Outgoings under commercial leases: who pays what?

Often prospective tenants believe that the only cost they will have to pay under a lease is rent, however this is rarely the case.

Under a commercial lease, landlords commonly pass on other costs to tenants. With premises costs being one of the biggest expenses incurred by businesses, it is extremely important to be aware that you may be required to pay more than just the rent.

Outgoings are the expenses associated with the operation, maintenance or repair of the leased premises and can include utilities, council and water rates, body corporate fees and insurance. Often tenants of retail/commercial premises pay outgoings, however they can be negotiated with the landlord.

Legislation limits what costs landlords can pass onto tenants and specifically prohibits landlords from recovering certain costs such as land tax, rent payable by the landlord in respect to any head lease, interest on a landlord’s borrowings and costs associated with the preparation of the lease (for example, expenses relating to the negotiation or execution of the lease).

Landlords need to be aware that legislation requires them to provide certain information to tenants regarding outgoings including a Disclosure Statement which contains estimates of outgoings to tenants prior to entering into a lease as any outgoings not explicitly stated in this document cannot be passed onto tenants. Failure to comply with the legislative requirements can result in the tenant avoiding payment of outgoings and even rent.

Whether you are a landlord or tenant you should be discussing with us how outgoings and other expenses should be covered in your lease.