Who Pays Council Rates: Landlord Or Tenant?

If you’re leasing a shop, office, warehouse, clinic or studio, “rates” can quickly become one of those frustrating cost items that feels both unavoidable and unclear.

You might be asking the same question many commercial tenants ask before signing: who pays rates – landlord or tenant?

The practical answer is: it depends on (1) what kind of rates we’re talking about, (2) whether your lease is a retail lease or a commercial (non-retail) lease, and (3) what your lease says about outgoings.

This guide walks you through the common “rates” you’ll see in Australia, how they’re usually handled in leases, and what to check before you commit (or before you get surprised by an outgoings invoice).

Note: This article is general information only, not legal, tax or financial advice. Because outgoings rules (especially for retail leases) vary by state/territory and by the specific lease, it’s worth getting advice for your situation. For land tax treatment, you should also speak with your accountant or tax adviser.

What “Rates” Usually Means In A Commercial Lease

In Australia, “rates” is often used as a catch-all for recurring charges on a property. In leasing, rates often form part of “outgoings” (also called operating expenses). But not every charge labelled “rates” is treated the same way.

Council Rates

Council rates are fees charged by local councils to fund local services and infrastructure. They’re usually assessed against the property owner, but many commercial leases allow the landlord to recover some or all of them from the tenant as outgoings.

Water Rates / Water Service Charges

Water rates can include fixed service charges (for having water connected) and usage charges (for what you actually consume). Leases often split these differently:

• Usage is commonly paid by the tenant (especially where the premises is separately metered).
• Fixed service charges may be paid by the landlord or recovered as outgoings, depending on the lease and the type of premises.

Land Tax (A Common Flashpoint)

Land tax is a state/territory tax charged on land ownership (subject to thresholds and exemptions). This is often one of the most disputed items in outgoings because the rules vary by location and by lease type.

Some leases try to pass land tax onto tenants. Whether that’s allowed (and how it must be disclosed) depends heavily on:

• the state/territory retail leasing legislation (if the lease is a retail lease); and
• the drafting of the outgoings clause and the disclosure documents.

In many jurisdictions, retail leasing laws restrict or regulate what a landlord can recover as outgoings, and land tax is a common area where there may be limitations, conditions, or specific disclosure requirements. Because land tax is also a tax issue (and can be affected by thresholds, exemptions and ownership structures), it’s sensible to speak to your accountant or tax adviser as well as getting legal advice on what your lease can require.

Strata Levies (If You’re In A Strata Building)

If your premises is in a strata scheme (for example, a shop in a shopping arcade or an office in a strata tower), there may be:

• administrative fund levies (day-to-day running costs); and
• capital works/sinking fund levies (longer-term maintenance and major works).

Leases may allow recovery of some strata costs from tenants, but it’s important to understand what you’re actually being asked to contribute towards. In particular, “special levies” and capital works charges can be heavily negotiated, and in retail leasing contexts they may be restricted or require very specific disclosure (depending on the state/territory and the circumstances).

Other Charges That Get Bundled In

When a landlord says “rates”, they might also be referring to a wider outgoings list, such as:

• building insurance premiums;
• common area maintenance;
• security, cleaning and lift servicing;
• management fees;
• fire services and compliance costs; and
• special levies or major repair costs (these need extra care).

That’s why it’s worth getting clarity early. The real question usually isn’t only “who pays rates”, but “what outgoings can the landlord recover from me, and how are they calculated?”

So, Who Pays Rates Landlord Or Tenant In Australia?

As a general starting point:

• Landlords are the ones who receive the rates notice from council or the relevant authority, because these charges are assessed against the owner of the land.
• Tenants may be required to reimburse the landlord for some (or all) of those charges if the lease says the tenant must pay outgoings.

In other words: even though rates are issued to the landlord, the economic cost can be passed on to the tenant if the lease allows it.

Why Leases Pass Rates On To Tenants

Commercial leases often aim to give the landlord a “net” return, meaning the tenant covers many of the property’s ongoing running costs (outgoings), and the landlord keeps the rent as income.

But this isn’t automatic. Your lease needs to clearly set out:

• which outgoings you must pay (and which you don’t);
• how outgoings are calculated;
• how and when you will be billed;
• what evidence the landlord must provide; and
• how outgoings are apportioned (especially if there are multiple tenants).

