Outgoings in a commercial lease are the property’s running costs (council rates, water rates, building insurance, owners corporation or strata levies and common-area maintenance) that a tenant pays on top of base rent. They cover the day-to-day cost of running the building, and the lease decides how much of that cost the tenant carries.
On a lot of commercial deals, outgoings add a meaningful amount on top of the rent (often in the order of 15% to 30%). And yet, they are the line item tenants and landlords understand least when they sign. That gap is where disputes start, and where a good lease review earns its keep.
This guide covers what outgoings include, who pays them, how they work under a NSW lease, how they are calculated (with a worked example), and whether they can rise during your term.
What are outgoings in a commercial lease?
Outgoings are the recoverable costs of owning and operating a commercial building, passed through to the tenant where the lease allows it. You’ll also see them called operating expenses, particularly in leases drafted off US templates. The meaning is the same: the cost of keeping the building running.
Two things separate outgoings from the rest of your commitment. They’re not the base rent – rent is the price of occupying the space, outgoings are the cost of running it. And they’re not your security deposit or bank guarantee, which is money held against default rather than a running cost. We come back to that upfront security later, because together with outgoings it sets your true cost of occupying the premises.
What’s included in outgoings?
Most outgoings fall into a handful of predictable categories. The lease should list them, and anything not listed generally cannot be charged to you.
Typical recoverable outgoings include:
- Council rates – a statutory charge set by the local council; recoverable from the tenant.
- Water and sewerage rates – usage is often billed separately to the fixed charges.
- Land tax – recoverable under many commercial leases; for retail tenants it is limited in NSW (single-holding basis) and prohibited in some states such as Victoria and Queensland.
- Building insurance – the landlord holds the policy and the tenant reimburses the premium.
- Owners corporation / strata levies – shared building costs on strata-titled units.
- Common-area maintenance (CAM) – cleaning, lighting, security and upkeep of shared areas.
- Property management fees – the cost of administering the building’s outgoings and services, where the lease allows.
It helps to split these into statutory outgoings (rates, land tax and water charges levied by government) and other recoverable outgoings such as insurance, strata and maintenance. The distinction matters when you get to who can be charged what, which is where we turn next.
Who pays outgoings, the landlord or the tenant?
The lease decides who pays, and in a well-drafted commercial lease the answer is usually the tenant. That is the defining feature of a net lease: the tenant covers the building’s running costs so the landlord’s rent arrives as close to net income as possible. But “the tenant pays” is a starting point, not a rule – two of the biggest outgoings deserve a closer look.
Who pays building insurance on a commercial lease?
The landlord insures the building and the tenant reimburses the premium. Building insurance is almost always a recoverable outgoing, because the asset being protected is the landlord’s, but the occupier’s activity is part of the risk. The tenant then carries their own separate cover for contents, plate glass and public liability. Getting this split wrong is a common and expensive mistake – our team has written more on understanding building insurance for commercial premises.
For landlords, keeping the insurance policy, the premium recovery and the wider outgoings schedule in order is ongoing work rather than a one-off. Our Asset Management team oversees exactly this for building owners – holding the right cover, tracking recoverable outgoings and making sure what is charged to tenants matches what the lease allows.
Who pays land tax on a commercial lease?
For a plain commercial or industrial lease in NSW, land tax is commonly passed on to the tenant as a recoverable outgoing. Retail leases are treated differently, and the treatment varies by state: in NSW, land tax can be recovered from a retail tenant but only on a limited single-holding basis, while some states such as Victoria and Queensland prohibit recovering it from a retail tenant outright. State rules differ, so land tax is one to confirm against both the lease and the relevant legislation before you assume who wears it.
Net vs gross lease – does gross rent include outgoings?
Whether outgoings sit inside or on top of your rent comes down to lease type. Under a gross lease, outgoings are baked into a single rent figure – the landlord pays the running costs out of the rent you hand over. Under a net lease, you pay base rent plus outgoings on top, so your total cost moves as the building’s costs move.
