Outgoings are one of the key concerns for tenants when entering a retail lease. Most of the time, you need to pay outgoings on top of rent and you may face a significant cost depending on the type of premises you have. As a retail tenant, you benefit from being strictly regulated under state-based legislation. This article will break down:
- how you will be charged outgoings;
- when tenants are responsible for paying; and
- what could form part of outgoings.
What Are Outgoings?
Outgoings are the landlord’s costs and expenses for the building and the land that your premises is located on. While each piece of retail legislation has its own specific definition, outgoings will normally include:
- rates, taxes and levies payable by the landlord; and
- the landlord’s costs and expenses in relation to the management operation maintenance or repair of the building or land.
Most retail legislation will specify what a landlord can or cannot charge you as part of outgoings. Some restrictions are consistent across states.
However, some restrictions vary significantly. In New South Wales (NSW), landlords may recover land tax on a single-holding basis. However, in Victoria and Queensland, land tax is not recoverable at all. Restrictions differ between each state or territory. Therefore, it is important to carefully check the limitations applicable to you before entering your lease.
You will also find that, in addition to outgoings, you also have an obligation to pay charges for utilities or services. These refer to charges that are provided directly and service the premises. These charges can include:
- water;
- electricity; and
- phone charges.
They are separate and you must pay them on top of outgoings.
Tenant’s Liability for Outgoings
Legislation regulates your legal responsibility for paying outgoings for a retail leases. In NSW, if a landlord does not provide an estimate of outgoings in its disclosure statement, you do not have to pay any outgoings that are not disclosed. However, there are exceptions to this, including:
- tax;
- rates; and
- levies.
Similarly, across all states and territories, you only have to pay outgoings to the landlord if the lease has specified:
- the outgoings that are to be recoverable; and
- how outgoings will be determined or calculated.
How Are Outgoings Determined And Recovered?
In general, outgoings are determined by calculating the net lettable area (NLA) of the premises that you are leasing in proportion to the total NLA of the building or land that the premises is situated in. If you are leasing the whole property, then you will be paying 100% of outgoings.
For most states and territories, the laws relating to retail leases require the landlord to provide an estimate of outgoings before each accounting period. Usually, the landlord will provide an estimate of one month’s outgoings. This will determine what your contribution will be. Along with your rent, you must then pay outgoings on a monthly basis.
You can expect your landlord to give you an audited statement of actual outgoings within a certain time frame after the end of each accounting period. This timeframe is usually for three months. This is so your contribution to outgoings is accurate. Your landlord will make any adjustments for underpayment or overpayment afterwards.
There may be times where a landlord fails to provide a written estimate or an audited statement of outgoings. If this is the case, issues may arise for the landlord. In NSW, if the landlord fails to give a written estimate of outgoings for ten business days, you may withhold payment for outgoings until this has been provided. Similarly, in VIC, you are not required to pay their contribution to outgoings until the landlord’s estimate has been provided.
Strata Leases
If your premises is part of a strata property, your outgoings will likely be higher and may include additional items.
However, some strata leases may also include additional items as part of outgoings, such as:
- special levies; and
- contributions to the capital works fund (also known as sinking funds).
Special levies are generally one-off amounts which are required when the body corporate does not have enough funds to pay for an expense.
Similarly, capital works fund refers to a fund used for major capital costs for the building. Most of the law relating to retail will control and maintain contributions towards these funds.
Generally, contributions to such funds should be excluded as the funds are usually a long term investment for the body corporate and as a retail tenant. It is unlikely that you will see the benefit of what the funds will be used towards.
Key Takeaways
Outgoings can be a significant cost to a tenant of a retail lease. Therefore, it is important that you understand your legal rights when it comes to paying outgoings under the relevant retail law of your State or Territory. If you have any questions regarding outgoings in your retail lease, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
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