Gouger Street Pty Ltd v Diakou Nominees Pty Ltd

Gouger Street Pty Ltd (Gouger) appealed to the Full Court of the Supreme Court of South Australia against a decision concerning a commercial lease entered into between Diakou Nominees Pty Ltd (Diakou) as lessor and Talbot Hotel Group Pty Ltd as lessee. The dispute centred on the validity and effect of rent review provisions within the lease, particularly in light of amendments to the relevant legislation. Gouger contended that the primary judge erred in finding that section 22 of the *Residential Parks (Residential Tenancies) Act 2007* (SA) (RCLA) rendered the rent review provisions in clause 4.10 of the lease entirely void, and that it did not affect the lessee's rights of renewal under clause 4.9.

The legal issues before the Full Court were whether section 22 of the RCLA operated to invalidate the entirety of clause 4.10 of the lease, and if so, what the consequences were for the rent payable under a renewed term of the lease. Specifically, the court had to determine whether section 22(4) of the RCLA applied to clause 4.10, which contained mechanisms for rent reviews that included a "which ever is greater" provision, and whether this provision prevented any decrease in rent.

The Full Court preferred Diakou's construction of sections 22(3) and 22(4) of the RCLA, finding that they addressed different forms of mischief. Section 22(3) was directed at rent review provisions involving certain mechanisms for determining adjusted rent, while section 22(4) was directed at "ratchet clauses" which prevent a decrease in rent. The court held that section 22(4) did not apply to clause 4.10 because, despite one method of calculation potentially resulting in a lower rent, the overall mechanism of clause 4.10 prevented any decrease. Therefore, clause 4.10 was not rendered void by section 22(4).

The appeal was allowed in part. The Full Court set aside the primary judge's order regarding the rent review provisions and substituted an answer stating that notwithstanding that clause 4.10 became wholly void (under section 22(3)), there was a grant of a further five-year lease on 1 September 2011 on the terms of the original lease, at the rent payable immediately prior to its expiry, with no provision for rent review.