There is a middle ground. A semi-gross lease splits the difference, with the landlord absorbing some outgoings and the tenant paying others. So does gross rent include outgoings? In a true gross lease, yes – which makes budgeting simpler but usually means a higher headline rent to cover the landlord’s risk. Only the outgoings named as recoverable in the lease can be charged to you, whichever structure applies.
Outgoings under a NSW lease – retail vs plain commercial
Where your lease sits – retail or plain commercial – changes your protections, and most general guides miss this because they are written to one state’s retail law. For a Western Sydney tenant or landlord, the split that matters is between a retail lease and an ordinary commercial or industrial lease.
Retail leases in NSW carry statutory protections around outgoings. The landlord must give a disclosure statement before the lease, provide an annual estimate of outgoings, and deliver an audited statement of the actual outgoings each year, reconciled to the estimate. If the landlord doesn’t disclose an outgoing properly, they may not be able to recover it.
A plain commercial or industrial lease is different. Much of that statutory protection doesn’t apply, so what protects both parties is the lease drafting itself… not legislation. The practical takeaway is blunt: read the outgoings clause before you sign. In a retail lease the law gives you a safety net; in a plain commercial lease, the contract is the only one you have.
How are commercial lease outgoings calculated?
Outgoings are usually calculated as your share of the building’s total running costs, charged monthly against an estimate and squared up once a year. In a multi-tenant building your share is worked out by lettable area: your floor area divided by the total lettable area of the building.
The landlord budgets the year’s outgoings, bills you one-twelfth of your share each month, then reconciles at the end of the financial year. If actual costs came in under the estimate you are refunded or credited; if they ran over, you pay the shortfall.
Here is how that looks in practice.
A Western Sydney office and warehouse unit sits in a building with $80,000 in total annual outgoings – council rates, water, building insurance, strata levies and common-area maintenance combined. Your unit is 250 sqm of a 1000sqm building, so your share is 25%. Your annual outgoings are $80,000 x 25% = $20,000, billed at roughly $1667 a month. At financial year-end the actual outgoings come in at $84,000, so your true share is $21,000 – and you are invoiced the $1000 difference in the reconciliation.
The estimate, the monthly billing and the year-end reconciliation all have to be administered accurately, or the true-up is where disputes start. This is the day-to-day of commercial Property Management – budgeting the year’s outgoings, billing each tenant’s share and reconciling estimate against actual – so both sides get a statement they can trust at financial year-end.
That reconciliation step is the part tenants forget. The monthly figure is an estimate, and the true-up can land as an extra bill you did not plan for – which is exactly why outgoings can rise mid-term.
Can outgoings increase during the lease term?
Yes, outgoings almost always rise over a lease term, for two reasons. The underlying costs climb: council rates, insurance premiums and land tax don’t stay still. And the annual reconciliation trues your estimated payments up to the actual spend, so a year of higher costs flows straight through to you.
You are not without protection. In a retail lease you can request the audited annual statement and query charges that don’t reconcile. In a plain commercial lease, your only protection is whatever the lease gave you at signing – which is why it’s worth negotiating a cap on the controllable outgoings, such as management fees and non-statutory costs, before you sign.
Outgoings and your total occupancy cost
Outgoings are only one part of what it costs to occupy a commercial space, and the smart move is to model the whole picture before you commit. Your total occupancy cost is base rent, plus outgoings, plus GST, plus the upfront security you have to put up.
That upfront security is usually a bank guarantee or a cash lease bond. A bank guarantee is an undertaking from your bank to pay the landlord if you default – commonly set at three to six months’ rent plus outgoings, and negotiable. It’s not an outgoing and you don’t spend it, but it ties up capital or borrowing capacity for the life of the lease, so it belongs in your cost model alongside rent and outgoings.
Modelling that full picture before you sign is where a lease advisor earns their fee. At Ray White Commercial Western Sydney, our leasing team works through true occupancy cost with tenants and landlords – base rent, outgoings, GST and the upfront security together – so you commit to a number you’ve actually seen, not just the headline rent.
Reviewing a lease and want the outgoings modelled properly before you sign?
Talk to the Ray White Commercial Western Sydney leasing team, and we will walk you through the full occupancy cost, not just the headline rent.