Do Commercial Tenants Pay Council Rates? Australian Guide For Landlords

If you’re leasing a shopfront, warehouse, office, café, or other commercial premises, there’s a good chance you’ve asked (or will soon ask) whether commercial tenants pay council rates.

It’s a fair question. Council rates can be a significant ongoing cost, and they often sit alongside other “outgoings” like land tax, building insurance, and maintenance charges. If you don’t clarify who pays what at the start, you can end up with unexpected bills (or disputes) later.

In this guide, we’ll walk you through how council rates typically work in commercial leasing in Australia, what to look for in your lease, and the practical steps you can take to avoid nasty surprises.

What Are Council Rates (And Why Do They Matter In Commercial Leases)?

Council rates are charges levied by local councils on landowners to fund local services and infrastructure. Depending on the council and the property, rates can cover things like:

• road maintenance
• waste services
• community facilities
• stormwater and drainage
• other local government services

Rates are usually issued to the property owner as the “ratepayer”. But in commercial leasing, what matters day-to-day is whether the lease allows the owner (landlord) to recover that cost from you as the tenant.

This is why council rates often appear within the broader concept of outgoings (sometimes called operating expenses). Outgoings are property-related costs that the landlord may pass on to the tenant, depending on the lease and the type of lease arrangement.

So, Do Commercial Tenants Pay Council Rates In Australia?

In many commercial leases, yes - commercial tenants often end up paying council rates indirectly as part of the property’s outgoings.

However, there isn’t one universal rule. The real answer depends on:

• the terms of your lease (this is the main one)
• whether the lease is a retail lease (often with additional protections)
• the type of property (single tenant vs multi-tenant)
• the state or territory where the property is located (including any applicable retail leasing legislation)

It’s common for landlords to structure commercial leases so that the tenant pays (or contributes to) outgoings like council rates, especially where the tenant has substantial control and use of the premises.

That said, there are also many leases where council rates remain the landlord’s responsibility, or where only certain components are recoverable.

Direct Vs Indirect Payment

Even when a lease says you “pay council rates”, this typically does not mean the council sends the bill to you. It usually means:

• the landlord receives the rates notice; and
• you reimburse the landlord (often monthly or quarterly) under the outgoings clause.

Because the mechanism is reimbursement, it’s important that the lease clearly states how outgoings are calculated, invoiced, and verified.

How Do Council Rates Show Up In A Commercial Lease?

Most of the time, council rates appear in your lease under an “Outgoings” or “Operating Expenses” section.

To work out whether you pay council rates (and how much), you’ll want to check the lease for these key items.

1) The Outgoings Clause

This clause usually explains:

• which costs count as outgoings (often including council rates)
• how you’ll be charged (estimated contributions, then an annual reconciliation)
• when payments are due
• what evidence the landlord must provide

Watch out for broad wording like “all outgoings relating to the premises” or “all charges payable by the landlord in respect of the property”. These phrases can shift a lot of costs onto you unless the lease also includes limits or exclusions.

2) The Disclosure Statement (Often For Retail Leases)

If your lease is covered by retail leasing legislation in your state or territory, the landlord may have to provide a disclosure statement outlining estimated outgoings, including council rates.

This is one reason retail leasing frameworks can be helpful for tenants: you often get more transparency about the costs you’re signing up for. The exact disclosure rules (and what happens if they aren’t followed) vary between states and territories.

3) “Gross”, “Net”, And “Semi-Gross” Rent Structures

How council rates are handled often depends on the rent structure:

• Gross lease: Rent is “all inclusive” (outgoings like council rates are usually built into the rent). You may still pay some items separately, but the landlord generally absorbs most outgoings.
• Net lease: Rent is lower, but you pay rent plus outgoings (often including council rates). Many commercial leases are structured this way.
• Semi-gross lease: The landlord and tenant split outgoings or the tenant pays only certain categories.

Two leases can have the same monthly rent on paper but very different real costs once outgoings are added. That’s why it’s worth getting clarity early.

What If The Property Has Multiple Tenants?

In shopping centres, office buildings, and other multi-tenant properties, council rates are commonly treated as an outgoing that gets shared between tenants.

In these cases, the lease may calculate your share of council rates based on:

• lettable area (e.g. your square metres as a percentage of the total building)
• usage (less common, but can happen for certain services)
• fixed percentages agreed in the lease

Some leases also include management fees or administration fees associated with handling outgoings. You’ll want to check whether these are capped, reasonable, and properly disclosed.

Common Pain Point: “Grossed Up” Outgoings

Some leases allow a landlord to “gross up” outgoings. This means if some tenancies are vacant, the landlord can calculate outgoings as though the building were fully occupied, then charge tenants their percentage share.

This can have a big impact on what you pay, especially in high-vacancy periods. Whether “grossing up” is allowed (and how it must be calculated and disclosed) depends on the lease terms and, for retail leases, the relevant state or territory retail leasing legislation.

Can Landlords Pass On Council Rates Under Retail Leasing Laws?

Retail leasing laws vary by state and territory, but a common theme is that retail tenants often have stronger protections around outgoings.

Depending on the jurisdiction and the exact lease, retail leasing rules may:

• require clearer disclosure of estimated outgoings
• limit certain charges that can be passed on
• require annual reconciliation statements and supporting evidence
• restrict landlords from passing on costs that are not properly disclosed (or not disclosed in the required way)

This doesn’t necessarily mean retail tenants never pay council rates - they often still do - but the process is usually more regulated and more jurisdiction-specific than people expect.

