• We pay the legislators, regulators and judiciary good money to legislate, regulate, and make decisions that make good sense, that bring about efficacy and certainty to the law and how the industry conducts itself. The general intent in State Tenancy Laws, was that ratchet clauses (which contribute to asset "bubbles") were outlawed from around 1994. There was a Queensland case called Connor Hunter, which went to appeal after the initial Trial Judge upheld the poorly written tenancy law, had always intended that ratchet clauses be outlawed. Not as the Appeal Court saw it. As of early April 2011 this went back to the legislators and again ratchet clauses are not permitted in Queensland. This is common sense but it took the Queensland Government some 18 months to change the law back to what was intended?


• For the record. Normally the New South Wales ADT demonstrates the most common sense, with clear cut decisions, and decisions that are fair and equitable. Not so in Eastpoint vs Grayson (matter 105212) [since dismissed by Judicial Member Molony, who then decided that the lease which clearly intended to and was operating under the NSW legislation, fell outside the legislation. The lease in total 30 years long]. The landlord sought to appeal the outcome of the rent determined (by a senior highly respected expert) in a dysfunctional neighbourhood centre. The lease says the determination will be final and binding. The relevant authority in this suggests that the parties (landlord and tenant) have agreed to "accept his impartial decision as to the appropriate amount of the valuation. They rely on his skill and judgement and agree to be bound by his decision." - McHugh JA in Legal and General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 and 335 - 336. Even if the valuer has made a mistake, it may still stand, as long as it has been made in terms of the agreement, and the valuation was not obtained by fraud or collusion - ref "Rental Determinations: Determining Valuers Accepting Submissions and the Roles of Experts and Advocates" - Alan Hyam OAM Barrister-at-Law 2000. It is very surprising that any judge/judicial member would seek to reverse/overturn a properly constructed expert's opinion that was not a product of fraud. While JM Molony's commentary and thinking is sound and logical, his conclusion and decision did not follow his reasoning and logic. Where angels fear to tread;


• In Queensland from QCAT, expect more of the same. More from the entrenched establishment. Rarely a decision in equity; it cannot make decisions, only one or two Tribunal Members understand figures. It is partisan, called the "Landlord's Tribunal". It has the capacity to hear matters up to around $700,000; but has not skills, expertise, let alone courage. Put it in the "too hard basket"; I have been a landlord appointed expert to prepare a report about an outgoings matter; it was settled on my report before it got to court. A successful "settlement" for QCAT is to avoid making decisions and "common law"; to barge through cases unrelated to economic or commercial loss (based on the matter in question), nor based on sound calculations and quantum, but to cover the Applicant's legal costs. A legal firm has just again confirmed this modus operandi. A paradigm shift from QCAT is required; not a childish approach when it is questioned on the rules it sets, which is the basis on which people must invest their capital in businesses in Queensland. Then they attack the very experts who stand up to this nonsense;


• In Queensland flooding of shops and businesses has seen landlords and tenants scrambling for their leases; every situation is different, sometimes legal opinion is required, sometimes a commercial outcome is best. Sometimes legal and commercial redress is required. Most leases make provision for rent reductions and or cancellation of contracts. We are well placed to assist in this regard;


• My office has just had an overseas due diligence inquiry about the purchase of a large Australian retail chain. The price points (and value and price they might pay, and the rents and valuations and the sustainability of same) are currently being held up by business momentum and historical figures. With high unsustainable minimum wages and rent currently being covered as a necessity to remain viable and underpinning same, I conveyed this to the prospective purchaser's consultants. Regrettably the message to the detriment of the Shopping Centre Industry is getting out via this Webpage. And so is the Intellectual Property behind it, with logic and reasoning. This also significantly clashes with the intent of IAS 138 (see below) in that all stakeholders ought to be fully informed, whether rental income streams are at "real value" or "paper value";


• It is understood that there are moves on the eastern seaboard to improve legislation;


