In Short
- Know Your Outgoings – Outgoings are the landlord’s building-related costs, which tenants may need to pay. These can include rates, taxes, security, and maintenance.
- Check Your Lease – Your lease should clearly state the proportion of outgoings you must pay. Ensure the calculations are correct.
- Dispute Overcharges – If you think you are overpaying, request an itemised statement, compare it with your lease, and ask for a survey plan if needed.
Tips for Businesses
Understanding your lease is crucial to avoid overpaying for outgoings. Always check what costs are included and ensure they align with your lease agreement. If charges seem too high, ask for an itemised statement and compare it with previous estimates. Seeking legal advice can help clarify your rights and obligations.
As a tenant in a retail lease, it is essential to understand what the landlord is charging you. If you are being charged for outgoings, you should be confident that you are paying the correct amount. Various retail lease legislations implement protections for tenants related to outgoings. This article defines outgoings, outlines how they are calculated and explains what to do if you pay too much.
A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.
What Are Outgoings?
Outgoings are the landlord’s reasonable expenses associated with the entire building. They are first incurred by the landlord, who usually passes them on to the tenants in the building to recover payment and can often include:
- council rates;
- body corporate fees;
- taxes;
- security fees;
- fire protection equipment;
- waste and sewerage fees;
- cleaning of the common areas; or
- insurance premiums.
The amount and type of outgoings you must pay will depend on the property. For example, if you lease a shop within a shopping centre, you will usually have to pay a proportion of fees related to the centre, including management and security.
How Are Outgoings Calculated?
Outgoings are based on the Gross Lettable Area (GLA) of the property the tenant is leasing in proportion to the GLA of the entire property. It is vital that your lease lists the proportion or percentage of outgoings you are liable to pay for the total lettable area of the building or that it is reflected within the outgoings. This is commonly calculated or assisted by a survey plan that shows the area of the premises with respect to other tenancies within the same building or area. Otherwise, if you would like a more precise amount, you can include an outgoings estimate within the lease document.
It is standard commercial practice to determine the GLA by undertaking a survey. This is because the calculation of the GLA is not just determined by length and width. The calculation considers structures and columns that do not form part of the leasable area.
Continue reading this article below the formWhat Outgoings Can a Landlord Claim in NSW?
The general position is that the landlord cannot profit from the outgoings. They can only pass on the costs they incur and the costs that are disclosed as part of any disclosure statement provided. Further, the outgoings have to:
- be referable to the premises and building; and/or
- include areas that the tenant or its customers have the benefit of, such as common areas.
Generally, tenants should not pay for outgoings relating to areas that they do not access, use or attain a benefit from. For the tenant to be liable to pay, the lease must provide whether outgoings are recoverable and how they will be:
- calculated and apportioned to the tenant; and
- recovered by the tenant.
Excluded Outgoings in Retail Leases
| State | What is excluded in outgoings? |
|---|---|
| NSW | The following charges are excluded: • undisclosed outgoings (see below section); • capital costs; • depreciation costs; • interest or other charges incurred by the landlord on borrowings; • costs associated with unrelated land. The following charges are limited: • land tax: land tax can only be charged on the basis that the land is the only land owned by the landlord and what is commonly called on a ‘single holding’ basis; and • sinking funds: if the lease provides for contributions to a sinking fund, the landlord must comply with the Retail Leases Act. They can only recover the costs of the sinking fund if the total does not exceed 5% of the total outgoings for a retail shopping centre only. |
| VIC | The following charges are excluded: • undisclosed outgoings (see below section); • capital costs of the building or plant; • depreciation costs; • contribution to a sinking fund to provide for capital works; • interest or other charges incurred by the landlord on borrowings; • costs associated with unrelated land; and • land tax. The following charges are limited: • recovery of management fees in which the retail premises are located or, if the retail premises are located in a retail shopping centre, also included in the Landlord’s Disclosure Statement. |
| QLD | The following charges are excluded: • expenditure of a capital nature, including amortisation of capital costs; • depreciation costs; Sinking fund • insurance premiums for loss of profits; • payment of an excess in relation to a claim on the landlord’s insurance for the building; • landlord contributions to merchants’ associations and centre promotion funds (however, shopping centres can charge a marketing contribution as a separate charge covered by the Act); • interest or other charges incurred by the landlord on borrowings; and • land tax. |
What if I Am Paying for Outgoings I Should Not Be?
In the case of a mistake, you may be paying the incorrect amount of outgoings. This can be due to:
- an administrative error;
- lack of formal survey; or
- wrong calculations.
If you are unsure whether you are paying the correct amount, it would be helpful to look at either:
- the most recent outgoings statement; or
- the estimate provided in the disclosure statement before you signed the lease.
Further, it would be helpful to compile a list of outgoings paid in each quarter. Review their cost to see if there has been an increase. You can consider whether they increased steadily or the original estimate was substantially incorrect.
What if I Am Paying the Wrong Proportion?
If you are unsure whether you are paying the correct proportion of outgoings, asking for a copy of the survey plan for the building is essential. If the landlord does not have one, you should request that they carry out a survey. This will give you the comfort that you are paying the correct amount.
If you are concerned about the cost of outgoings you are paying, consider requesting an:
- itemised outgoings statement; or
- tax invoice incurred by the landlord in relation to any outgoings.
This should list every outgoing that you are paying. Once you have the itemised statement, look at your lease and see which outgoings you are liable for. You can cross-check this with the outgoings charges to ensure you are paying for recoverable items.
Key Takeaways
The general position is that the landlord cannot profit from the outgoings and can only pass on costs they incur. Generally speaking, you should not be paying for outgoings that were not disclosed or are of a structural or capital nature. If you believe you are paying too much:
- request an itemised outgoings statement from your landlord to see what you are being charged for; and
- cross-check it with what outgoings you must pay under the lease.
If you would like advice on outgoings, our experienced leasing lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 1300 544 755 or visit our membership page.
Frequently Asked Questions
What are outgoings in a retail lease?
Outgoings are expenses incurred by the landlord for the maintenance and operation of a building, which are then passed on to tenants. These can include council rates, body corporate fees, security costs, fire protection, and insurance premiums.
How are outgoings calculated?
Outgoings are usually calculated based on the Gross Lettable Area (GLA) of the tenant’s leased space in proportion to the total GLA of the building. The lease should specify the proportion of outgoings the tenant is responsible for.
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