Under a standard commercial lease, the lessee typically shoulders some or all of the outgoings linked to the tenancy. These outgoings may be billed separately from the rent or included as part of the rent (commonly referred to as a “gross lease”).

The lease agreement often specifies how these outgoings are calculated and paid, which can vary from one lease to another. For retail leases, however, the Retail Shop Leases Act 1994 (Qld) (RSLA) imposes additional restrictions on how outgoings are charged to lessees.

 

What Are Outgoings?

Outgoings are the costs associated with maintaining the premises, which are usually paid upfront by the lessor and later passed on to the lessee. Common examples of outgoings include:

  • Council rates
  • Body corporate fees
  • Taxes
  • Security fees
  • Fire protection equipment
  • Waste and sewerage fees
  • Cleaning
  • Insurance premiums
  • Utilities (electricity, water, phone, internet)

 

How Are Outgoings Calculated?

Outgoings are typically calculated based on the net lettable area of the premises as a proportion of the total area of the building. These calculations also depend on whether the services or utilities are shared by the whole building or limited to specific premises.

 

Outgoings for Retail Leases

Under Section 7 of the RSLA, outgoings for retail shopping centres or leased buildings include:

  1. Reasonable expenses related to the operation, maintenance, or repair of the property.
  2. Charges, levies, premiums, rates, or taxes payable by the lessor due to property ownership.
  3. Costs outlined in Section 24A(2) of the RSLA.

 

Exclusions:

Certain costs cannot be passed to lessees, including:

  • Land tax.
  • Capital expenditure (e.g., replacing air-conditioning systems).
  • Depreciation or sinking fund contributions.
  • Insurance premiums for loss of profits.
  • Excess payment for lessor’s insurance claims.
  • Lessor’s contributions to marketing or promotion funds.
  • Interest or borrowing charges.

 

Lessee’s Liability for Outgoings

Under Section 37 of the RSLA, lessees are only liable for outgoings if the lease explicitly states:

  1. The specific types of outgoings.
  2. How these outgoings are calculated and divided.
  3. The process for recovering these costs from the lessee.

This includes costs for promotion or maintenance if defined as part of the lessor’s outgoings in the lease.

 

Apportionable Outgoings

According to Section 38 of the RSLA, the lessee’s share of apportionable outgoings must be fair and proportional. The lessee’s liability cannot exceed the ratio of their shop’s area to the total area of premises that benefit from the outgoing.

Areas like parking, ATMs, or vending machines are excluded from the total calculation unless they directly benefit the lessee.

 

Annual Estimate of Outgoings

Lessors must provide an annual estimate of apportionable outgoings at least one month before the period begins (usually by 31 May) or when the lease starts. This estimate should include a detailed breakdown of costs, ensuring no item exceeds 5% of the total, except for statutory charges or non-itemizable costs.

 

Audited Annual Statement

Under Sections 38B and 38C, lessors are required to deliver an audited annual statement within three months of the period’s end (typically by 31 August). This statement must:

  • Be prepared by a registered auditor.
  • Compare estimated vs. actual outgoings.
  • Itemize each outgoing, with a 5% cap on most items, unless exceptions apply.
  • Detail management fees for retail shopping centres.

If the lessor fails to provide the required estimates or statements, the lessee can withhold payment for apportionable outgoings until the documents are delivered.

 

Understanding the rules around outgoings is crucial for both lessors and lessees to ensure compliance with the RSLA and maintain a fair leasing arrangement.