Retail Lease Vs Commercial (Non-Retail) Lease Matters

If your premises is used for retail purposes (broadly speaking, selling goods/services directly to the public), you may be covered by your state’s or territory’s retail leasing laws. These laws often include disclosure obligations and can restrict, regulate, or set conditions on what can be recovered as outgoings.

In practice, retail leasing laws commonly:

• require landlords to give upfront disclosure of estimated outgoings;
• limit recovery of certain costs, or require them to be clearly disclosed to be recoverable; and
• create extra risk around “big ticket” items like land tax, capital works and special levies (depending on the jurisdiction and the wording used).

If it’s not a retail lease, there may be more freedom for the lease to allocate outgoings, which makes the wording of the lease even more important.

Either way, you’ll want to understand your outgoings position before you sign. A Commercial Lease Review can help identify whether you’re being asked to pay items you weren’t expecting, and whether the outgoings clause is drafted in a way that actually protects you.

How Outgoings Clauses Work (And Where “Rates” Shows Up)

Most leases deal with rates under an “Outgoings” clause. This clause might say the tenant must pay:

• “all outgoings in respect of the premises”; or
• “a proportion of outgoings”; or
• only a specified list of outgoings (for example, council rates, water service charges, strata levies, etc.).

The details matter, because outgoings clauses can vary from very tenant-friendly to very landlord-friendly.

Gross Lease Vs Net Lease (A Helpful Shortcut)

You might hear these terms used in negotiations:

• Gross lease: outgoings are largely included in the rent (you pay one main amount). You may still pay usage charges like electricity or water consumption.
• Net lease: rent is paid plus outgoings (you pay rent and also reimburse specified operating costs).

Many Australian commercial leases are effectively “net” leases, but you should never assume this without checking the lease wording and disclosure documents.

Apportionment: What If You’re In A Multi-Tenant Site?

If you’re leasing part of a building (for example, one tenancy in a complex), the lease should explain how rates and other outgoings are split. Common methods include:

• by lettable area (square metres);
• by a fixed percentage stated in the lease; or
• by a fair and reasonable method determined by the landlord (this needs careful drafting, because it can be vague).

If you’re paying a proportion, you’ll want to confirm:

• the total outgoings being charged; and
• that the proportion reflects your actual tenancy area and use.

Evidence And Auditing

A well-drafted lease will require the landlord to provide evidence of outgoings (for example, invoices, rates notices, strata levy statements) and may require annual estimates and reconciliation.

Without this, you can end up paying amounts you can’t easily verify.

Common Lease Scenarios (And How Rates Are Typically Treated)

To make this more concrete, here are common commercial tenancy scenarios and what you’ll often see in practice.

Scenario 1: You Lease A Standalone Building

If you lease a standalone building (for example, a small warehouse or a suburban office), leases commonly require the tenant to pay:

• council rates (often in full);
• water usage and sometimes water service charges;
• other property-related outgoings (insurance, servicing, etc.).

This is because the outgoings relate directly to your exclusive use of the premises.

Scenario 2: You Lease In A Shopping Centre Or Retail Complex

If you lease in a centre with common areas, the outgoings list may be longer. You might be asked to contribute to:

• centre management costs;
• common area maintenance (cleaning, security, air conditioning in shared spaces);
• marketing levies (sometimes separate to outgoings);
• council rates and other statutory charges (apportioned).

Retail leasing laws (where applicable) can impose specific requirements about disclosure, estimates and what can be recovered. Practically, you want to know what you’re signing up for and what the likely range is year to year.

Scenario 3: You Lease A Strata Office Or Strata Shop

Strata can be tricky because the landlord receives strata levies, and the lease may push those costs to you (in whole or in part).

It’s also important to check whether “special levies” (for major works) can be passed on. Depending on the wording (and, for retail leases, the state/territory rules and disclosure), a tenant could end up contributing to big capital items that don’t really relate to your day-to-day occupation.

Scenario 4: You’re Assigned A Lease Mid-Term

If you take over someone else’s lease (for example, you buy a business and step into the existing premises lease), outgoings obligations usually carry across.

This is where it’s helpful to check whether the lease can be updated or clarified as part of the transfer process. A Deed of Assignment of Lease is often part of this process, and it’s a good time to make sure outgoings responsibility is clear.

What You Should Check Before You Sign (Or Renew) A Lease

Outgoings disputes often happen because the tenant didn’t get enough clarity upfront. Before you sign, renew, or exercise an option, it’s worth checking a few key items.

