What Expenses Does a Retail Lease Tenant Pay in Victoria?

Retail leasing legislation differs between each state and territory in Australia. As a result, the outgoings and operating expenses that a landlord can request from their tenant varies. Below, we focus on the rights and obligations of landlords and tenants in Victoria under the Retail Leases Act 2003 (VIC) (the Act).

Is it a Retail Lease?

Premises are either a retail or commercial property. The Act does not cover commercial properties, meaning that the tenant only has rights under the lease and common law (not the Act). The Act will apply if the premises is a retail property. Generally, if you are using the premises to sell goods or services, it’s a retail lease. This definition will differ state to state.

What Can Be Considered Outgoings?

Section 3 of the Act defines outgoings and can include:

• expenses to operate, maintain or repair the building; and
• the landlord’s payments towards rates, taxes, levies, premiums or charges as owner or occupier of the building or land.

What Does a Tenant Need to Know About Outgoings?

Tenants should remember the following about outgoings.

Contractual Obligations

A tenant’s responsibility to pay outgoings will largely depend on the lease. The lease should set out:

• a definition of outgoings; and
• what costs are included when calculating the amount.

Estimates

The landlord has an obligation to provide the tenant with an estimate of outgoings before the tenant enters into the lease. This ensures transparency about the total payments required under the lease.

The tenant may not be required to pay the outgoings if the landlord doesn’t provide an outgoings’ estimate. The landlord is also required to provide the tenant with a disclosure document before they enter into the lease, which usually sets out the initial estimate.

Adjustments

The landlord and tenant should consider adjustments that may arise from overpayments or underpayments of outgoings. This means if the landlord’s outgoings costs were more than the estimate, the tenant might need to make additional payments. But if the landlord’s estimate was significantly inaccurate, the tenant can argue that the amount disclosed was not an estimate, or that the estimate ‘misled’ the tenant. If this situation arises, it’s best to seek further legal advice.

Reporting

The landlord has an obligation to comply with reporting requirements under the Act. This includes providing the tenant details of the outgoings expenditure at least once during each accounting period of the lease. The report must also attach:

• an auditor’s report or copies of assessments; and
• invoices or proof of payment.

What Expenses Can’t Be Claimed as Outgoings?

Although outgoings largely depend on what the lease sets out, a landlord cannot claim certain expenses under the lease, including:

• expenses that provide no benefit to the tenant’s premises (e.g. garden maintenance where the premises does not have access to common property areas);
• payments towards sinking funds for capital works (e.g., payment towards a special levy to fix structural problems in the building); and
• management fees that are not related to the management of the building where the premises are located.

Carefully reviewing the definition of outgoings in the lease will assist to determine whether the landlord is trying to claim expenses that the Act doesn’t allow. Ultimately, a tenant’s obligations to pay outgoings will come down to the wording of the lease.

Key Takeaways

Reviewing the definition of outgoings in the lease will help determine whether the landlord is trying to claim expenses that the Act doesn’t permit. Understanding a tenant’s obligations to pay outgoings will ultimately come down to the wording of the lease. Tenants should review the lease and disclosure statement thoroughly before signing the lease.

If you have any questions or need any assistance reviewing your retail lease, get in touch with LegalVision’s commercial leasing team in Victoria on 1300 544 755.