Do you know the true cost of your lease?

Posted on 18 July 2018
Do you know the true cost of your lease?

An area that lessees often fail to properly consider when entering into a lease, is the true cost of a lease. In addition to rent, a lessor will ordinarily require a lessee to pay the costs associated with their occupation of the premises. These costs are recoverable from the lessee if they are set out in the lease.

The Retail Leases Act restricts which outgoings can be recovered from a lessee but otherwise the issue is entirely subject to agreement between the parties, hence great care and diligence is required to ensure that only fair and reasonable outgoings are included in the lease.

Outgoings are a critical part of the total occupancy costs of leased premises. Outgoings are enforceable in the same manner as the rent, so should be treated with the same attention and importance.

Cheap rent is only a good deal if the outgoings are fair and reasonable and within prevailing market rates.

The most common types of outgoings include:

  • Local council rates and charges;
  • Land tax;
  • Water rates;
  • Costs of repair (other than structural repairs);
  • Cleaning to common areas
  • Security to common areas
  • Landscaping to common areas;
  • Water consumption to common areas;
  • Electricity to common areas;
  • Waste removal;
  • Management costs;
  • Air conditioning (centralised systems);
  • Lift maintenance;
  • Fire protection maintenance & certification;
  • Building insurance;
  • Levies and contributions levied by the owners corporation or any strata managing agent

Care should be taken by lessee’s to ensure that special levies associated with the capital improvement or repairs of the building are excluded.

Depending on the type of property, a lessee may have to pay all or a percentage of the outgoings relating to the premises. This percentage will usually be worked out based on their portion of the floor space compared to the lettable area of the entire building. Sometimes in larger corporate buildings, a lessee may only have to pay any increase in outgoings from year to year using a base to calculate from.

For retail leases, the Lessor Disclosure Statement must provide an estimated cost of the outgoings to be paid per annum.

We have years of experience in helping businesses manage their leasing requirements. If you are looking at entering into a lease speak to us before you commit to the premises so we can ensure you understand your obligations under the proposed lease.