While searching for the ideal tenant in a commercial property, Owners often require clarification on what property outgoings a tenant is required to pay legally and what are the optional outgoings which can be negotiated.
Although in general, tenants are expected to pay for 100% of the property outgoings, this can be negotiated at the beginning of the Tenancy and it is really what the Owner is happy to accept following these negotiations.
What are these commercial property outgoings?
Here is a list of potential outgoings:
- Council rates
- Water rates and consumption
- Land tax based on single ownership
- Building Insurance & Public liability insurance
- Strata levies
- Solicitors costs for preparing lease, defaults etc
- Repairs and maintenance of a non-structural nature
- Property management fees
- Pest control
- Air conditioner and HWS repairs and maintenance
- Fire services
And what about replacement of items such as HWS or air conditioning? Who would pay for these?
In commercial leasing, the Property Owner is responsible for the replacement of these systems. The tenants are instead responsible for any costs incurred on the repairs and maintenance.
So, the question arises then…
Are there outgoings that cannot be passed onto the tenant and if so, what are they?
If a property is classified as a retail leases, Retail tenants who fall under the Commercial Tenancy (Retail Shops) Act 1985 are prohibited from paying some outgoings – these include Property Management fees and Solicitors costs for preparing the lease.
How do tenants pay outgoings?
There are generally 2 ways tenants pay outgoings.
First, On Demand meaning that when the Property Manager receives the account, they will invoice the tenant immediately giving them 14 days to pay.
Or a second method could also be used, where a budget is prepared for the anticipated outgoings for a year and the tenant pays this amount in 12 equal monthly instalments. This is then reconciled on a yearly basis and the tenant invoiced or credited the difference.
If you have any further enquiries on how to price your property, given the rental rate and the outgoing in order to secure the best possible commercial tenants, please feel free to contact our Commercial Property Managers based in Perth.