Commercial Outgoings Explained: What Works Best?

For landlords and commercial property managers, choosing the right outgoings structure is key to balancing cash flow, transparency, and tenant appeal. Here’s how each model works, and what landlords should consider when negotiating or reviewing lease terms.

Gross Lease 

With this type of agreement, all outgoings are included in the rent, and the landlord would then pay the outgoings as they are received. Increases in outgoings can be clawed back by having higher than normal annual rent reviews.

We commonly see this approach in smaller properties with single tenants, where tenants prefer simplicity and fixed costs.

Pros:

• Simple for tenants; one fixed payment
• Predictable income stream for landlords
• Easier lease administration

Cons:

• Landlords carry risk of rising outgoings above annual rent reviews
• Rent may appear higher, potentially deterring price-sensitive tenants
• Increases in outgoings not captured in rent reviews could impact valuation down the line

Semi-Gross Lease

In a semi-gross lease, tenants would pay a proportion of the outgoings. This is commonly structured in two ways; tenants either pay increases to outgoings over a ‘base year’, or they pay their proportional share of those increases based on the percentage of the building they occupy.

In this circumstance, if the rates went up by $2,000 over a given year, then the $2,000 increase would be passed onto the tenants. This is the most common lease setup we see in the ACT.

Pros:

• Popular with landlords as all increases are captured
• Encourages landlords to manage costs efficiently
• Attractive in competitive leasing environments
• Any increases can be accurately captured

Cons:

• Landlord bears full cost of base year outgoings
• Less predictable cash flow for landlords
• Regularly audited, causing administrative burden through manual processing

Net Lease

With a net lease, all statutory and building outgoings are directly passed onto the tenants as they become due. The landlord pays nothing beyond any capital works or excluded items as agreed to.

This type of agreement is common with larger industrial properties with national tenants.

Pros:

• Statutory charges are captured accurately
• Costs are transparent for Tenants
• Lower rent reviews can be supplemented through passing on the costs

Cons:

• Higher administrative burden
• Costs are more variable, potentially hurting tenants
• Some tenants prefer gross or semi-gross for simplicity

The right outgoings structure depends on the asset type, tenant expectations, and your investment strategy. Whether you prioritise simplicity or cost recovery, understanding these models can help you negotiate leases that protect value and support long-term performance.

Need help structuring your lease? Our team can help you make a decision on what outgoings structure will be best for your portfolio.

Disclaimer: This article is for general information purposes only and does not constitute financial, tax, or legal advice. You should seek independent advice from a qualified professional to assess your specific circumstances before making any decisions related to taxation or property investment.