An outgoings reconciliation is the annual account that shows what a property actually cost to run against what the tenant was billed through the year. For leases covered by the Commercial Tenancy (Retail Shops) Agreements Act 1985, it is not optional and it is not a courtesy. The landlord has to provide an estimate before the accounting period, and a written statement of the actual expenses within three months after it ends.
First, does the Act apply to your lease?
This matters before anything else, because a great deal of what follows applies to retail shop leases and not to every commercial lease in Perth.
The Act covers retail shop leases where the lettable area is 1,000 square metres or less. That includes shops in a retail shopping centre of five or more retail premises, standalone retail premises, and a set of specified businesses including dry cleaning, hairdressing, beauty therapy and shoe repair.
Leases held by a listed corporation that would not be eligible to be a proprietary company, or by a subsidiary of one, are excluded. So are premises used only for a vending machine or an ATM.
An office floor or a warehouse outside those descriptions is governed by the lease itself. The reconciliation still happens, but what the tenant is entitled to see is whatever the lease says, not what the Act requires.
What outgoings actually are
The costs of running the property, as distinct from the landlord’s cost of owning it. Council rates, water rates, land tax where it is recoverable, insurance, common area cleaning and lighting, security, lift and air conditioning maintenance, pest control, waste, and management fees where the lease allows them.
What they are not is capital. Replacing a plant item at the end of its life is the owner’s cost, not an operating expense, and the line between a repair and a replacement is where most reconciliation disputes actually sit.
The estimate, before the year starts
Under section 12, where a landlord requires a tenant to contribute to operating expenses, the tenant is not required to pay until the landlord has given estimates for the relevant accounting period.
That is worth reading twice, because it puts the obligation in order. The estimate comes first. A tenant who has never been given one has a fair question about what they have been paying.
A good estimate is also a management document, not a formality. It is where an owner works out what the year is going to cost before it is spent.
The statement, within three months of year end
A written statement of the actual operating expenses for the accounting period has to be given to the tenant within three months after the end of that period.
Leases covered by the Act must individually itemise the operating expenses a tenant contributes to, and the tenant should have access to the invoices and receipts that confirm the actual expenses. An itemised statement is the point. A single line reading operating expenses is not a reconciliation, it is a number.
What to check, from either side
Whether each item was actually disclosed. If an outgoing was not notified to the tenant in the disclosure statement, the tenant is not required to contribute to it, and that catches more landlords than it should.
Whether the apportionment matches the lease. A tenant paying on a lettable area basis in a building where the vacant floor is being carried by everyone else is paying someone else’s share.
Whether anything capital has been included as an expense.
Whether the management fee is within what the lease allows, and whether it is charged on a basis the lease actually describes.
And whether last year’s variance was ever settled. An estimate that ran under is a credit, and it should appear.
Why it is worth doing properly
An owner who reconciles on time and itemises properly recovers what they are entitled to and rarely argues about it. An owner who sends a late, aggregated number invites every question at once, usually at renewal, and frequently ends up conceding recovery they were entitled to simply because the record does not support it.
The work is not hard. It is a discipline about dates and a habit of keeping the invoices in order.
The short version
Estimate before the accounting period. Itemised written statement within three months of the end of it. Invoices available. Nothing recovered that was not disclosed, and nothing capital dressed up as an expense.
If your outgoings have been running on a rolled up figure and last year’s reconciliation is still outstanding, that is worth sorting before the next renewal rather than during it. Our commercial property management service budgets outgoings before each year, bills them as the lease allows and reconciles at year end, so the recovery is defensible.
The requirements above come from the Commercial Tenancy (Retail Shops) Agreements Act 1985 and the guidance published by the Small Business Development Corporation. This article is general information and not advice.
