A recent Supreme Court decision has confirmed that caps on rent increases in retail leases are legal under Victorian law. In the decision of Aldi Foods Pty Ltd v Northcote Shopping Centre Pty Ltd [2024] VSC 799, the Court confirmed that it’s legal to include a cap on rent increases in a retail lease. This overturns a previous ruling by VCAT that had created confusion and concern for many people in the property industry.
Here’s what it all means, in plain English.
What Is a Rent Review Cap?
A rent review cap is a clause in a lease agreement that puts a limit on how much the rent can go up during a scheduled review.
Let’s say a lease allows the rent to increase each year in line with the Consumer Price Index (CPI), which tracks inflation. If CPI is 5%, the rent would normally increase by 5%. But a cap might say that the rent can’t go up by more than 3%—even if CPI is higher.
This protects tenants from unpredictable or steep increases, especially in times of high inflation. At the same time, landlords benefit from setting clear, stable rent expectations.
Why Was This an Issue?
The legal uncertainty came from section 35(2) of the Retail Leases Act 2003 (Vic), which says you can’t use “more than one method or formula” to calculate rent during a review. This was designed to stop landlords from “cherry-picking” the most profitable method each time (like choosing the higher result between CPI and market rent).
But in four separate cases, including Northcote Shopping Centre Pty Ltd v Aldi Foods Pty Ltd [2024] VCAT 641, VCAT ruled that if a lease uses CPI and has a cap, it’s using two methods—and therefore breaks the law.
This caused major concerns across Victoria. Many retail leases include these types of caps, and landlords and tenants were suddenly unsure if their leases were even valid.
What the Supreme Court Said
Justice Croft of the Supreme Court disagreed with VCAT. He said that a cap doesn’t create a second method—it simply limits how far the rent can increase. The rent is still being reviewed using one method (like CPI), but with a built-in ceiling.
In other words, using a cap isn’t cheating the system, and it doesn’t violate the Retail Leases Act.
This ruling effectively overturns the VCAT decisions and confirms that caps on rent increases in retail leases are lawful.
Why This Matters for Landlords and Tenants
This decision is a big relief for landlords and tenants who have been unsure about the status of their lease agreements. It means that:
Including caps on rent increases in retail leases provides certainty for tenants. There’s no need to change them unless you want to.
New leases can include a cap on rent increases without breaching the law.
Past disputes based on VCAT’s interpretation may need to be reviewed, especially if they relied on the now-overturned decisions.
For tenants, this means they can negotiate for rent caps with more confidence—knowing the courts will recognise their validity. For landlords, it provides certainty that their lease terms are legally enforceable and won’t be thrown out based on a technical interpretation.
Real-World Example
Let’s say you run a small café in a shopping centre. Your lease says rent will go up each year by CPI, but with a cap of 4%. In a year where CPI hits 6%, you’ll only face a 4% increase.
That 2% difference could be the buffer you need to manage rising supply costs, staff wages, and energy bills—without being pushed to breaking point.
Thanks to the Supreme Court’s decision, this kind of cap is now confirmed as lawful and enforceable.
What You Should Do Now
Whether you’re a landlord or a tenant, this is a good time to check in on your leases:
Landlords: Review your lease templates. If they include caps, they’re safe to keep using. If not, consider whether adding one might help you attract long-term tenants.
Tenants: If your lease doesn’t include a cap, you can now raise it during negotiations with future landlords.
Legal Advice: If you’ve been involved in a dispute over a capped lease, or your lease was changed because of the earlier VCAT rulings, it’s worth getting legal advice to reassess your position.
🧑⚖️ Need Help Understanding Your Lease?
At MST Lawyers, we help landlords, tenants, and agents navigate the complexities of retail leasing law. Whether you’re drafting a new lease, reviewing an existing one, or dealing with a lease dispute, our Property & Leasing team can guide you through the process with clear, practical advice.
Get in touch with Evelyn Marcou from our Property team today to make sure your leasing arrangements are legally compliant and commercially sound.