1. Is “Rates” Defined Or Just Mentioned Broadly?

If the lease says you must pay “all rates, taxes, and outgoings”, ask yourself:

• Does it list what those items are?
• Does it include land tax (and is it actually recoverable for your lease type and jurisdiction)?
• Does it include special levies or capital works items (and are these excluded or tightly limited)?
• Is there a carve-out for capital expenses (big building upgrades)?

Ambiguity tends to favour whoever controls the billing (usually the landlord), so clarity is your friend here.

2. Are You Paying Outgoings Directly Or Reimbursing The Landlord?

Some leases require you to pay outgoings directly to the authority (less common), while others require you to reimburse the landlord.

If you’re reimbursing the landlord, check:

• how often you’ll be invoiced (monthly, quarterly, annually);
• whether you pay estimates upfront and reconcile later; and
• what supporting documents you’re entitled to receive.

3. How Are Outgoings Calculated If You’re Not The Only Tenant?

Where there are multiple tenants, you’ll want comfort that the apportionment is fair and transparent.

If you’re paying a “proportion”, ensure it is stated clearly, rather than left to the landlord’s discretion.

4. What Happens If Rates Increase?

Rates can increase year-to-year. A good question to ask is whether the lease includes:

• any cap on increases (not always offered, but sometimes negotiable);
• any requirement for the landlord to provide estimates in advance; and
• any obligations to mitigate or manage costs.

5. Are There Other Lease Clauses That Interact With Outgoings?

Rates don’t exist in isolation. They connect with other lease obligations, including:

• maintenance and repairs (who pays for compliance upgrades or replacement items?);
• make good (end-of-lease costs can be significant);
• rent review (your overall occupancy cost is rent + outgoings, not just rent); and
• use clause (your permitted use can impact costs like waste, cleaning, and services).

If you’re renewing and negotiating changes, an Extension of Lease Review can be a practical way to confirm you’re not accidentally locking yourself into outgoings terms that no longer suit your business.

Practical Tips To Avoid Rates And Outgoings Disputes

Even if your lease is clear, issues can still arise during the lease term. Here are practical steps to reduce risk and keep your occupancy costs predictable.

Ask For An Outgoings Estimate Before You Commit

Rent is easy to see on the front page of the lease. Outgoings often aren’t. Ask the landlord (or agent) for:

• an annual outgoings estimate (broken down by category); and
• the most recent outgoings reconciliation statement (if available).

This helps you compare properties properly and build realistic forecasting into your budget.

Negotiate Clarity, Not Just Price

Many tenants focus on negotiating rent, but it can be just as valuable to negotiate:

• a clearer outgoings list;
• limits on what can be recovered (for example, excluding or tightly limiting capital works and special levies, where possible);
• evidence requirements (copies of rates notices/invoices); and
• how and when increases can be passed on.

These changes can prevent nasty surprises later, even if the rent stays the same.

Understand Your Business Model (And The Real Occupancy Cost)

If you’re a small business, your “rent” line item is rarely only rent. The true occupancy cost is:

• base rent;
• outgoings (including rates);
• utilities;
• fit-out and compliance costs; and
• make good at the end of the lease.

When you view it this way, it becomes easier to decide whether a lease is genuinely affordable and sustainable.

Get The Lease Reviewed Before You Sign

A lease is usually a long-term commitment, and outgoings clauses can be expensive over time. A commercial lease lawyer can help you understand what you’re agreeing to, flag unusual outgoings, and suggest practical negotiation points.

This is especially important if you’re moving from a home-based setup into your first premises, or if you’re expanding into a second location and the lease terms look quite different.

Key Takeaways

• The question of who pays rates (landlord or tenant) usually comes down to what your lease says about outgoings and how those outgoings are calculated and billed.
• Council rates, water charges, land tax and strata levies can all be treated differently, and the lease should spell out exactly what you’re responsible for paying.
• Retail leases and commercial (non-retail) leases can have different rules and expectations, and retail leasing laws can restrict or regulate what’s recoverable (especially land tax and certain capital/special levy items), so it’s important to know what kind of lease you’re entering into.
• If you’re in a multi-tenant building, check how outgoings are apportioned and what evidence you’re entitled to receive.
• Outgoings disputes are often preventable by getting an outgoings estimate upfront and negotiating clarity (not just rent).
• A lease review before signing (or before renewing) can help you avoid unexpected “rates” bills and understand your true occupancy costs.

If you’d like help reviewing a commercial lease or negotiating outgoings and rates clauses for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.