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How to manage Outgoings in commercial and retail Lease Agreements

When considering the issue of outgoings, Landlords

  • may charge separate outgoings to the tenant as they arise, or
  • add an outgoings component onto the base rent amount.

Retail Property

If you are leasing retail premises, you will need to be aware of the regulations contained in the state based retail tenancy legislation pertaining to outgoings.  In order to avoid the stringent rules relating to accounting and reporting of outgoings, some landlords prefer to add an outgoings amount onto the base rent figure.  Be aware though, that in doing so, you may risk not being able to recoup the full cost of outgoings if they are higher than anticipated.

Commercial Property

Landlords of commercial property (factories, warehouses, and other leases that are not retail leases) are not subject to the outgoings regulations contained in the retail tenancies legislation.  As long as the right to charge for outgoings, and how, is clearly documented in the lease, it is a relatively straightforward process to charge the tenant for specified outgoings as they arise.  For example, a clause could require the tenant to pay outgoings to the landlord within 14 days of the landlord providing an assessment notice, or account, to the tenant.  All outgoings to be paid by the tenant that are reasonably foreseeable, should be specified in the Lease.

Proper Proportion

Outgoings are proportional to the area leased by the tenant
Outgoings are proportional to the area leased by the tenant and only for the outgoings used or enjoyed by the tenant.

A tenant should only be charged its proper proportion – that is, the percentage of the outgoing that is equivalent to the percentage which the lettable area of the tenant’s premises bears to the total lettable area of all the premises which enjoy or share the benefit of the outgoing. 

Put simply - A landlord may only charge for those outgoings that a tenant gets a benefit from and only in proportion to the tenants leased area.

For example - if there are 5 premises in a block, for example, which all receive the benefit of an outgoing, and the tenant’s premises represents 20% of the overall lettable area, then the tenant’s proportion to be paid towards that outgoing cost would be 20%.

If the tenant leases the whole of the area to which the outgoing relates, then it would be responsible for 100% of the cost of the outgoing.

If you are a landlord and you are intending to charge your tenant outgoings, make sure that your right to charge outgoings is adequately documented in your Lease.

Resources and related information:

Retail Lease Kit

Commercial Lease Kit

 

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