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Understanding outgoings in commercial leases.
The extra costs beyond your base rent. Many tenants focus on rent negotiations without fully appreciating how outgoings can affect their bottom line.
Outgoings are an essential part of any commercial lease agreement. They represent the extra costs tenants pay in addition to their base rent to cover the building's operational and maintenance expenses.
Understanding what outgoings include, how they are calculated, and your rights to transparency is crucial for managing your total occupancy costs. Many tenants focus on rent negotiations without fully appreciating how outgoings can affect their bottom line.
Typical outgoing categories.
The exact items tenants are responsible for should be clearly listed in the lease agreement.
Building Operations
- Local authority rates
- Building insurance premiums
- Common area utilities
- Rubbish collection
Maintenance
- Common area maintenance
- Cleaning and landscaping
- Parking area upkeep
- Building WOF costs
Compliance
- Fire safety measures
- Health and safety
- Building certifications
Management
- Property management fees
- Building administration
How your share is calculated.
Usually, tenants pay a proportion of a building's total outgoings based on how much of the building they occupy. For instance, if you lease 25% of a building's usable area, you are likely responsible for 25% of the outgoings.
Example: 25% Share
Total Building Outgoings: $100,000
Your Share: $25,000
Your rights regarding outgoings.
Landlords should provide a clear breakdown of outgoings to maintain transparency. The standard Law Association lease form requires landlords to provide annual budgets.
Annual Budget
Landlords should provide you with a budget at the start of each outgoings year showing estimated costs.
Year-End Reconciliation
At the end of each year, actual costs are compared to the budget. You may receive a refund or be asked to pay additional amounts.
Right to Question
Tenants have the right to question or even audit outgoings expenses if something seems unclear or unreasonable.
Common issues with outgoings.
Capital expenditure passed through as outgoings
Some landlords attempt to include capital improvements (such as building upgrades) as outgoings. Generally, capital expenditure should be borne by the landlord, not passed to tenants.
Management fees that seem excessive
Property management fees are a legitimate outgoing, but they should be reasonable and in line with market rates. Query fees that seem disproportionate to the services provided.
Outgoings not specified in the lease
You should only be liable for outgoings that are clearly specified in your lease. If a new charge appears that was not contemplated in your lease, you may be entitled to dispute it.
Significant variations from budget
While some variation is normal, significant increases from the budgeted amount should be explained. The seventh edition lease requires landlords to advise tenants of material increases promptly.
Budgeting for outgoings.
Request Historical Data
Ask for records of past outgoings to estimate future costs and identify trends.
Plan for Increases
Operating expenses usually rise over time. Build in a buffer for potential increases.
Negotiate Caps
Consider negotiating limits on the annual rise in outgoings, especially for items landlords can control.
Understand Exclusions
Clarify which costs are included in base rent and which are additional outgoings.
What to check in your lease
Key Takeaways
Outgoings are operating costs paid by tenants in addition to base rent
Your share is usually based on the proportion of the building you occupy
Landlords must provide transparency through budgets and reconciliations
You have the right to question outgoings that seem unclear or excessive
Request historical data and plan for increases when budgeting
Related Guide
Outgoings are one of many costs to understand in a commercial lease. Our guide walks you through everything you need to know.
Read the Commercial Lease GuideRelated Reading
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