Lease Structures in NSW: What They Really Mean
Gross Lease
Under a gross lease, the tenant pays a single rent amount and the landlord covers most or all outgoings. This structure offers simpler budgeting — but only if the lease is genuinely “all inclusive”. Some so-called gross leases still allow certain costs to be recovered separately.
Net Lease
Under a net lease, the advertised rent excludes outgoings. The tenant pays base rent plus a share of operating costs, which may include:
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Council rates
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Water rates
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Land tax
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Building insurance
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Strata levies
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Cleaning and common area maintenance
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Security
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Property management fees
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Repairs and maintenance
Most NSW commercial leases are structured as net or modified gross, meaning tenants ultimately carry some or all outgoings.
The Outgoings Trap
Many small business tenants underestimate the real occupancy cost of a premises because:
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Outgoings are based on estimates rather than actuals
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Disclosure statements are not carefully reviewed
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Lease clauses allow broad cost recovery
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Annual reconciliations increase payable amounts
Outgoings can add 10–30% (or more) on top of base rent. In multi-tenanted properties, unexpected increases in insurance premiums, land tax, or maintenance costs can significantly affect cash flow.
The risk is not simply higher costs — it is unpredictability.
Disclosure Obligations Under the Retail Leases Act 1994 (NSW)
If the premises qualify as a retail shop under the Retail Leases Act 1994, landlords have strict disclosure obligations.
Mandatory Disclosure Statement
Landlords must provide a Disclosure Statement at least seven days before the lease is entered into. This must include:
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Estimated outgoings for the first year
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Details of how outgoings are calculated
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The tenant’s proportion of shared costs
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Base rent and review mechanisms
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Any other recoverable amounts
If the landlord fails to provide proper disclosure, tenants may:
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Terminate the lease within a specified period
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Seek compensation for loss
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Challenge enforceability of certain provisions
Incomplete or misleading disclosure can have serious legal consequences.
What Can Be Recovered as Outgoings?
In retail leases, outgoings are recoverable only if:
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The lease permits recovery, and
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They are properly disclosed in the Disclosure Statement.
Common recoverable outgoings:
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Council and water rates
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Land tax
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Insurance premiums
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Strata levies
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Common area electricity and cleaning
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Management fees (if disclosed)
Generally not recoverable unless clearly permitted:
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Capital works (structural upgrades)
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Improvements benefiting the landlord’s long-term asset value
Tenants should pay particular attention to clauses allowing recovery of “any expenses reasonably incurred”, which can be broadly interpreted.
How Outgoings Are Calculated
In multi-tenanted buildings, outgoings are usually apportioned based on:
Tenant’s lettable area ÷ Total building lettable area
However, leases may define “lettable area” differently, affecting the percentage payable. Errors or changes in building occupancy can also shift cost allocation.
Annual reconciliations may require tenants to pay additional amounts if actual expenses exceed estimates.
True Occupancy Cost: The Affordability Equation
Tenants often focus only on headline rent. The real figure is:
Base Rent + Outgoings + GST
Example:
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Base rent: $50,000
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Outgoings: $15,000
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GST (10%): $6,500
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Total annual occupancy cost: $71,500
That difference can materially affect business viability, particularly for small operators with tight margins.
Key Protections for Retail Tenants in NSW
Under the Retail Leases Act 1994, retail tenants benefit from:
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Mandatory pre-lease disclosure
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A cooling-off period
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Restrictions on certain lease terms
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Access to mediation through NSW Small Business Commissioner processes
However, these protections apply only if the lease qualifies as a retail lease under the Act.
Practical Risk Management Before Signing
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Request the last two years of actual outgoings statements.
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Compare estimates against historical figures.
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Clarify whether management fees and land tax are included.
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Ask how reconciliations are handled.
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Review capital expenditure clauses carefully.
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Obtain legal advice before committing.
Negotiating a cap on outgoings increases or excluding certain categories can significantly reduce long-term risk.
Final Consideration
Gross vs net is not simply a structural distinction — it is a risk allocation decision.
For small business tenants in NSW, the real danger is not high rent. It is underestimated outgoings combined with inadequate disclosure. Understanding your rights under the Retail Leases Act 1994 (NSW) and scrutinising the Disclosure Statement carefully can prevent a financially manageable lease from becoming an unsustainable one.
