Outgoings “Capped”?

Are Outgoings “Capped” for the Whole Lease Term? Understanding RSLA Disclosure (QLD)

By GRM LAW — practical guidance for buyers, valuers and lenders assessing Queensland retail assets.

Executive Summary

• Not a term-wide cap. Under the Retail Shop Leases Act 1994 (Qld) (RSLA), outgoings are assessed year-by-year.

• First year vs later years. The Lessor’s Disclosure Statement deals with the first year; each subsequent year runs on an annual estimate (before the year) and an audited statement (after the year).

• Temporary concessions should be documented. If the seller agrees to a lower figure for the current year only, paper it as a one-off concession with a settlement adjustment.

• Valuation models should split the cashflow. Year 1 at the concessional number; steady-state from next financial year per the landlord’s annual estimate and audit—no term-wide cap.

Why this comes up so often

When a retail lease is signed, the landlord must disclose the first-year outgoings—what categories are recoverable, how they’re calculated and apportioned, and when they’re payable. That opening disclosure is not a promise that the dollar amount stays the same for the entire term. Costs move—council rates, water/sewerage, body corporate administration levies, shared services, etc.—and the RSLA is designed to handle that movement on a period-by-period basis.

From the second year onward, the regime resets each financial year via two documents:

• an annual outgoings estimate (provided at least a month before the period starts), and

• an audited annual statement (provided after the period ends).

If either document arrives late, the tenant can withhold outgoings until it’s provided. That is a timing right, not a permanent waiver.

Key principle: The Act fixes the types and method of recovery, but not a term-wide dollar cap.

What is (and isn’t) recoverable

• The tenant is only liable for outgoings categories that are specified in the lease and permitted by the RSLA.

• In QLD retail leasing, land tax is not recoverable from a tenant.

• Body corporate administrative levies are usually recoverable where the lease permits; sinking/reserve fund contributions are commonly excluded unless clearly allowed and not prohibited by the Act.

• Insurance split is typical: the tenant carries public liability; the landlord carries building insurance (premiums commonly not recoverable in retail unless the lease and the Act allow).

A worked example (numbers simplified)

• Seller’s first-year disclosure/estimate: $14,600 p.a.

• Actual current-year outgoings: $20,363.08 (driven by higher council rates and BC admin levy).

• Tenant payments: $1,216.67/month (= $14,600 ÷ 12).

• Shortfall for current FY: $5,763.08.

Commercially sensible solution:
The seller accepts $1,216.67/month for this financial year only, and the $5,763.08 shortfall is credited to the buyer at settlement (so the buyer isn’t out of pocket for the variance).

What happens next year?
From 1 July (next FY), the landlord issues a new annual estimate reflecting the updated budget. The tenant then contributes at that rate, with a post-year audit true-up. There is no term-wide cap.

How valuers and lenders should model it

Ask them to run two tracks:

1. Current FY (one-off concession):
   Recoverable outgoings at $14,600 p.a., with the $5,763.08 variance addressed by a settlement adjustment in the buyer’s favour.

2. Next FY onward (steady state):
   Recoverable outgoings at the updated annual budget per the landlord’s estimate, reconciled to the audited annual statement each year. No ongoing cap.

Handy line you can paste into a valuation brief:
“Outgoings for the current FY are recovered at $14,600 p.a. as a one-off concession, with the $5,763.08 shortfall adjusted at settlement. From 1 July next year, outgoings are payable at the landlord’s annual estimate and reconciled by the audited annual statement. There is no term-wide cap.”

Papering the position (so everyone’s aligned)

1) Special Condition (Contract of Sale)

• Records that $14,600 p.a. applies for the current FY only.

• Requires a price/settlement adjustment for the $5,763.08 shortfall.

• Confirms this does not amend the lease and is non-precedential.

2) Side Letter with the Tenant

• Confirms the temporary concession and its end date.

• States that from the next FY, outgoings are payable per the annual estimate and audited statement.

• Clarifies recoverable categories (e.g., council rates, water/sewer, BC admin levy; excludes land tax).

• Includes a no waiver/estoppel clause and preserves all lease rights.

• Optionally attach or commit to timing for the first post-settlement annual estimate.

Quick checklist for buyers

• Confirm the outgoings categories in the lease match RSLA settings (and market norms).

• Verify first-year disclosure vs actuals; understand the variance.

• Lock in a one-year concession and settlement adjustment if needed.

• Diarise estimate (≥1 month before FY start) and audit (within 3 months post-year).

• Provide your valuer/lender the one-paragraph note above plus the signed concession documents.

• Remember: no term-wide cap—each year resets on estimate/audit.

FAQs

Does a disclosed dollar figure bind the whole term?
No. Only the first year is disclosed; later years run on annual estimate + audit.

What if the estimate or audit is late?
The tenant may withhold outgoings until the document is provided. It’s a timing protection, not a write-off.

Can prior-year shortfalls be recovered?
Yes—via the annual audit reconciliation, subject to lease and RSLA mechanics.

Are sinking fund levies recoverable?
Often not in retail unless clearly allowed and not prohibited. BC admin levies typically are, where permitted by the lease.

Bottom line

For QLD retail assets, the RSLA sets a period-by-period outgoings framework. Treat any present shortfall as a one-year issue, document a clean settlement adjustment, and have valuation/finance modelled on the temporary concession now and steady-state recovery from next FY. No asset repricing is needed merely because this year’s outgoings were higher than the initial first-year disclosure.

This article provides general information and is not legal advice. For tailored advice on your lease, finance or transaction, contact GRM LAW.

_______________________________________________________________________________________________________________________________________________________________

For more information, please contact Gavin McInnes on 07 3367 8681 or gmcinnes@grmlaw.com.au.

 The information contained in this article is general in nature and cannot be regarded as anything more than general comment. Readers of this article should not act on the basis of this comment without consulting one of GRM LAW 's legal practitioners who will consider their particular circumstances.

Expertise

GRM LAW has a wide range of experience assisting companies in all aspects of banking & finance, business, corporate, property, managed funds and IT law.

Not only will you find that GRM LAW is likely to have assisted someone in your exact situation, but you’ll find that a GRM LAW lawyer can distill a complex legal issue into a set of actionable options for you to consider.