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What are outgoings on a commercial rental property?

Thinking of making that next step with your business and leasing a commercial property?

Whilst the rent is a very important factor to consider – another one, often overlooked is the outgoings.  If you have not been a commercial tenant before you may not realise that you may be required to pay both the rent and outgoings.

Outgoings can include (but are not limited to):

  • Statutory charges (council and water rates)
  • Strata levies
  • Building insurance
  • Repairs and maintenance
  • Land tax
  • Property management fees
  • Ongoing property services (e.g. pest control, security)
  • Garden maintenance
  • Cleaning
  • Air conditioning maintenance
  • Elevator services
  • Waste removal

As a commercial tenant you would generally pay all outgoings for the property (either through a Gross Lease, or a Net Lease + Outgoings).  In the lease negotiation phase this needs to be discussed and negotiated who will pay what, what percentage and how they will be paid.

As a rule, an annual outgoings budget will be prepared, and you will be expected to pay this on monthly instalments with your rent payments.  At the end of each year (normally financial year) this will be reconciled and adjusted.  This will mean that either you will have to pay the difference, or the owner will need to re-imburse you for an overpayment.  This is not normally a large amount if the budget has been prepared professionally unless unexpected expenses are incurred during the period.

Alternatively, you may need to pay on invoice cost.  This is more common in a smaller strata lot as you would generally only be paying water, council, strata and management fees as any general repairs and maintenance would be covered by the strata levies.

Alternatively, but not as common is a gross lease.  This means that the outgoings are incorporated into the lease.  This is not generally offered as the outgoings, if increased, are not able to be re-couped by the owner.  It is a common style of lease for shopping centres and industrial factory units as the outgoings are normally stable and predictable.

There are slightly different rules if you are a retail tenant as some of these charges can not be passed on to tenants, lease preparation costs would be one of them.

Some of other outgoings that cannot be passed onto the tenant is personal costs of the landlord and costs associated with capital improvements to the property.

So, when starting your search for your new business address make sure you ask the question of outgoings when initially enquiring and not just the rent.

For more information please contact one of our dedicated Property Managers on 1300 111 776 or email info@purepm.com.au

 

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