As a tenant in a retail lease, it is important 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 legislation implements protections for tenants related to outgoings. In this article, we define outgoings, outline how they are calculated and explain what to do if you are paying too much.
What Are Outgoings?
Outgoings are the landlord’s reasonable expenses associated with the premises. They are first incurred by the landlord who usually passes them on to the tenant and can often include:
- council rates;
- body corporate fees;
- security fees;
- fire protection equipment;
- waste and sewerage fees;
- insurance premiums; or
- utilities such as electricity, water, phone and internet.
The amount and type of outgoings you have to 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 which relate to the centre, including management and security.
How Are Outgoings Calculated?
Outgoings are based on the Net Lettable Area (NLA) of the property the tenant is leasing in proportion to the NLA of the entire property. It is vital that your lease lists the proportion or percentage of outgoings you are liable to pay.
It is standard commercial practice to determine the NLA by undertaking a survey. This is because the calculation of the NLA is not just determined by length and width. The calculation takes into consideration structures and columns that do not form part of the area that is leasable.
What Outgoings Can a Landlord Claim in NSW?
The general position is that the landlord cannot gain a profit from the outgoings and can only pass on the costs they incur. Further, the outgoings have to:
- be referable to the premises and building; and
- 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 state each outgoing and how they will be:
- calculated and apportioned to the tenant; and
- recovered by the tenant.
What Should I Not Be Paying?
A tenant does not have to pay for:
- anything not stated in the disclosure statement;
- the cost of any finishes, fixtures, fittings, equipment or services (unless stated in the disclosure statement);
- capital expenditure;
- depreciation; and
- interest incurred by the landlord on borrowings.
If the disclosure statement provided an estimate of outgoings that is lower than the actual figure, you would not have to pay the difference if there was no reasonable basis for the estimate.
What if I Am Paying for Outgoings I Shouldn’t 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 useful 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 and review their cost to see if there has been an increase. You can consider whether they have increased steadily or whether 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 on the property 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 concerned about the cost of outgoings you are paying, consider requesting an itemised outgoings statement. 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 items that are recoverable.
The general position is that the landlord cannot profit from the outgoings and can only pass on costs they incur. 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 to see what you are being charged for and cross check it with what outgoings you must pay under the lease.
If you need help determining what outgoings you should be paying, call LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
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