• Ambiguous legislation saw the Queensland Judiciary ruling in favour of ratchet clauses in leases – see Connor Hunter. Ratchet clauses do not enable one to test the market i.e. upwards or downwards eg. a hi or low performing site with performance levels differing by a factor of 5 or 6 (or more) can be unfair to landlords and tenant interests;


• New legislation will see the full intent of the law (which the Judges should of and did not add to the efficacy of the legislation) brought back retrospectively and that is to make it clear that ratchet clauses for retail leases are and were never intended from 1994;


• What escapes the Judiciary is that high face rents more often than not lead to: vacancies; inflated valuations; directors breaching fiduciary obligations; financiers writing off mortgages, eg. Bank of Queensland writing off $85 million in 2011; supply led development, etc;


• While most Judges do not step into an “experts” arena there are some who believe that they might be adding value, when in fact they could be interfering in the market. Would those involved explain how and why a business whose demographic location is protected and turns over six times the level of the lowest, should pay an “average” (lower) rent and vice versa?


• Likewise, would the same Judges like to put their superannuation into a property investment, in a low performing centre in a poorer demographic area, where the business is paying an “average” rent? The “engineered value” could see the value of their investment halved - see Gosford Town Centre below i.e. not following International Valuation Council guidelines;


• Sales are just one variable/permutation. What will the trends be during the lease term? There are physical aspects of a shop (size, frontage, and frontage/depth, location, permitted use factors).  The capable competent expert valuer/rental determiner must consider margins impacted on by direct competition, socio economic factors, and possible permitted use limitations/advantages. Likewise sales, margins, operating expenses (labour) and set-up costs change enormously even within seemingly similar uses i.e. food court fish versus Asian takeaway. What about popular branded uses versus non-branded businesses/permitted uses, the impact of franchise fees, etc.? Is the lease term three years or 3 + 3 years, or 3 + 3 + 3 years, or 5 + 5 + 5 years? Are these flexible arrangements that enable the parties to “revisit” current market rent? What other negative or positive terms are there under the lease? Are there signs of new direct competition during the period ahead? A capable competent expert will weight these factors carefully on the facts and evidence available, before making his determination;


• Local and wider economic conditions must be considered i.e. availability of finance, are market conditions vibrant for the lease term ahead, or are they subdued, etc?


• Unless the expert firstly understands the impact of these (and other relevant) variables/permutations, he might not fulfil the terms of his appointment to the parties and under the relevant state tenancy law (the “reasonable” rent);


• Adjustments (where necessary) might be considered for any evidence obtained supporting the rental range one has obtained for reasons the expert might consider reasonable;


• It can be seen that evaluating/determining current market rent without considering the above variables/permutations based on a rent per square metre basis (‘$/M2’) alone is extremely naïve i.e. akin to “a stab in the dark”; indeed it is too remote on its own without weighing up the material and making adjustments if appropriate for a shop vacant and available for lease;


• It appears that to widen transparency that all leases will be registered within three months of them commencing;


• There are moves to seemingly improve disclosure obligations this, in effect does little to improve disclosure. It is more bureaucratic paperwork without “forensic expert” input of the document to introduce improved behaviour and contractual obligations into leases, particularly representations relied on at the time of leasing. These should be incorporated into all leases if relied upon and become “Special Conditions” in a lease;


• According to HighBeam Research (article carried by AFR as well) Landmark White valuers are being sued for a 2006 valuation carried out on Gosford Town Centre which was valued at $55.0 million and has just sold for $11.0 million. BankWest is the Plaintiff. This tends to support research that I have done in that valuers accept retail rental evidence at “face value” and do not “test” the veracity of it. Risk on income streams is not adequately measured and tested. Buyers of commercial property must do appropriate due diligence;


• Major property interests continue to avoid court decisions i.e. future precedent, conciliation conferences push through “settlements” not based on economic or commercial loss. Outcomes are reached under duress, with experts being sidelined at supposed conclaves of experts. These conclaves are not based on commercial principles; this is simply a process to make each dispute go away – see below. Is this a fair and just society that Australia and Australians portray to outsiders?


