It is not uncommon for businesses to lease a commercial building under strata title. Strata means ‘to layer’ and, in the property world, this means that a building, often with lots of levels, is split into different ‘lots’. A strata building could be a block of units or a retail shopping space. While different owners will own individual lots, there will also be common property, such as fences, stairs or a foyer that owners share. Choosing to rent a premise that is part of a strata scheme means that you may have to pay body corporate fees. This article explains whether your landlord can charge these fees as an outgoing.

What Are Body Corporate Fees?

Firstly, an owners corporation is the legal entity created upon registration of a strata plan. The owners in the strata scheme contribute to the maintenance of common property by paying levies or a body corporate fee.

The owners corporation is responsible for managing common property and will have two funds. The levies for these funds are decided annually at the Owners Corporation Annual General Meeting and include the:

  1. administrative fund: This is for day to day management expenses such as a cleaner or gardener; and
  2. capital works fund or ‘sinking fund’: This is for major work to common property, such as renovations.

Can Your Landlord Pass On the Body Corporate Fees to You?

Your landlord may charge you body corporate fees as an outgoing in certain circumstances. An outgoing is a reimbursement to the landlord for the costs associated with running the property. These can include:

  • electricity and rates;
  • insurance premiums; and
  • body corporate fees.

Retail Leases

Retail leases are governed by your state or territory’s retail leasing legislation. Under these laws, landlords are required to provide you with a disclosure statement. A disclosure statement is a summary of the commercial terms of your retail lease. It sets out the financial obligations of the lease including rent, review methods and whether there are any body corporate fees that you have to pay. You should carefully examine both the disclosure statement and lease to understand what body corporate fees you are responsible for.

The landlord can pass on the body corporate fees associated with the administration of the building, however, under retail leasing legislation, there are limitations on passing on the capital works or sinking fund fees to you. The sinking fund levy is a reserve fund for repairs and future capital works of a building.

State and Territory Laws

Below, we outline the requirements under retail leasing legislation in each state or territory.

State or Territory Laws

The landlord cannot recover their contribution to a depreciation or sinking fund from you as a tenant.

However, you may be asked to pay ‘maintenance amounts’. This cannot exceed 5% of the landlord’s outgoings for the year and you do not have to keep paying maintenance amounts if the fund is in credit of more than $100,000.

Victoria The landlord cannot pass on sinking fund levies to you.
Tasmania The landlord cannot recover any contribution to a sinking fund from you.
South Australia You may be liable to contribute to a sinking fund.
New South Wales You may be liable to contribute to a sinking fund, however this is limited to 5% of the landlord’s outgoings for a year. You do not have to continue making contributions if the fund is in credit of more than $250,000.
Australian Capital Territory You can only be responsible for ‘recoverable outgoings’. This is limited to reasonable expenses directly related to the operation, repair or maintenance of the premises.
Western Australia You do not have to pay any costs associated with the construction of a shopping centre, any extension of the centre or structural improvement to the centre.
Northern Territory The landlord cannot require you to contribute to a sinking fund for capital works.

Commercial Leases

Finally, non-retail leases do not explicitly exclude sinking funds. For this reason, it is important to review your lease thoroughly to understand what expenses you may need to pay.

You should consider negotiating a cap on the amount you have to contribute to the sinking fund. Capping it at a certain percentage will protect you from any increases and mean that the landlord will need to fund the difference.

Key Takeaways

Landlords may pass on body corporate fees to you as an outgoing in certain circumstances. You should carefully review your lease and disclosure statement before entering into any leasing agreement.

If you are entering into a retail lease, be aware that your state or territory’s retail leasing legislation governs your rights. Your landlord may not be able to pass on any capital works or sinking fund levies, depending on where you live. If you would like assistance reviewing your lease or determining whether you need to pay body corporate fees, get in touch with LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

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