The relevant outgoings encountered in such leases are summarized below:

Land tax is included on either a single or a multiple holding base. A multiple holding base (that is, the actual land tax being charged the owner) may result in a large increase in statutory outgoings. In, some states such a South Australia, legislation. prohibits the passing of land tax onto a retail tenant.

This outgoing is the cost of providing light and power to the common areas of the building.

The management fee is a percent of the gross income less vacancies for example:

In times of "keen" competition the fee will be towards the lower end of the scale and may be less for very large buildings.

Includes contract fee, wages, labour on costs, materials including uniforms and maintenance systems.

This is an outgoing somewhere between a capital and an ongoing cost. The period of replacement depends on the mix of synthetic and wool materials in the carpet but typically, should be replaced about every 5 7 years. The annual operating cost is found by calculating an annual Sinking Fund contribution.

The Sinking Fund formula is:

SFC = i/((1+i)n 1)


SFC = sinking fund contribution to replace $1 of the expected cost in "n" years time
i = interest rate as a decimal
n = number of years.

The SFC factor is multiplied by the expected cost to determine the annual cost of replacement. The sinking fund method can also be used to calculate an annual equivalent for refurbishment and redecorating that has a life substantially less than that of the building, for example, about 10 15 years.


For large buildings this cost should be for materials and parts only as maintenance staff are employed under "labour" above. On the other hand, for smaller buildings it will be a contract rate. This outgoing is a function of age, condition, design and complexity of the building. The "actual" repair outgoings paid by tenants may be erratic as occasional costs such as redecorating, refurbishment, new plant and machinery, and carpet replacement ("capital items") are often and wrongly charged against the tenants in one year.

The valuer should ignore such costs, as they are items of capital with a life approaching that of the building or (as in the case of refurbishment) over a long period. The age of plant and equipment is important, as the "economic depreciation" of modern plant is high because of rapidly changing technology. That is, it may require replacing in the near future despite being mechanically sound as it is (or soon will be) economically obsolete.

The extent of the lessee's obligations varies from simply having to replace light bulbs to repairing roofs and walls. There is a critical distinction between a "structural repair obligation" and a "non structural repair obligation". Look for these words in the lease document. Also "having regard to the condition of the premises at the commencement of the term of the lease" and "fair wear and tear excluded."

Without these provisions the lessee's obligations are far greater than merely keeping the premises in reasonable condition as they get older. The expense of renovation must be taken into account if these provisions are missing. This item includes all running costs for lifts and escalators including contract fees, wages and materials. The total cost of all building repairs and maintenance excluding that for air conditioning and ventilation and for lifts and escalators. Including electrical, general, lamps and tubes, locks, keys including card keys, painting, plumbing, structural and emergency systems.


The cost of pest control including the treatment of carpets and records, termite, insects and vermin. In a typical valuation pest control items are included in "cleaning."


Local, state, and water/sewerage authority’s rates. In NSW water and sewerage rates are based on the Assessed Annual Value (AAV) which is the value of the gross annual income less 1/10th. State land taxes are based on the land or site value.


Consolidates advertising and promotion, legal fees and postage and sundries.


Advertising is the normal annual cost of advertising for new tenants during periods of vacancies. Advertising and promotion costs are quite high during the initial "letting up" stage of a new building but tends to fall to an even figure once the building is established.

For a new building, the valuer should not use the higher initial cost but instead, assume that the building is "established". This is because the investor is concerned about the investment in the long run. However when valued “as if occupied” a deduction should be made for the letting up period.


A figure for advertising and promotion of about 1% of gross annual income after vacancies is sometimes used for commercial buildings.


Most modern buildings have floor to floor (or zoned) air conditioning so that individual lessees may operate their premises outside prescribed hours. This is an important feature for a number of tenants for example, financiers and heavy computer users.

Landlords are reluctant to take on any obligation with respect to air conditioning and usually, the tenant reimburses the landlord for the costs of running and maintenance. The outgoing is the total cost of running and maintenance of all air conditioning plant and ventilation. It is inclusive of applicable insurance premiums. It includes the following elements:


Includes all costs associated with car parking including signs, materials, and wages. Excludes cleaning that is in PCA Account #250, lighting in PCA Account #280 and air conditioning and ventilation in PCA Account #230.


Includes all caretaking items including wages.


The full cost of cleaning. Includes all items associated with cleaning and rubbish removal, and cleaning by building staff. Sullage disposal is a separate accounting item. In large commercial office buildings it is usual for one contractor to clean the whole building and each lessee is required to pay an apportionment of the total cost. This is often dealt with as a separate item in the lease document.


Includes the following items:

All fees payable in connection with the leasing of space within a building other than advertising costs. Excludes initial legal fees that are in PCA Account #520.

All fees paid to the property manager for the management of the. building. Can be very competitive and therefore, the scale fees are little guide.

All fees payable for the negotiation of rent reviews.

All fees paid to valuers for their part in rental determinations as either an expert or an arbitrator.


Includes all electrical items such as lifts, escalators, all central services and light in the common areas.


This outgoing is the cost of maintenance and materials. Usually lifts are covered by a maintenance contract with the supplier. For example, the typical cost to run elevators might be $60 000 average/elevator/per annum.


This item includes all costs associated with fire protection and maintenance. These include contract fees, replacement of detectors and alarms, and repairs and tests to the system. Also includes costs related to the sprinkler system, thermal alarms, equipment inspection, and the extinguisher service. Do not forget that if sprinklers are installed, then a lower insurance premium is payable.


The cost of fixed outgoings is the cost of the external charges on the property which normally, and because they external, cannot be changed by the owner:


Inclusive of government rates and taxes as detailed under PCA Accounts #201 204.


The total cost of all applicable local government rates and charges.


The water authority’s charge for water, sewerage and drainage.


Varies from year to year. As per schedule. It is better to use the single holding rate.


All other government charges


The owner should insure the property against damage from fire, storm, tempest, fusion, burglar, workers compensation, public risk, plate glass, riot and strikes, and loss of rent

A "rule of thumb" is that insurance is about 0.2   0.5% of the replacement cost of the building. Low rates are obtainable if the property manager "shops around" for a comprehensive insurance cover. On the other hand, the actual insurance may be on a "bulk" basis if the owner owns a large number of properties. In such a case, the cost should be increased to a typical "single owner" basis.

The cover must be a comprehensive cover including the following:

Lessees are required to take out various policies and give various indemnities.

Note that insurance premiums for a building with good fire control and protection facilities is lower than a building with inadequate fire control and protection features.


Labour is the cost of maintenance and security staff. The number of staff employed times a typical wage can estimate it. For example, $60 000 per employee (part time) per annum. Sometimes the provision of guards is the tenant's responsibility rather for example, where one government department or a bank occupies a building.


The rent (if any) paid for the ground lease.

See commercial leases