Commercial lease outgoings are one of the most hotly negotiated aspects of commercial leasing in Australia. They can make or break the profitability of a tenancy and often act as a flash-point for disputes. Whether you’re a landlord or tenant, understanding your responsibilities for these lease-related costs is critical to avoiding disputes and protecting profitability.
This article, by our commercial leasing team, explains how outgoings are handled under Australian lease law, including retail and non-retail leases, disclosure obligations, and apportionment methods.
Key Takeaways
- Retail lease legislation in each State caps or regulates recoverable outgoings
- Clear drafting in the lease is critical because common law defaults rarely assist either party
- Full disclosure of estimated outgoings is mandatory in retail leases
- Apportionment methods (NLA, GFA, lettable vs usable area) should be specified to avoid dispute
- Audit rights and annual reconciliation create transparency and lessen the risk of overcharging
- Failure to comply with disclosure obligations can expose landlords to repayment orders and civil penalties
What Are Outgoings?
Outgoings refer to any costs associated with owning, operating, maintaining or repairing leased premises that the landlord seeks to recover from the tenant.
Common types of outgoings include:
- Council rates and water rates
- Land tax on a single holding basis (except in most retail leases)
- Building insurance premiums
- Utilities for common areas
- Cleaning, security, gardening and waste removal
- Management fees, usually capped at 3–5 % of total outgoings
- Major repairs, maintenance and – in some cases – capital works
Retail vs Non-Retail Distinction
Retail tenants receive stronger statutory protections under laws like the Retail Leases Act 1994 (NSW) and equivalent legislation in other states and territories.
Retail lease protections include:
Prohibition on recovering land tax from the tenant
Capital works, depreciation, and incentive costs cannot be passed on
A Disclosure Statement detailing estimated outgoings must be provided at least 7 days before lease commencement
Tenants may refuse to pay undisclosed or improperly disclosed outgoings
Legislative Framework Across Australia
Jurisdiction | Primary Statute | Key Limitations on Recovering Outgoings |
New South Wales | Retail Leases Act 1994 (NSW) | No land tax; must disclose estimates; audit requirements (s 29) |
Victoria | Retail Leases Act 2003 (Vic) | No land tax; essential safety measures cost allocation limits |
Queensland | Retail Shop Leases Act 1994 (Qld) | No unspecified outgoings; landlord pays mortgagee consent fees |
Western Australia | Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) | Capital expenditure recoverable only if agreed in writing |
South Australia | Retail and Commercial Leases Act 1995 (SA) | Outgoings clause void if not precisely itemised |
Tasmania | Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (Tas) | Disclosure required; limited case law |
ACT | Leases (Commercial and Retail) Act 2001 (ACT) | Prohibits land tax, lease preparation fees |
Common Law Principles
If the Lease Is Silent on Outgoings
If a lease doesn’t mention outgoings, the landlord generally bears those costs. Courts are unlikely to place an outgoings obligation on the tenant.
Ambiguity and the Contra Proferentem Rule
Lease terms are construed against the party that drafted them – usually the landlord. For example, in Caltex Refineries (Qld) Pty Ltd v Stavar, “maintenance” was held not to include a $400,000 HVAC system replacement.
Drafting and Negotiation Tips for Outgoings
For Landlords
- Attach a clear, itemised schedule of outgoings to the lease
- State the reconciliation and audit process
- Reserve rights to allow interim estimates with annual adjustment
- Include a gross-up mechanism for vacancies to ensure full recovery
For Tenants
- Insert a cap (e.g. CPI + 2 %) on recoverable outgoings
- Exclude capital expenditure unless it demonstrably reduces operating costs
- Require 14–30 days’ written notice before major works commence
- Negotiate for base-year outgoings if leasing in a multi-tenanted building
See more tips for negotiating a commercial lease in our article.
Calculation and Apportionment Methods
Different methods can be used to calculate and allocate outgoings in a commercial lease. Each approach has its pros and cons, depending on the property type and lease structure, as outlined in the table below:
Method | When Commonly Used | Pros | Cons |
Net Lettable Area (NLA) | Office and industrial | Simple math | Penalises tenants with high ceilings |
Gross Floor Area (GFA) | Retail centres | Aligns with rent calculations | Can overcharge kiosks/mezzanines |
Usage Metering | Utilities | Accurate, equitable | Installation cost |
Fixed Percentage | Anchor tenants | Predictable budgeting | Risk of under-recovery for landlord |
Disclosure and Reconciliation Obligations
Landlords must:
- Provide annual estimate within 3 months of financial year start
- Tenant pays monthly or quarterly contributions on account
- Within 3 months of year-end, provide an audited statement
- Adjust for over- or under-payment within 30 days
Landlords failing to meet these deadlines may be ordered to refund undisclosed or non-compliant outgoings (s 30 Retail Leases Act 1994 (NSW)).
Consequences of Non-Compliance
Failing to properly disclose or manage outgoings in accordance with the law or written lease can lead to:
Civil penalties of up to $11,000 (more for companies)
Court orders to refund improperly charged amounts
Lease provisions may become unenforceable
Loss of trust and reputational harm
Speak to a commercial lease lawyer today to make sure you’re compliant.
Case Study: HVAC Replacement Dispute
A landlord in Queensland sought $250,000 from a retail tenant for replacement of a 20-year-old HVAC system. The lease allowed recovery of “maintenance” costs but not “capital works”. The Queensland Civil and Administrative Tribunal held replacement constituted capital works, ordering the landlord to refund the tenant plus interest.
Key lesson: expressly distinguish maintenance from capital replacement and clarify thresholds or depreciation schedules.
Practical Checklist Before Signing a Lease
Before entering into a commercial lease, it’s essential to carefully review the terms related to outgoings to avoid unexpected costs and future disputes. Practical tips include:
- Review the outgoings schedule item by item
- Verify the apportionment methodology and vacancy gross-up rate
- Check statutory exclusions under State retail lease legislation
- Confirm audit and reconciliation timelines
- Negotiate caps, carve-outs and termination triggers for major upgrades
To get the full picture of commercial leasing negotiations, it’s also important to understand how lease incentives work and what to watch out for.
Frequently Asked Questions
What expenses can never be passed on to a retail tenant in Australia?
Capital works, land tax, and costs that were not disclosed in the initial Disclosure Statement
How often should outgoings be reconciled?
At least annually, with an audited statement issued within three months after the end of the financial year
Can a landlord charge a tenant for the property’s land tax under a non-retail commercial lease?
Yes, unless the lease expressly states otherwise, because the statutory prohibition applies only to retail leases
What happens if a landlord fails to provide a Disclosure Statement?
The tenant may withhold payment of certain outgoings and, in some jurisdictions, terminate the lease or seek compensation
Learn more about leasing a business premises in our guide.
Is GST payable on outgoings?
Generally yes, outgoings are treated as consideration for a taxable supply and GST is recoverable from the tenant unless the lease states that amounts are GST-inclusive
