Most of us probably at some point in time may have harboured dreams of breaking off the shackles in our work-a-day lives and starting a small business of our own. And for the more entrepreneurial readers out there, you may have already begun embarking on your exciting new path. However, if you are about to start your own business, there are a number of important matters that need to be considered and one of the primary issues may be related to the paying of rent, and other amounts payable which are also known as ‘outgoings’.
Any reference to ‘outgoings’ in a commercial lease, usually means increases in taxes and rates that may include the running of the physical building or shopping centre in which the enterprise is located for example.
Who has to pay outgoings in a commercial lease?
For the most part, a lessee will not be responsible for the payment of any outgoings unless so provided within the leasing agreement, and which is also recoverable within legislation.
All States and Territories have some sort of provision in regards to outgoings, and we can look at s 39 of Victoria’s Retail Leases Act 2003 as our statutory example, with the section stating a tenant is not responsible for any outgoings, except in accordance with the provisions of the lease that specify:
- the outgoings that are to be regarded as recoverable; and
- in a manner consistent with the regulations, how the amount of the outgoings will be determined and how they will be proportioned to the tenant; and
- how any outgoings or any part of the outgoings may be recovered by the landlord from the tenant.
Furthermore, the outgoings under s 39(2) of Victoria’s Act, may also prescribe the manner in which the amount of outgoings can be determined and apportioned by a tenant.
What are the types of outgoings that cannot be recovered by a lessor?
Although a lessee won’t be responsible for any outgoings that are not included within the leasing agreement, legislation also further specifies outgoings that cannot be imposed on the lessee, and we can now turn to s 23 of the Retail Leases Act 1994 of New South Wales, which states:
“A provision in a retail shop lease is void to the extent that it requires the lessee to pay any amount in respect of the capital costs of the building in which the retail shop is located or (in the case of a retail shop in a retail shopping centre) of any building in the retail shopping centre or any areas used in association with any such building.”
Furthermore, if we can also use s 7(3) of Queensland’s Retail Shop Leases Act 1994 to further highlight outgoings that cannot be recovered, with the section outlining a number of outgoings that are not recoverable by the lessor which includes:
- land tax payable on the land on which a building or centre is situated;
- expenditure of a capital nature, which includes the repayment of capital costs;
- contributions to a depreciation or sinking fund;
- insurance premiums for loss of profits;
- lessor’s contributions to merchants’ associations and centre promotions funds;
- payment of interest and charges on amounts borrowed by the lessor;
- another item prescribed by regulation.
As with other types of legislation, there will be differences amongst the States and Territories, so it’s always useful to be mindful of the laws where you intend on starting your business because there may be differences.
How are outgoings usually paid?
Outgoings can be paid by either calculating a base amount that is an annual projection which is to be paid proportionately during the same time as rent; with a final adjustment made at the end of the year, or alternatively, outgoings can also be paid in arrears once receipts are received by the lessee from the lessor.
Going out on your own and starting your own small business is a very exciting undertaking. However, there are a lot of things to consider and if you need any assistance with a commercial lease, please seek the help of a legal practitioner.