How CPI Rent Reviews Work for Commercial Tenants

A standard commercial lease in Australia is typically signed for a multi-year term, usually three, five, or ten years. To ensure that the rental income preserves its purchasing power against general price inflation, landlords incorporate an annual rent review mechanism. The most common method used is the Consumer Price Index (CPI) review.

Understanding CPI Index Numbers

The CPI is a measure of inflation compiled quarterly by the Australian Bureau of Statistics (ABS). Instead of looking at simple percentages published in the news, commercial lease reviews must use the official quarterly ABS CPI Index Numbers (specifically the All Groups index for your respective capital city, such as Sydney, Melbourne, Brisbane, or Adelaide).

To perform a CPI rent review, you must compare the CPI index number from the quarter ending immediately before the review date with the index number from the same quarter in the previous year.

The CPI Rent Review Formula

The mathematical formula for calculating a CPI rent adjustment is standardized across the Australian commercial property industry:

Worked Example Calculation

Let us assume a commercial tenant has a base annual rent of $80,000. The lease stipulates a CPI rent review on 1 July 2026 using the Sydney All Groups index for the March quarter.

• March Quarter 2025 CPI Index Number (Previous): 132.4
• March Quarter 2026 CPI Index Number (Current): 137.2

Using the formula:
New Rent = $80,000 × (137.2 / 132.4)
New Rent = $80,000 × 1.03625
New Rent = $82,900.30 per year

The rent has increased by 3.63%, resulting in an additional $2,900.30 in annual lease liabilities for the upcoming lease year.

The Ratchet Clause Trap

One of the most important clauses commercial tenants must look out for is a ratchet clause. A ratchet clause states that the rent cannot decrease under any review circumstances. This means that if Australia experiences deflation or negative CPI movements in a particular quarter, your rent will remain exactly the same as the previous year rather than decreasing.

While ratchet clauses are completely illegal under retail tenancy laws in states like Victoria, New South Wales, and Queensland, they are fully legal and widely enforced in general industrial warehouse and commercial office leases.