Outgoings clause in commercial leasing negotiations

Director of GM Law, Mark McAvoy shares his thoughts on this matter:

1. What is meant by Outgoings in Queensland?

In Queensland, outgoings refer to the expenses incurred by the landlord in relation to the property, which may be recoverable from the tenant as part of a leasing agreement. These expenses typically include costs associated with the maintenance, management, and operation of the property. Common outgoings may include council rates, water charges, building insurance, land tax, and repairs. The specific outgoings that can be recovered from tenants must be clearly outlined in the lease agreement. Queensland law may regulate how outgoings are treated, particularly for retail leases, under the Retail Shop Leases Act 1994 (Qld).

2. Which of These Outgoings Can be Negotiated When Drafting a Commercial Leasing Agreement?

In Queensland, parties to a commercial lease can negotiate which outgoings the tenant will be responsible for paying. The most common negotiable outgoings include:

Council rates: The tenant may be required to pay all or a portion of these rates.
Water charges: Tenants can be required to cover water usage and, in some cases, water supply charges.
Land tax: Although landlords typically seek to pass this cost to the tenant (except in the case of retail leases), it can be negotiated.
Building insurance: The tenant may contribute to the landlord’s insurance costs, but this is negotiable.
Repairs and maintenance: Some aspects of repairs, especially those related to common areas, can be shared or excluded based on negotiation.

While these outgoings can be negotiated, they must be specified clearly in the lease to avoid disputes. For retail leases, the Retail Shop Leases Act 1994 (Qld) limits the type of outgoings a landlord can recover.

3. When are Utilities Considered Outgoings?

In Queensland, utilities such as water, gas, and electricity are considered outgoings if the lease agreement stipulates that the tenant must pay for them. This can include either actual usage charges or a contribution toward the overall utility costs of the building. In commercial leases, utilities are commonly treated as outgoings, but the specific nature of the utility charges—whether direct usage or fixed fees—must be clearly outlined in the lease. Where the Lease is a Retail lease governed by the Retail Shop Leases Act 1994 (Qld), regard will need to be had to the regulations regarding the recovery of outgoings.

4. Retail vs Commercial Leases. What is the Difference in Outgoings?

The key difference between outgoings in retail leases and commercial leases in Queensland lies in the regulation and transparency requirements:

Retail Leases: Governed by the Retail Shop Leases Act 1994 (Qld), retail leases have stricter controls on what outgoings can be charged to tenants. The Act requires landlords to provide a detailed outgoings estimate before the lease is signed and to provide regular statements of actual outgoings. Retail tenants are generally protected from paying for certain costs like capital costs..
Commercial Leases: These leases, which apply to non-retail premises, offer more flexibility and are less regulated. Outgoings can be negotiated more freely between the landlord and tenant. While landlords may still be required to disclose outgoings, there are fewer statutory protections for tenants compared to those under retail leases.

5. Is it Possible to Revise the Outgoings Clause in a Lease Agreement?

In Queensland, it is generally not possible to unilaterally revise the outgoings clause in a lease agreement after the contract has been concluded, unless both parties mutually agree to amend the lease. Amendments to the outgoings clause, or any other terms of the lease, require written consent from both the landlord and the tenant. This would typically involve drafting a lease variation agreement or an addendum to the existing contract. Any such revisions must comply with Queensland contract law principles, and for retail leases, any changes must also adhere to the provisions of the Retail Shop Leases Act 1994 (Qld).

6. How are Outgoings Paid in practice?

There are two primary methods for charging tenants outgoings in commercial property leases. First, the property owner or manager typically provides an estimate of the annual outgoings, giving the tenant an idea of the expected costs. One common approach is for the landlord or manager to require the tenant to make monthly contributions toward these outgoings. At the end of the accounting period, an adjustment is made based on the actual costs incurred.

Alternatively, the landlord may choose to forward the actual bills for outgoings to the tenant, who is then responsible for paying them by the due date. In this case, it is recommended that the landlord initially pays the expenses and then invoices the tenant for reimbursement. This helps prevent potential late fees or credit issues for the landlord if the tenant fails to pay on time.

The chosen method for handling outgoings can impact the property’s value or the financial return on the landlord’s investment. For example, if the tenant is supposed to pay bills as they are issued but fails to do so, the landlord may need to take legal action to recover the funds, which could be problematic if the tenant becomes insolvent. Requiring tenants to make monthly contributions in advance of the bills can reduce this risk.

Estimating annual outgoings can be challenging, especially for newly developed properties (e.g., strata-titled industrial units), as council rates or other charges may not yet have been issued. In such cases, the outgoings estimate may not be precise, but the property owner, agent, or manager may be able to provide a reasonable estimate.

We service the entire Brisbane metropolitan area

If you need help to get a contract sorted so you can secure a property for your client, we have set up the GM Law agent hotline.

You can email us at AgentSupport@gmlaw.com.au to get urgent personalized support.

We service the entire Brisbane metropolitan area

If you need help to get a contract sorted so you can secure a property for your client, we have set up the GM Law agent hotline.

You can email us at AgentSupport@gmlaw.com.au to get urgent personalized support.

Don't forget we offer the following:

1. What is meant by Outgoings in Queensland?

2. Which of These Outgoings Can be Negotiated When Drafting a Commercial Leasing Agreement?

3. When are Utilities Considered Outgoings?

4. Retail vs Commercial Leases. What is the Difference in Outgoings?

5. Is it Possible to Revise the Outgoings Clause in a Lease Agreement?

6. How are Outgoings Paid in practice?

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