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The Retail Leases Act is supposed to protect small retailers – Case summary: Aldi Foods Pty Ltd v Northcote Shopping Centre Pty Ltd [2024] VSC 799

Published on April 24, 2025 by Matthew Rafferty

The scenario

The case – Aldi Foods Pty Ltd v Northcote Shopping Centre Pty Ltd [2024] VSC 799 – decided in December 2024 reinforces the idea that the retail legislation, including the Retail Leases Act in Victoria (RLA), is designed to protect tenants and this will affect the interpretation of sections of the RLA and other retail legislation.

The case was about the rent reviews. The lease between Aldi and Northcote Shopping Centre Pty Ltd included a 6% cap on CPI reviews, and a 10% cap on market rent reviews.

The landlord argued that these rent review caps meant that the rent was determined using two different formula:

• For the annual CPI reviews, the two formulas were:
  • Increase in line with CPI; or
  • Increase by 6%,

whichever is less.

• For the annual market reviews, the two formulas were:
  • As determined by market rent review; or
  • Increase by 10%,

whichever is less.

Section 35(2) of the RLA provides that a rent review must be one of the following bases or formulas:

• a fixed percentage;
• an independently published index of prices or wages;
• a fixed annual amount;
• the current market rent of the retail premises;
• a basis or formula prescribed by the regulations

The landlord argued that those rent reviews infringed the RLA, and as a result, the rent should be determined in accordance with section 35(7), which would result in a market rent review.

This would likely be be in the landlord’s favour.

The case is unusual in that the landlord would be favoured if the RLA applied, whereas if the tenant could show that the RLA should not intervene and alter the party’s agreement, the tenant would be favoured.

The case at VCAT

The Tribunal agreed with the landlord that the caps infringed section 35(2) of the RLA. Each cap meant that the rent under than review was subject to two of the basis or formulas set out in section 35(2). The cap on CPI reviews meant that rent review was subject to a fixed percentage and an index of prices. The cap on market reviews meant that rent review was subject to a fixed percentage and the current market rent.

The Tribunal then noted that if a rent review process breached section 35(2), section 35(7) would apply, which provides that either the parties can agree on the rent for that year or, of they can’t agree, the rent will be the current market rent.

Aldi appealed VCAT’s decision to the Victorian Supreme Court.

The case at the Supreme Court of Victoria

Aldi argued that section 35(2) did not expressly prohibit maximum caps – a maximum cap is not a fixed percentage rent review. As Aldi considered there to be no direct conflict with section 35(2), the bargain struck between the parties should prevail, and Aldi submitted that it would be “absurd” if the RLA was used to the detriment of the tenant.

Aldi also noted that section 35(3) prohibited minimum increases (collars), which are akin to caps, and that no subsection addressed caps in the same way that subsection 3 address collars.

Aldi also submitted “that the RLA is ameliorating or remedial legislation”; it is designed to enhance fairness in retail negotiations and leases. It would be unfair if the RLA intervened to alter the party’s agreement to the detriment of the tenant.

The Supreme Court agreed with Aldi.

The Court specifically agreed that the RLA was ameliorating or remedial, but that did not mean that the RLA should always be interpreted in favour of tenants. Rather, the RLA is intended to balance the rights and interests of both parties. In this case – it was interpretated in favour of the tenant.

In interpreting legislation, the Court cannot disregard clear words. In this case, the Court found that it was not clear whether rent review caps were permitted or not. Section 35(3) prohibited collars, and section 35(2) specified each rent review could only have one basis or formula. Caps were not specifically mentioned.

Where the legislation is not clear, the Court can allow the parties’ agreement as set out in the contract to prevail provided that the balance of interests, as intended by the Parliament when enacting the legislation, is preserved. Here, the cap on rent reviews respects the balance the RLA was intended to produce between landlord and tenant – or, looked at the other way, to remove the cap would be to interpret the RLA in a way that was not intended, as that would make the contract more onerous for the tenant.

Please note that this article does not constitute legal advice. If you are seeking professional advice on any legal matters, you can contact Carroll & O’Dea Lawyers on 1800 059 278 or via our Contact Page and one of our lawyers will be able to assist you.