Retail lease outgoings: what are your responsibilities?

If you are involved in a retail lease, you are likely familiar with the term 'outgoings'. But what exactly are outgoings and which outgoings are you able to pass on to the tenant of your retail premises?

Section 3 of the Retail Leases Act 2003 (VIC) defines outgoings and can include:

• expenses to operate, maintain or repair the building; and
• the landlord’s payments towards rates, taxes, levies, premiums or charges as owner or occupier of the building or land.

Essentially, outgoings are costs which relate to the premises, such as council rates, electricity, insurance or owner's corporation fees. In a multi-occupancy property, such as a shopping centre, the outgoings relate to the premises leased. The legislation in Victoria dictates which outgoings the landlord of a retail lease can pass on to a tenant and which are strictly the landlord's responsibility.

While it largely depends upon the wording of the lease, the Act prohibits the following costs being passed onto the tenant to pay:

• payments towards sinking funds for capital works (e.g. payment towards a special levy to fix structural problems in the building)
• expenses that provide no benefit to the tenant’s premises (e.g. garden maintenance where there is a common garden, but the tenant's premises does not have access to it)

However, before you can pass on the outgoing costs, you need to warn the tenant. Prior to entering into a lease, you must always give the tenant a Disclosure Statement, which outlines the approximate costs they may need to pay annually, on top of their rent. A word of warning: if you do not disclose, the tenant may not have to pay. We often see landlords brush over these details or not consider the document seriously. While it can be difficult to estimate how much electricity the tenant may pay annually (especially when it is dependent upon their use), it is crucial landlords try and provide a reasonable estimate for all outgoings payable by the tenant.

For assistance with all matters regarding retail leases, contact OFRM business lawyer Siobhan Liston on 03 5445 1067.