Outgoings Control & Management

WHAT SHOULD YOU GENERALLY BE AWARE OF WHEN DEALING WITH THE OUTGOINGS RENTAL CHARGE?

At least one month before the commencement of the financial year landlords are obliged under the Acts to provide the tenant with the budgeted outgoings for the centre and a calculation of how the tenant’s portion has been calculated.

Within three months after the financial year the landlord must provide an audited Statement of the outgoings for the year.

When the landlord’s property executive quotes an outgoings rate per square metre, ensure that you know exactly what outgoings that rate covers. Some outgoings include municipal council and water rates as well as a land tax charge, while others do not.

If these are excluded from the rate you will be billed either directly by the State authority or the Centre will pay the account and recover it from you periodically throughout the financial year.

When calculating your total occupancy cost before signing the lease make sure you include all outgoing charges both "direct and indirect”.

Ensure that you are given a current schedule of outgoings with your Disclosure Statement and ask your solicitor to check that each item is covered by the lease. This will ensure that in later years any new outgoing expenses cannot be included without your permission.

Air- conditioning costs and their apportionment to tenants has also become a source of contention between Landlord and Tenant.

Although one centralised system seems to service the entire centre, landlords contend that the major tenants have their own air-conditioning systems and as a result they should not have to bear a share of the air-conditioning expenses.

This can result in an imbalance in the area proportion over which such costs are apportioned to tenants. If you believe that you have been charged more than your portion for air-conditioning costs request a plan of the air conditioning system together with an explanation from the centres engineers showing how your proportion is made up. 

As some tenants have their own compactors. Centre managements have employed similar methods of calculating and apportioning waste removal.

If you are expected to pay this cost separately, ensure that you are given a clear explanation of the allocation of cost before you sign the lease. If you are still unhappy ask for the basis of the allocation to be included in the Disclosure Statement. This will protect you later should you find that you have been charged incorrectly or that the ground rules are changed after you have signed the lease.

Repairs and Maintenance is another large expense in the outgoing schedule. Try to obtain a breakdown of how this charge is made up for example building, electrical, signs, car parks, locks and keys glass etc. Though this does not happen in Queensland some landlords combine this cost to form a single expense.

In Queensland, if an outgoing represents more than 5% of the total outgoings it must be shown separately on the schedule.

Note that capital expenditure by the landlord on the centre must not form part of the outgoings. Always alert yourself to the possibility of capital expenditure being included in this outgoing cost area. In particular you should query it if you are moving into a centre that is new or has had major redevelopment.

Avoid outstanding building costs which are of a capital nature being included in repairs and maintenance cost of the year following year.

Bear in mind that the Act in Victoria, covering responsibility for repairs and maintenance, has changed. Now that with the exception of deliberate negligence by the tenant, the landlord and not the tenant bears this cost.

If you are going into a centre where the Majors are trading longer hours than most other tenants, do not be afraid to ask how these additional hours are being charged and recovered.

Ask for confirmation from the landlord as to whether this recovery of cost from the major, will be offset against the general pool of outgoings before such pool is allocated to tenants in proportion to the area occupied.

Some leases contain a clause in the reference schedule that provides eg. that the store represents say 0.21 % in size of the gross lettable area of the total centre and therefore you will be responsible for 0.21 % of the outgoings.

Though this may be accurate at the time, but if the centre is enlarged after you sign the lease and the size of your store now only represents say 0.18% of the gross lettable area, some Landlords may try to hold you to 0.21 % because this is stated in the lease you signed.

It may be wise to ask your solicitor to remove this clause from the lease or clarify it so that there is no confusion as to what your true share of outgoings are.

Since outgoings are calculated on the basis of the area your store bears to the total gross lettable area of the centre, it is essential that this calculation is correct.

If you are in any doubt, ask the lessor to provide you with a reconciliation statement which shows you exactly how the area of the centre has been calculated, split into gross lettable areas and common area.

Remember that if you are a mini major or a store occupying a large area in size in a shopping centre, and with outgoings costs of over $200 per square metre the outgoings cost to your store could almost be as large as the rent.

Over-budgeting of outgoings by landlords can cost the retailer cash flow. In the past landlords have overstated proposed repairs and maintenance programs than was actually undertaken during the year In this way they received a higher budgeted outgoings per month but were then quite happy to refund the money at the end of the year.

Lease administrators should be vigilant to this practice particularly if you have a large portfolio of stores to administer.

This is an excerpt from Retail Lease Administration by Hymie Zawatzky