• To bolster reported turnover figures, to show gross rents to be a lower percentage of turnover, Urbis reports (who correctly qualify their reports and reporting) include: GST (general sales tax a tax, it is not sales); gross turnover levels versus “net commissions” eg. Bus tickets sold by newsagents attract around 2% commission. Shopping centre interests are now calling for 100% to be reported as “sales” or “turnover”, whereas in the past only net commissions were reported. Could this be considered misrepresentation?


• In Western Australia the WA Government are seeking advice to make a decision on making lease registers of lease rental data available in Public Domain as in NSW and Queensland. The Shopping Centre Council I am advised are supporting same;


• The Shopping Centre Council are seeking to extend Sunday Trade in WA. The business model (see Attachment 1 in South Australia in 1994) is then to generate profits from associated development companies. It is questionable whether this supply driven "model" versus a demand driven "model" in a climate of constrained spending is in all stakeholders interests, including that consumers are choosing the internet to purchase goods and services; I am aware that "flag-ship" centres in Brisbane and Adelaide are struggling; Are these malls the dinosaurs of tomorrows distribution of goods and services;


• It is noted that 65% + of the electricity is used to air condition enclosed malls. One must question whether: the duplication and triplication of supply driven space is environmentally friendly (drags custom from smaller centres; better distribution; fewer vehicle trips versus fewer bigger centres); whether subsequent cooling (or heating) of same are sound decisions for the environment; and thirdly ask to what extent bigger malls in Queensland, NSW, SA, Victoria, N Territory have resulted in bigger power stations or increased demand on the grids? And by how much?


• I have monitored this behaviour of what in my opinion is a flawed shopping centre model for many years. I have formed opinions for articles and professional papers written here and overseas. Attachments 2 to 5 show that little has changed (see Attachments 2, 3, 4, 5 ; since subsequent papers published), eg: failure to manage tenancy mix (1994); loss of derogation of grant (1994); News Corp were informed to stop writing on the topic or a major A-REIT would not advertise with them (1994); possible conflicts of interest with directorships and independent reporting with large media organisations; business operators with significant introduced competition being informed they are not good traders (it should have been ascertained at the time of leasing if as alleged is true 1994); the Inside Retailing online Blog which was then the only avenue to discuss leases, leasing, rents and rental disputes was stopped presumably by certain advertisers (2007/08);


• Read “Rental determinations and arbitration: a micro solution to a macro problem” and other papers about other behavioural issues in the industry;


• Conclaves are failing to use experts or their reports or, more particularly, their calculations to award damages based on sound financial calculations from business records.  As a result, the Queensland Tribunal has rarely, if ever, awarded damages of over $60,000;


• Major A-REIT interests have, and continue to fund cases for landlord interests where it is likely to produce legal precedent to the perceived detriment of the landlord (noting commentary that it is general behaviour by the industry itself that has caused massive losses to shareholder value).

To meet international obligations for reporting purposes, all lease agreements will have to be “valued” on a businesses balance sheet IAS 138 valuation of Intangible Assets. Leases that offer security of tenure at current market value, which gives a business the chance to “brand” itself, build custom and repeat custom become “assets”. Short-term leases, i.e. 5-years where rents are well over current market rent are liabilities. Landlords with will also have to show their portfolios of leases on balance sheets. This could add or significantly detract from the market value of the assets in question to the detriment of the stakeholders. 

It has come to my attention that REITS (Real Estate Investment Trusts) have sought representation to opt out having to comply with obligations in regard to making adjustments for leases on balance sheets under IAS 38 (AASB 138). Seeking to opt out of this disclosure obligation says one thing from this investment sector: expect more of the same to the detriment of the stakeholders, particularly retail in Australia. More boom bust; limited regard for current market rent.

Ongoing failure by courts, tribunals and regulators to send a firm message to the industry in regards to reasonable behaviour. This has harmed Landlords’ and Tenants’ investments (and, of course, other stakeholders) - see economic modelling in the attachments of above paper and recent articles in the press outlining the A-REIT sector, including short to medium term prospects.