Outgoings and Retail Leases
Often a tenant will have to pay other expenses on top of the rent. These additional expenses are called outgoings. The amount payable for outgoings will vary depending on the type of premises that the tenant occupies. Sometimes they can be substantial.
In this article, we are looking at outgoings payable under a retail lease.
What is a retail lease?
The name is a bit misleading. A Retail Lease is a lease for premises that are predominately used for the sale or hire of retail goods or for the provision of retail services. If you think about it this covers most leases.
In Victoria, retail leases are governed by the Retail Leases Act 2003 (Vic).
In this article we look at:
- What are outgoings, and what may be included as an outgoing?
- What are the disclosure obligations of landlords regarding outgoings?
Outgoings and Other Costs: A Brief Overview
What are Outgoings?
Outgoings are costs and expenses (separate to rent) that relate to the building and land where the leased premises are located.
Section 3 of the Retail Leases Act states that outgoings can include:
- Expenses related to the operation, repair or maintenance of the building/shopping centre; and
- Rates, taxes, levies, premiums or charges that are payable by the landlord.
However, certain outgoings cannot be charged to tenants. This includes:
- Land tax;
- Expenses that will not improve the premises;
- Capital costs; and
- Legal expenses which relate to the preparation and execution of the lease.
Before entering a Retail Lease, the landlord must give the tenant a Disclosure Statement. One of the matters covered in a Disclosure Statement is an estimate of outgoings.
Costs of Services and Utilities
Additionally, tenants will generally have to pay for the utilities and services that they use. This is separate from outgoings, and typically would include the costs of:
- Phone charges; and
These expenses are not outgoings. They are generally organised and paid for by the tenant in addition to outgoings.
Obligations of Landlords
At least seven days before entering a retail lease, landlords must provide tenants with a disclosure statement. As mentioned above this document will include an estimate of all the outgoings that the tenant is responsible for paying. If this estimate has not been provided or is wrong, then a tenant may not have to pay for outgoings.
Tenants may not have to pay outgoings to the landlord if the lease has not specified:
- What outgoings are payable;
- How these outgoings are determined; and
- How these outgoings can be paid to the landlord.
How Are Outgoings Calculated?
Generally, the tenant pays all outgoings with a standalone building. Where the premises are part of a complex outgoings are normally calculated by the percentage area of the total building that the premises occupy.
Landlords are typically required to provide tenants with an annual estimate of outgoings at least one month before each accounting period. Landlords are also required to provide you with an outgoings statement that outlines the actual outgoings for a period and the amount the tenant paid. This way, any underpayment or overpayment will be adjusted for the next period.
- On top of rent, there are several other expenses a tenant will have to pay.
- Tenants only have to pay for outgoings that have been disclosed.
- The costs of outgoings can vary depending on the premises that have been rented.
If you have any questions regarding outgoings in your retail lease or require a specialist lease lawyer please contact Lord Commercial Lawyers on 9600 0162, email us at email@example.com or fill out the form on this page.
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