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A Commercial Tenant’s Guide: What Are Outgoings on Commercial Rental Property?
When looking for a commercial property to lease, most people focus on the rental price and can overlook the outgoings. This can be misleading because when you lease a commercial property, as a tenant, you are required to pay both rent and outgoings.
These include the running costs of owning a commercial property and generally all of these are paid by the tenant.
If you’re about to lease a commercial property, no matter the size, be prepared to pay more than just the rent.
What Are Outgoings on a Commercial Lease?
Outgoings on a commercial lease are the additional costs to rent included in the commercial lease agreement that tenants are required to pay.
Outgoings of a commercial lease can include maintenance costs of the property, council and water rates, strata fees, and insurance.
Here’s a comprehensive list of potential commercial lease outgoings:
- Council and local government rates
- Water and sewage rates
- Strata fees
- Land tax
- Insurances
- Ongoing property services – e.g. pest control, security, and test and tag
- Property management fees
- Property condition reports & inspections
- Maintenance costs – e.g. gardening, cleaning, air-conditioning service, and window washing
- Rubbish removal and collection
Who Pays the Outgoings on a Commercial Lease?
In a commercial lease, the tenant generally pays all of the outgoings including property management.
The tenant also pays land tax, but on the single ownership basis.
During the lease negotiations for the property, it is critical that all parties discuss the commercial lease outgoings – what the tenant will pay – and include these costs in the disclosure statement.
What Commercial Property Outgoings Must be Paid By the Owner?
While the outgoings for a commercial property lease are paid for by the tenant, retail leases are slightly different whereby there are certain outgoings that the owner is restricted from passing on to the tenant.
These can include costs for the lease or property management fees.
Other outgoings that cannot be included in the lease agreement:
- Personal costs of the landlord
- Costs associated with capital improvement of the property
How to Calculate Outgoings of My Commercial Lease?
A commercial lease agreement that requires the tenant to pay outgoings, must include estimates of the future outgoings.
As a tenant, it’s critical to read all of the commercial lease agreement and disclosure statement to understand which outgoings you’ll be liable to pay, what percentage you’ll be paying, and when you’ll be required to make payments.
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