Outgoings in a commercial lease explained

Outgoings in a commercial lease are the landlord’s costs of owning and running the property that the tenant pays in addition to the rent. They usually include council and water rates, insurance, building management, cleaning and repairs, and sometimes land tax. What you pay depends on how the lease defines outgoings and how your share is worked out.

What outgoings usually include

Common outgoings are:

• council rates and water and sewerage charges
• land tax (unless your state’s retail leases Act stops it being passed on)
• building insurance
• building management and strata levies
• cleaning, security and waste removal for the common areas
• repairs and maintenance of the building and its services
• air conditioning, lift and fire services maintenance
• common area electricity and gardening

Your own electricity, gas and internet are usually separate. You pay those direct to the supplier.

Gross, semi-gross and net leases

How outgoings are charged depends on the type of lease.

Even in a gross lease, check whether the rent can go up when outgoings increase. Some gross leases pass increases on through the rent review.

How your share is worked out

Most leases split outgoings by floor area. If your premises are 200 square metres in a 2,000 square metre building, your share is usually 10%.

Check:

• that the percentage in the lease matches the actual areas
• whether vacant premises are counted, or whether the remaining tenants pay for them
• whether some costs only apply to part of the building, such as a lift you don’t use

Estimates and annual statements

Most leases work on estimates. The landlord gives you an estimate for the year and you pay it monthly with the rent. After the year ends, the landlord gives you a statement of the actual costs, and the difference is paid or credited.

In a retail lease, the state’s Act usually requires the landlord to give you an estimate before the lease starts and each year, and an annual statement, often audited. A general commercial lease may say nothing about this, so ask for it to be added.

Not sure what you’re agreeing to pay? We check the outgoings clause as part of our lease review and tell you what to ask for. Have your lease reviewed.

What to check before you sign

• The definition. It should list the costs you pay. Avoid catch-alls like “any other costs the landlord incurs”.
• Capital costs. Replacing the roof, lifts or air conditioning plant is a capital cost. Tenants usually ask for capital costs to be excluded from outgoings.
• Land tax. Check whether it is recoverable, and if so, whether it is charged on a single holding basis, as if the property were the landlord’s only land. That can be much higher than the landlord’s actual bill.
• Management fees. Check whether the landlord’s own management fee is charged, and how much.
• Sinking funds. Some leases include contributions to a fund for future works. Ask what happens to your contributions when you leave.
• Your right to see the accounts. You should be able to ask for invoices and query the statement.

See red flags in a commercial lease for other clauses to watch.

Retail leases are different

If your premises are retail, your state’s retail leases Act changes the rules on outgoings. Depending on the state, it may:

• stop the landlord passing on land tax
• stop the landlord passing on its own management fees or capital costs
• require an outgoings estimate in the disclosure statement
• require an annual audited statement within a set time
• let you withhold outgoings if the landlord doesn’t follow the rules

The rules are different in each state. If you are not sure whether your lease is retail, see commercial lease vs retail lease.