If you’re unsure whether your premises are covered by retail leasing legislation, it’s worth getting advice early (before you sign), because the label “retail lease” isn’t always obvious from the way the lease is presented.

Land Tax Vs Council Rates (They’re Often Confused)

Tenants often lump “council rates” and “land tax” together, but they’re different. Council rates are local government charges; land tax is a state- or territory-based tax on land ownership.

Some states and territories restrict when land tax can be recovered from retail tenants, while council rates are often treated as a more standard outgoing. If your lease bundles these together, that’s a sign you should look closely at the drafting and what’s actually recoverable. (For tax-specific guidance, you may also want to speak with your accountant.)

Practical Tips For Tenants: How To Avoid Surprises With Council Rates

If you’re negotiating a new lease or reviewing an existing one, these steps can help you stay in control of your costs.

1) Ask For An Outgoings Budget Upfront

Before you commit, ask the landlord (or agent) for:

• the most recent outgoings estimate
• the prior year’s reconciliation statement (if available)
• confirmation of whether council rates are included and how they’re apportioned

This helps you budget properly and compare locations on a like-for-like basis.

2) Check How “Council Rates” Are Defined

Some leases define council rates broadly (including levies, charges, or special rates). If the definition is too open-ended, you may end up paying more than you expect.

It’s usually reasonable to want clarity around what counts as “rates” and whether one-off levies (like special infrastructure charges) can be passed on.

3) Negotiate Caps Or Exclusions Where Possible

Depending on your bargaining power and the property, you may be able to negotiate:

• a cap on annual increases for outgoings
• exclusions for capital works or major upgrades
• limits on management/administration fees

Even small changes in wording can make a meaningful difference to your yearly occupancy costs.

4) Make Sure The Lease Has Audit/Verification Rights

If you’re paying council rates via outgoings, you’ll usually want the right to request evidence that the charges are accurate.

This can include copies of rates notices and a clear breakdown of how your share was calculated. Transparency is one of the best ways to prevent disputes.

5) Get The Lease Reviewed Before You Sign

Council rates are just one part of the bigger picture. A lease may also allocate repair obligations, make-good requirements, and rights to relocate or redevelop - all of which can have a major business impact.

A Commercial Lease Review can help you understand your total risk and cost exposure, including whether council rates can be recovered from you and how those payments are calculated.

What Should Landlords Consider When Charging Council Rates To Tenants?

If you’re a landlord, you generally want your lease to be clear, enforceable, and commercially sensible. Even where you’re entitled to recover council rates, unclear drafting or poor processes can lead to disputes and delayed payments.

Here are some practical points to think about.

1) Be Clear And Specific About Outgoings

List outgoings clearly (including council rates), and specify:

• how they’re calculated
• how and when they’re billed
• how reconciliation works

This protects both sides. Tenants are more likely to accept outgoings when they understand them, and landlords are more likely to recover costs smoothly when documentation is clean.

2) Follow Retail Lease Disclosure Rules (If They Apply)

If the lease is a retail lease, disclosure obligations can be strict and differ between states and territories. If outgoings aren’t properly disclosed (or disclosed in the required way), you may be restricted from recovering them.

It’s worth getting the lease and disclosure documents right from the start, rather than trying to fix it after the tenant has moved in.

3) Keep Supporting Records And Reconciliation Statements

Because outgoings are often collected as estimates and later reconciled, record-keeping matters. If a tenant challenges council rates, the fastest way to resolve it is to provide the underlying rates notice and calculations.

4) Make Sure Your Lease Matches Your Commercial Intentions

Some landlords assume “standard commercial leases” always allow council rates to be passed on. That’s not always the case, and even where it is intended, the drafting needs to match that intention (and comply with any applicable retail leasing laws).

If you’re drafting or updating your lease, a Commercial Lease prepared for your property can help ensure outgoings clauses are clear and fit-for-purpose.

What Other Lease Costs Are Often Bundled With Council Rates?

If you’re asking whether you pay council rates, it’s usually because you’re trying to understand the bigger picture of your occupancy costs.

Depending on the lease, outgoings may also include:

• water rates and usage charges
• strata levies (for lots in a strata scheme)
• building insurance premiums
• repairs and maintenance (sometimes common areas, sometimes more)
• security, cleaning, waste services
• management fees for administering the property

If your premises includes shared areas or you’re operating under a licence rather than a lease (common for shared workspaces or pop-ups), the cost allocation can look different again. In those arrangements, fees may be bundled into a single licence fee rather than itemised outgoings.

Key Takeaways

• When businesses ask whether commercial tenants pay council rates, the usual answer is “often yes” - but it depends on the lease wording and (for retail premises) the applicable state or territory retail leasing legislation.
• Council rates are commonly recovered as part of outgoings, meaning you reimburse the landlord rather than paying the council directly.
• Retail leasing laws can require additional disclosure and may limit what a landlord can recover if outgoings aren’t properly disclosed (with the exact rules varying by jurisdiction).
• For multi-tenant properties, council rates are usually apportioned (for example based on lettable area), and some leases may allow “grossed up” outgoings (subject to the lease and any applicable retail leasing rules).
• Tenants should ask for an outgoings budget, check definitions, and ensure they have the right to verify charges before signing.
• Landlords should keep outgoings clauses clear, comply with disclosure requirements, and maintain good supporting records and reconciliations.

If you’d like help reviewing or drafting a lease (including outgoings like council rates), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.