Outgoings in commercial leases

May 30, 2024

With rent and the cost of living increasing it is now more important than ever that the parties to a commercial lease understand who pays for the outgoings.

Outgoings are a critical factor when negotiating and entering into a new lease. Often a tenant will need to pay outgoings (and usual services like power and telephone) on top of rent and the cost may be significant depending on the type of premises.

It is critical for both a landlord and a tenant to know exactly what outgoings affect the premises and who must pay what.

What are outgoings?

Outgoings are expenses incurred by the landlord in the operation, maintenance or repair of leased premises and can include:

• Council rates and water usage;
• Land tax;
• Landlord’s building insurance;
• Body corporate levies (if the premises are located in a community title scheme);
• Building/centre management fees which could include cleaning, garbage collection, security services and fire protection equipment; and
• Advertising and promotional costs (if the premises are located in a shopping centre).

If premises fall within the definition of a retail shop, under the retail shop legislation there are some outgoings a landlord is prohibited from passing on to the tenant. Some restrictions are consistent across states. However, some can vary, for example in NSW landlords may recover land tax on a single-holding basis but in Queensland, land tax is not recoverable at all.

What outgoings a tenant pays are negotiable (except those prohibited by law) and are outlined in the lease agreement (and disclosure statement for a retail shop lease).

How are outgoings calculated?

If a tenant occupies an entire property, they usually pay the full outgoings amount.

If there is more than one lease within a particular property, the outgoings are generally apportioned on the basis of the lettable area that the premises bears to the total area of the property.

However, this is not determined by law, and the lease itself establishes how outgoings will be apportioned.

What should you do before entering into a lease?

As a landlord you must ensure all outgoings you wish to collect from the tenant are clearly and specifically disclosed in the lease (and disclosure statement where relevant). Failure to do this could result in time-consuming and costly disputes between yourself and the tenant and may prevent you from recovering your expenses relating to the premises.

As a tenant, you should make sure you read and understand the lease (and disclosure statement where relevant). These documents will record what outgoings you must pay. Make sure you are certain which outgoings you are liable for, in what proportion and when you must make the payments. If your lease is one of several for a particular building, you should be satisfied that outgoings are fairly apportioned in the lease.

If you would like more information about outgoings in your commercial or retail shop lease contact our Property Team.