As a commercial tenant, you usually pay the building’s running costs on top of your rent – but not all of them, and which ones land on you comes down to the lease. Getting clear on that split before you sign is the difference between a budget that holds and a year-end bill you didn’t see coming.
This guide looks at outgoings from the tenant’s seat: what you are typically liable for, what usually stays with the landlord, and how to budget for it. For the full picture of what outgoings are and how they are calculated, start with our guide to commercial lease outgoings.
The outgoings a commercial tenant typically pays
Under a net lease – the most common structure in commercial – the tenant reimburses the landlord for the cost of running the building. That usually includes:- Council rates – yes, commercial tenants typically pay these as a recoverable outgoing
- Water and sewerage rates – the fixed charges, and often usage
- Building insurance – the landlord holds the policy and you reimburse the premium
- Owners corporation or strata levies – where the property is strata-titled
- Common-area maintenance – cleaning, lighting, security and upkeep of shared areas
- Property management fees – where the lease provides for them
What usually stays with the landlord
Not everything can be pushed onto a tenant, and knowing where the line sits protects you. Land tax is the clearest example: for a retail tenant in NSW, recovery is limited to a single-holding basis, and some states such as Victoria and Queensland prohibit passing it to a retail tenant at all. Capital and structural works – replacing a roof, upgrading the base building – are the landlord’s cost, not a running expense you should be funding through outgoings. The lease is the final word on who pays what, but as a rule these are the items a tenant should expect to stay on the landlord’s side of the ledger. If the lease tries to shift them, that’s worth questioning before you sign.How net vs gross changes what you pay
The same building can expose you to very different costs depending on the lease type. Under a net lease you pay base rent plus outgoings on top, so your total cost moves as the building’s costs move. Under a gross lease, the outgoings are already baked into a single, higher rent figure and the landlord absorbs the movement. Neither is automatically better – a gross lease is simpler to budget, a net lease is often a lower headline rent – but you can’t compare two properties on rent alone without knowing which structure each one uses (again, our outgoings guide breaks the two structures down in detail).How to budget outgoings into your total occupancy cost
The number that matters is not the rent – it’s your total occupancy cost: rent, plus outgoings, plus GST, plus any upfront security. Outgoings are usually charged as monthly estimates and then reconciled against the actual spend at the end of the financial year, so build in room for a true-up rather than assuming the estimate is the final figure. Modelling that full picture before you commit is where a good lease advisor earns their fee. At Ray White Commercial Western Sydney, our leasing team works through true occupancy cost with tenants – rent, outgoings, GST and security together – so you sign to a number you have actually seen.Questions a tenant should ask before signing
A few direct questions surface most of the risk:- Which outgoings are recoverable under this lease, and are any capped?
- What were last year’s actual outgoings for the premises?
- Is there a management fee, and what does it cover?
- How and when are outgoings estimates reviewed and reconciled?
The bottom line for tenants
Know which outgoings are yours, budget the true occupancy cost rather than the headline rent, and read the outgoings clause before you sign. The tenants who avoid nasty surprises are the ones who did the maths up front. If you’re reviewing a commercial lease in Western Sydney and want the outgoings modelled properly, speak to the RWC Western Sydney leasing team.Some Frequently Asked Questions We Hear About Leasing Commercial Properties
- Do commercial tenants pay council rates? Usually, yes. Under a typical net commercial lease, council rates are a recoverable outgoing the tenant reimburses on top of rent. It’s not universal, though – the lease decides, so confirm it’s listed as recoverable before you sign.
- Who pays land tax on a commercial lease – the landlord or the tenant? For a plain commercial or industrial lease in NSW, land tax is often passed to the tenant. For a retail tenant it’s limited to a single-holding basis in NSW, and some states prohibit it entirely. Check the lease and the relevant state rules.
- Can a tenant negotiate a cap on outgoings? Yes. Caps on the controllable outgoings – things like management fees and non-statutory costs – are negotiable, and worth raising before you sign rather than after the first year-end reconciliation.