Retail shop lease outgoings

Meaning of ‘outgoings’

Under the Retail Shop Leases Act 1994 (Qld) (the ‘Act’), a lessor’s outgoings for a retail shopping centre or leased building are:

• the lessor’s reasonable expenses directly attributable to the operation, maintenance or repair of the centre or building and areas (associated areas) used in association with the centre or building; and
• charges, levies, premiums, rates or taxes payable by the lessor because the lessor is the owner or occupier of:
  • the centre or building; or
  • the land on which the centre or building is situated; and
• if the lease provides that the GST amount is to be paid by the lessee to the lessor as an outgoings item, the GST amount.

However, lessor’s outgoings do not include:

• land tax payable on the land on which the centre or building is situated; and
• expenditure of a capital nature, including the amortisation of capital costs; and
• contributions to a depreciation or sinking fund; and
• insurance premiums for loss of profits; and
• payment of an excess in relation to a claim on the lessor’s insurance policy for the centre or building or associated areas; and
• lessor’s contributions to merchants’ associations and centre promotion funds; and
• payment of interest and charges on amounts borrowed by the lessor; and

Outgoings, for a retail shop lease, can include promotion fees and maintenance fees to the extent the amounts are treated as part of the lessor’s outgoings under the retail shop lease. Nevertheless, a lessee under a retail shop lease is not liable to pay an amount to the lessor for outgoings unless the lease specifies:

• the outgoings payable by the lessee; and
• how the outgoings will be determined and apportioned to the lessee; and
• how the outgoings may be recovered by the lessor from the lessee.

Lessee’s liability to pay proportion of lessor’s outgoings

The proportion of a lessor’s outgoings for a retail shopping centre or leased building payable by a lessee under a retail shop lease who is enjoying or sharing the benefit of the outgoing must not be more than the proportion that the area of the lessee’s leased shop bears to the total area of all premises in the centre or building that are owned by the lessor and:

• leased to or occupied by lessees who enjoy or share the benefit resulting from the outgoing (whether or not they are lessees under retail shop leases); or
• available for lease to or occupation by lessees who would, if leased or occupied, enjoy or share the benefit resulting from the outgoing (whether or not they would be lessees under retail shop leases).

Maintenance fees

The lessor may require a lessee to pay maintenance amounts into a single sinking fund maintained by the lessor for major maintenance of, or repairs to:

• the buildings, plant and equipment of, and areas used in association with, the retail shopping centre in which the leased shop is situated; or
• the building in which the leased shop is situated and the plant and equipment of, and areas used in association with, the building; or
• the leased shop and the plant and equipment of, and areas used in association with, the leased shop.

The total payments into the sinking fund by all lessees of the retail shops to which the fund relates for any year must not be more than 5% of the total of the lessor’s estimated outgoings for the retail shops for the year.

The lessor must not seek or accept payments of maintenance amounts from a lessee of a retail shop that would result in the amount standing to the credit of the sinking fund being more than $100,000.

Promotion and advertising fees

The lessor may require the lessee to pay amounts to the lessor for promotion and advertising. If so, then, at least one (1) month before the start of each accounting period of the lessor, the lessor must make available to the lessee a marketing plan that gives details of the lessor’s proposed spending on promotion and advertising during that accounting period.

The lessor must make available to the lessee an audited annual statement of the lessor’s expenditure for promotion amounts within three (3) months after the end of the period to which the statement relates.

If all or part of a promotion amount paid for a period by the lessee is not spent during the period, the lessor must carry forward the unspent promotion amount to be applied towards spending on promotion and advertising of the centre.

Annual estimate of outgoings

The lessor under a retail shop lease must give the lessee an annual estimate in the approved form of the lessor’s apportionable outgoings and the proportion of those outgoings for which the lessee will be liable under the retail lease.

The lessor must give the outgoings estimate to the lessee:

• at least one (1) month before the start of the period to which the estimate relates; or
• if the lessee enters into the retail shop lease during the period to which the estimate relates or within one (1) month before the start of the period, when the lessee enters into the retail shop lease.

If the shop is in a retail shopping centre, the outgoings estimate must also include a breakdown of the estimated fees to be paid by the lessee towards the administration costs of running the centre and any other fees to be paid to a centre management entity.

Audited annual statement of outgoings

The lessor under a retail shop lease must give the lessee an audited annual statement in the approved form of the lessor’s apportionable outgoings. The audited annual statement must be given to the lessee within three (3) months after the end of the period to which the outgoings relate.

The audited annual statement must:

• be prepared by a registered auditor in accordance with auditing standards generally accepted in the Australian accounting profession; and
• contain the auditor’s opinion on whether the statement presents fairly the lessor’s apportionable outgoings for the accounting period to which it relates in accordance with the lessor’s financial records and this Act; and
• compare the annual estimates of the lessor’s apportionable outgoings with the amount actually spent by the lessor for the outgoings during the period; and
• compare the total amount actually spent by the lessor for apportionable outgoings during the period with the total amounts actually paid by lessees to the lessor during the period.

If the retail shop is in a retail shopping centre, the audited annual statement must also include the total management fees paid by the lessee broken down into fees paid by the lessee towards the administration costs of running the centre and any other fees paid to a centre management entity.

If you are entering a new retail shop lease or taking over an existing retail shop lease, and you would like to obtain legal advice in relation to the terms and conditions proposed in retail shop lease (to ensure they are compliant with the Act), including having the mandatory legal advice report certificate prepared and signed by a duly qualified and licenced lawyer, please contact AdviiLaw today to obtain an obligation free quote. Contact us on 07 3088 7937 or email us at [email protected].

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