Outgoings are one of the most important parts of any commercial lease. They determine who pays for what, how the property is maintained, and how much net income a landlord ultimately receives. Despite this, many outgoings schedules are unclear, incomplete, or incorrectly managed — creating disputes or eroding investment returns.

This guide breaks down common commercial outgoings, what landlords can typically recover from tenants, what costs remain the landlord’s responsibility, and how good management ensures transparency and compliance.

What Are Outgoings?

Outgoings are the ongoing operating expenses associated with owning and managing a commercial property. These costs are usually passed on to tenants, provided they are set out clearly in the lease.

Outgoings generally fall into three categories:

1. Statutory charges
2. Operating expenses
3. Management and administration

The specific list depends on the lease type, use, and applicable retail/commercial tenancy laws.

Recoverable Outgoings (typically charged to tenants)

Below is a detailed overview of the expenses commonly recoverable under commercial leases.

1. Council Rates and Water Rates

These are almost always recoverable and passed to the tenant as part of their occupancy costs.

Example:

If annual council rates are $24,000 and water rates are $8,000, a single tenant with a full building lease will typically pay the full $32,000.

2. Land Tax (in most commercial arrangements)

Many commercial leases permit recovery of land tax. The lease should specify whether this is based on:

• Single-ownership basis, or
• Multi-ownership basis

Important note: Retail tenancy laws can differ and may limit recovery.

3. Building Insurance Premiums

Premiums for insuring the building structure — not tenant contents — can usually be recovered.

Common inclusions:

• Fire
• Public liability
• Glass
• Building replacement insurance

4. Repairs and Maintenance

Recoverable repairs usually relate to:

• Air-conditioning
• Elevators and escalators
• Fire protection systems
• Essential services
• Plumbing and electrical maintenance
• Common area upkeep

 Key distinction:

Repairs and routine servicing = recoverable
Capital replacement or ‘fair wear and tear’ = usually not recoverable (unless amortised and allowed in the lease)

5. Cleaning and Common Area Costs

For shared premises, tenants typically contribute to:

• Cleaning of amenities
• Waste disposal
• Carpark cleaning
• Gardening and landscaping
• Pest control

6. Property Management Fees

Commercial leases often allow for recovery of management fees associated with operating the building. These are usually calculated as a percentage of rent and outgoings collected.

Important note: landlords cannot recover property management fees from retail tenants.

7. Compliance and Safety Costs

Costs for required testing and compliance are normally recoverable, including:

• Fire safety testing
• Essential services audits
• Evacuation plans
• Security system maintenance

Non-Recoverable Outgoings (usually the landlord’s responsibility)

Not all expenses can be recovered, even in fully-recoverable leases. The following costs are typically borne by the landlord.

1. Capital Expenditure (CapEx)

Major upgrades, replacements or structural improvements are usually non-recoverable.

Examples:

• Full lift replacement
• New roof
• Facade refurbishment
• Major HVAC replacement

Some leases allow amortisation over time, but this must be explicitly stated.

2. Structural Repairs or Defects

If issues relate to structural integrity, the landlord generally pays.

Examples:

• Foundation problems
• Roof leaks due to age
• Structural wall movement

3. Landlord’s Legal and Accounting Costs

Except when recovering costs associated with tenant breaches, these are usually absorbed by the landlord.

4. Leasing Costs and Incentives

These are commercial decisions and remain landlord expenses.

This includes:

• Leasing agent fees
• Rent-free periods
• Marketing costs
• Contribution to fit-outs
• Incentive deeds

How Outgoings Are Calculated and Allocated

Outgoings can be allocated in three common ways:

1. Single-Tenant Occupancy: Tenant typically pays 100% of recoverable outgoings.
2. Multi-Tenant Buildings: Outgoings are allocated proportionally based on the tenant’s lettable area.
3. Gross Leases (less common in commercial): Landlord pays the outgoings; rent is set higher to compensate.

Outgoing Budgets and Annual Reconciliations

Landlords must prepare an annual outgoings budget, outlining estimated costs for the upcoming financial year. At financial year-end, an outgoings reconciliation compares estimated vs actual costs.

If tenants have overpaid, the landlord refunds the difference. If tenants have underpaid, they are invoiced for the shortfall.

Why Accurate Outgoings Matter

For Landlords

• Protect net income
• Avoid disputes
• Maintain clean financial records
• Improve valuation outcomes

For Tenants

• Transparency around occupancy costs
• Predictability in budgeting
• Evidence costs are reasonable and competitive

Blackburne assists property owners with detailed budgeting, compliance, communication and reconciliation to ensure accuracy and transparency across the year.

FAQs

Are land tax charges always recoverable?

Not always — this depends on the lease and whether retail tenancy legislation applies.

Can landlords recover depreciation?

Generally no, unless a specific amortisation clause allows it.

Who pays for essential safety measures (ESM) testing?

These are usually recoverable from tenants.