A business leasing premises should be aware of the payments they need to make to the lessor. Not only does a lessee need to pay rent but they may be required to make additional payments termed as outgoings. Payment of outgoings is quite common in leases. It is important to note what the term “outgoings” covers and how a lessee can determine the amount to pay on top of their rent.
What are outgoings?
Outgoings is the term used to describe the lessor’s costs for the land and building in the premises you occupy. Common outgoings include:
• local government authority rates;
• utility services (e.g. electricity, water and gas);
• taxes and levies (e.g. body corporate and fire and emergency services); and
• services used to manage and upkeep maintenance on the building (e.g. cleaning, rubbish disposal and gardening services).
There are some expenses that a lessor cannot pass off to a lessee to pay. The expenses that are not allowed to be considered as outgoings include:
• land tax;
• expenditure of a capital nature (e.g. adding a lift to the premises);
• contributions to a sinking fund;
• insurance premiums for loss of profits;
• payment of an excess in relation to a claim on the lessor’s insurance policy for the premises;
• lessor’s contributions to merchants’ associations and centre promotion funds; and
• interest payments on monies borrowed by lessor.
The legislation that provides guidance on payment of outgoings for retail leases is the Retail Shop Leases Act 1994 (Qld) (RSLA). The RSLA regulates which outgoings are recoverable by the lessor, and the amount of outgoings the lessee must pay.
Lessor Disclosure of Outgoings
If the lessee is required to pay outgoings on their leased premises, then the lessor must disclose this to the lessee. Not only must the payment of outgoings be covered in the lease but for retail leases but lessors are required to also disclose the total amount of outgoings for the leased premises. A breakdown of what the outgoing services are and the apportionment of outgoings the lessee must pay must be stated in a RSLA Form 7 Lessor Disclosure Statement. The lease must also specify:
• what expenses are included in the lease’s definition of outgoings;
• how the outgoings will be apportioned between the lessor and lessee; and
• how the lessee must reimburse the outgoings to the lessor.
Calculation of Outgoings
As a lessee should not be required to pay outgoings on areas they are not able to access or use, outgoings are generally calculated by determining the proportion of lessee’s premises against the total lettable area of the premises. For example, if the lessee’s premises covers 25% of the total building complex, then the lessee can only be required to pay 25% of the total outgoings. A copy of the survey plan should confirm the total lettable area for the entire premises. Reviewing the survey plan will allow a lessee to confirm how much space their leased premises is taking up of the total lettable area. This will also assist the lessee to confirm if the apportionment of outgoings by the lessor is reasonable.
How must outgoings be paid?
The RSLA requires the lessor give the lessee an estimate of the outgoings that are payable over the premises. The benefit of providing the lessee an estimate is for the lessee to understand the expenses they are expected to reimburse the lessor for. It also ensures the lessee is not paying an outgoing that is prohibited under the RSLA or not already disclosed to the lessee in the lease or lessor disclosure statement.
The lessor must provide the lessee with an estimate of at least one month’s outgoings that the lessee must pay over the term of their lease. If the lessor fails to provide the lessee with an estimate of outgoings, then the lessee can withhold paying rent until they receive the outgoings estimate.
The Form 7 Lessor Disclosure Statement that is provided to Lessee states the following:
• an estimate of the total outgoings for the entire premises for 12 months;
• a formula for how the lessee’s share of outgoings is calculated; and
• the amount the lessee must pay for outgoings.
Outgoings are typically paid at the same time rental payments are due. The lease terms will state when rent must be paid by (e.g. on a monthly basis) and the outgoings payment will typically be due to the lessor at the same time.
Takeaways
If you are looking to enter into a retail or commercial lease, you should be aware that the law allows for lessors to charge you for expenses relating to maintaining and repairing the building. These expenses, known as outgoings, are paid in addition to your rent and it is important to know what expenses the lessor is and is not allowed to be reimbursed by you for.
If you have any questions or require assistance with drafting, reviewing or renewing your lease in Queensland, please contact the property team at NB Lawyers for more information.
Written By:
Kayleigh Swift, Director
NB Property Law
[email protected]
(07) 3876 5111
Kayleigh Swift is a Director of our Property team who showcases her expertise in Commercial and Residential property matters.. With a high level of experience in commercial and retail leasing, voluntary and involuntary purchase and sale acquisitions and property development matters, Kayleigh provides practical advice to ensure smooth property transactions.