 1 and 2, it is unnecessary to consider ground 3.

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

[2] [2006] VSCA 173.

[3] 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.

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

[5] Subsection 37(6).

[6] [2016] VSC 244.

[7] [2007] NSWSC 17; (2007) NSW ConvR 56-188.

[8] EBITDAR - net operating profit before interest, taxation, depreciation, amortisation and rent.

[10] 756 Glenferrie Road Pty Ltd v Mountfords Shoes Pty Ltd (Retail Tenancies) [2013] VCAT 640 at [32]- [35] per SM Reigler (as he then was).