Commercial leases can be complex. But if you’re a commercial tenant in Brisbane, it is crucial to understand what you will pay when it comes to rent and other charges – and what can be negotiated. Commercial lease outgoings are one of the most overlooked costs commercial tenants pay. So, let’s dive into what they are, what kinds of outgoings there are, and why they matter.
What Are Commercial Property Outgoings?
Commercial property outgoings are extra costs that the tenant or lessee has to pay in addition to their rent. These are the expenses associated with the ongoing operations and maintenance of the building or facility. These running costs could include council charges such as rates, land tax, insurances, body corporate fees, utilities or other maintenance costs. Any capital improvement costs, such as a renovation or additions, are not classified as outgoings.
As a tenant, it is important to understand the running costs of the property, as well as the rental amount, because it all adds to the overall amount that you will have to pay. Any outgoings that the tenant is liable to pay during the term of their commercial lease should be outlined in the lease agreement.
How Do Outgoings Affect You?
Commercial property outgoings can have a significant impact on the total cost of your tenancy agreement. Tenants should be aware of their responsibilities for the outgoings, which generally include utilities, statutory rates, body corporate/property management fees and things such as common area electricity and water costs. Make sure you are clear on what services or fees you are responsible to pay.
In order to calculate these fees, make sure you check the lease contract or request an outgoings budget from the owner or property manager. Make sure you understand all the detail and the processes of outgoing costs, otherwise it can lead to legal complications.
Consider how to calculate the outgoing costs. If you are renting an entire property, all costs will typically be passed on the Tenant. If you are renting part of the property, for example, a single level or part-level, then your costs will be your proportionate share. You can then forecast the expenses to determine current and future costs. There are also a couple of ways you can pay outgoings. If the tenant pays “on-demand”, then they will pay their part of the bill for each charge or service, such as a quarterly rates or water notice, or a monthly maintenance charge. Charges can alternatively be “allocated monthly” with an ongoing fee paid as well as the rent. At the end of the year the total is tallied and the tenant may receive a refund if they have paid too much, or have to pay more, if they have not paid enough. Further, a commercial property lessor must also provide an estimate of the outgoing expenses for the following year, before the end of the previous financial year.
Who Pays the Outgoings On a Commercial Lease?
Understanding the terms of a commercial lease is very important, so both the lessor and lessee know their financial obligations. When it comes to who pays the outgoings on a commercial lease, in general it is the lessee or tenant. Going into a lease negotiation, ask for the specific details of each cost and how it has to be paid. If it is a service on the premises, such as marketing costs, cleaning or garden maintenance, find out what the service involves to make sure it is being delivered in line with the agreement.
The agreement could be framed as a single net lease, a double net lease or a triple net lease, for example. Under a single net lease, the lessee agrees to pay their rent as well as the property taxes, while under a double net lease, they also pay insurance. But under a triple net lease, the tenant has to pay all the outgoings.
It is also important to agree on the methods of payment for the outgoings, whether through an on-demand, direct billing system, or bundled in a net lease.
Understand your commercial lease.
When you’re looking for a new office or if you’re trying to understand the market conditions, we can help. At Aegis Property Group, we are experts in the commercial real estate market in Milton, Brisbane, and right across the inner city. Contact us to learn more.