It’s no secret that the cost of practically everything seems to have risen. As a commercial leasing tenant, it’s important to understand the outgoing clauses in your lease, so there are no surprises later on.
Our business advisers spend a lot of time speaking with small business owners across WA. One question appears to be coming up frequently in relation to leasing costs: “Can my landlord do that?”
If outgoings in your lease, which might include maintenance, management fees and strata levies, have gone up more than you were expecting, it could be time to learn more about what’s involved and whether the charges are fair.
Understanding commercial leases
With any queries relating to your landlord and lease, the best place to start is your commercial lease. Look closely at the lease you have signed and check the clauses relating to the costs of leasing your premises. You might find your lease includes – or doesn’t include – costs such as land tax, building insurance, council and water rates, security, general repairs and maintenance or cleaning.
Leases covered by the Commercial Tenancy (Retail Shops) Agreements Act 1985 (the CT Act) need to itemise any operating expenses that tenants are responsible for contributing to and provide you with a budget of estimated operating expenses before the beginning of the new financial year. You are not required to pay monthly instalments of expenses until you have been provided with a budget. You could also be entitled to sight the invoices or receipts involved to confirm the increase in expenses.
To learn more about what to look for in your lease, read our guide to understanding commercial leases.
Retail and non-retail leases can include different costs
Commercial non-retail leases might include costs you have less control over, such as management fees, legal fees and other costs.
Retail leases have some protections built in through the CT Act. For example, management fees can’t be passed on to tenants and retail tenants who pay strata levies do not have to pay for the management fee or administration costs included in any levy.
A retail lease generally applies if there is a group of five or more shops or retail services adjacent to each other, or to premises located in a shopping centre. Some business types such as hair and beauty salons, tattoo parlours, drycleaning and shoe repairs are considered retail leases even if they are not in a group of five or more shops. In other cases, non-retail businesses can benefit from retail shop lease conditions even though their business is not retail – for example, an accounting practice in a strip of five or more retail shops.
Regardless of which type of lease you have, you can ask for your lease to include the need for budgets or invoices to be provided to you if there is an issue in future. For example, if your lease includes maintenance costs, your landlord might be able to have some control over these expenses by getting different quotes before committing to one provider.
Prepare for your next commercial lease
Whether you’re just starting up, moving premises or your current lease is due for renewal, it’s important to know what to look for in your next commercial lease - particularly in relation to costs which might change over time. While rents increase during a lease period, so too can variable outgoing expenses and this is often overlooked when considering the cost of a new lease.
Before entering a new lease, you can work with your landlord to see if they are open to negotiation on operating expenses to exclude certain items. Sometimes, business owners can negotiate a gross rental agreement, rather than rent and outgoings. It’s important to remember that outgoings should be based on cost recovery and we encourage tenants to seek an itemised outgoings budget for the current financial year from the landlord.
Get professional guidance or advice
Ultimately, it’s important to check or review your lease carefully and seek professional legal advice if you need it, based on the type of lease you have.
At the SBDC, while we can’t give legal advice, our experienced commercial tenancy advisers can give information and guidance to tenants and landlords on the CT Act, lease negotiations and other aspects of commercial leasing. Call 133 140 or complete the form on our business advisory page to request a call from an one of our commercial tenancy advisers.
For more information on leasing commercial premises, explore the business premises section of our website.
