What landlords need to know when it comes to outgoings

When managing commercial property investments, one of the most critical yet complex aspects for landlords to navigate is outgoings. These costs can significantly impact the profitability of a property, and understanding how to manage and recover outgoings from tenants is essential for maintaining financial performance and legal obligations.

WHAT ARE OUTGOINGS?

In the context of commercial real estate, outgoings refer to the costs incurred by the landlord in owning, managing, and maintaining the property. These can include:

• Council rates

• Land tax

• Body corporate levies

• Building insurance premiums

• Maintenance and repairs

• Cleaning and security costs for common areas

• Management fees

While residential leases tend to include minimal outgoings for the tenant, commercial leases often allow landlords to recover a substantial portion of these expenses from the tenant.  Outgoings are either included in the rent (gross leases) or charged separately (nett leases).  Understanding this distinction is crucial for landlords to ensure they are adequately recovering costs.

Regardless of the lease type, it’s critical for landlords to outline the specifics of how outgoings will be recovered in the lease agreement to avoid disputes.  This clarity ensures both parties are on the same page when it comes to financial obligations.

THE IMPORTANCE OF PROFESSIONAL MANAGEMENT IN HANDLING OUTGOINGS

Recovering outgoings is not always straight-forward, especially when dealing with multiple tenants or managing larger properties and navigating legislation around outgoing recovery.  This is where the expertise of professional property managers comes into play.  A skilled property manager can provide valuable assistance in several ways:

1. ACCURATE BUDGETING AND FORECASTING

One of the key roles of a property manager is to develop a precise and well-structured budget for outgoings.  They will forecast the property’s operational costs, taking into account maintenance schedules, insurance renewals, and tax changes, and ensure these costs are factored into the tenant’s responsibilities.  This proactive budgeting allows landlords to plan ahead and avoid unexpected shortfalls.

2. TRANSPARENT COST RECOVERY

A professional property manager will ensure that outgoings are transparently tracked and clearly communicated to tenants.  This transparency reduces the risk of disputes, as tenants can see exactly what they are being charged for. Additionally, property managers can assist in negotiating terms that balance fairness for both the tenant and the landlord.

3. NAVIGATING COMPLEX LEGISLATION ON OUTGOINGS

One of the significant challenges for landlords is understanding and complying with the complex legislation that governs outgoings, particularly in retail leases.  A professional property manager will have a deep understanding of legislative nuances and ensure that landlords remain compliant with the law.

While outgoings can be a straight-forward process with the right systems in place, there are common pitfalls that landlords should be aware of:

• Incorrect apportionment of outgoings: In multi-tenant buildings, ensuring each tenant pays their fair share can be tricky.  A property manager will calculate the correct proportion based on each tenant’s space and negotiate any discrepancies.

• Failing to anticipate cost increases: Costs such as insurance premiums, rates, and maintenance can fluctuate.  A skilled property manager will anticipate these changes and factor them into the lease review process.

• Lack of communication with tenants: Without regular communication, tenants may misunderstand what they are being charged for.  A property manager will maintain an open dialogue to ensure all parties are aligned.

Outgoings are a significant aspect of commercial property management that can have a direct impact on the landlord’s bottom line.  Properly handling and recovering these costs requires both precision and transparency.  By engaging a skilled property manager, landlords can ensure that outgoings are managed efficiently, costs are controlled, and disputes with tenants are minimised.