For landlords leasing out retail premises in Victoria, it’s important to strike the right balance between recovering legitimate costs and staying within the limits of the law. The Retail Leases Act 2003 (Vic) sets out clear rules around what landlords can charge tenants and what’s off-limits. Misunderstanding these obligations can lead to disputes, lost income, or even unenforceable lease terms.
Let’s walk through the key areas of cost that landlords commonly deal with and what the law allows you to charge your retail tenants.
Rent: Yes, But Within Limits
Of course, landlords are entitled to charge rent, but how that rent is set and how it changes over time needs to comply with the rules. The Act allows rent to be reviewed using one of several methods, such as a fixed percentage increase, a CPI adjustment, or a market rent review. What’s not allowed is combining methods in the same review period. For example, saying “CPI or 4%, whichever is higher” might seem like a good way to protect your return, but clauses like that are invalid under Victorian law.
And when it comes to lease renewals, landlords have clear obligations to inform tenants of their rights. If the lease includes a market rent review at the start of a renewal term, the landlord must provide written notice at least 3 months before the final date for exercising the option.
That notice must set out the deadline for exercising the option, the proposed rent for the first 12 months of the renewed lease, any changes to the most recent disclosure statement provided to the tenant (other than rent) and advise the tenant of their right to request an early rent review under section 28A, as well as the availability of the cooling-off period under section 28B.
This ensures tenants have enough time and information to make an informed decision about whether to continue the lease.
Outgoings: You Can Recover Costs If You Disclose Them
One of the most common landlord rights is the ability to pass on certain outgoings to the tenant. These include things like council rates, water rates, insurance premiums, and owners’ corporation fees. But here’s the catch: you can only charge these expenses if they’re disclosed properly in the lease and if you’ve provided the tenant with an estimated annual budget before the lease is signed.
If something isn’t disclosed up front, you’re not entitled to recover it, even if it’s a cost you routinely charge in other leases.
What you can’t do is pass on costs like depreciation, major capital upgrades, or vague administrative charges not clearly tied to an actual outgoing. If the lease is silent or unclear on a particular cost, it’s safest to assume it’s not recoverable.
Land Tax: Hands Off
This is a big one. Landlords often assume land tax is just another outgoing, but under the Retail Leases Act, you’re not allowed to pass land tax on to the tenant. Even if the lease says otherwise, it won’t be enforceable. This restriction is absolute for retail premises in Victoria.
Lease Preparation Costs: Usually Yours to Bear
Landlords are generally not permitted to recover the legal or administrative costs involved in setting up a retail lease. This includes expenses related to drafting the lease, negotiating its terms, obtaining mortgagee consent, or complying with obligations under the Retail Leases Act.
These costs must be absorbed by the landlord. However, an exception applies in situations involving the assignment of a lease or a sublease. In those cases, the landlord may recover reasonable expenses incurred in connection with the process provided those costs are directly related to the assignment or sublease and are reasonable in amount.
Fit-Outs and Refurbishments: Yes, But Be Clear
Landlords can require tenants to contribute to fit-out costs, but only if this is agreed to clearly in the lease. It needs to be specific, not just a general statement about contributing to “set-up” or “initial works.”
Likewise, if you want to require tenants to refurbish or upgrade the premises during the lease, the law says you must spell out exactly what’s expected and when. Vague terms like “refurbish as necessary” or “modernise at the landlord’s discretion” won’t hold up.
Utilities and Services: Charge Fairly
You can charge tenants for utilities like electricity, water, and gas, but only for what they use. In properties with multiple tenants, you’ll need to apportion the costs in a reasonable way.
Ideally, the lease should spell out how this will be done, whether based on usage, floor area, or another fair method. Flat fees are risky unless they’re agreed to up front and reflect genuine usage or costs.
Repairs and Maintenance: Depends on the Work
Landlords can ask tenants to take care of non-structural repairs; things like light globes, minor wear and tear, or exclusive-use air conditioning units.
But when it comes to structural repairs or major issues like roofing or plumbing systems, the responsibility typically remains with the landlord.
Be Careful Not to Double Dip
Double charging is a common mistake and can quickly erode trust with tenants.
For example, if you include maintenance costs in the rent, you shouldn’t then charge them again as an outgoing.
Or if a tenant already has insurance in place, you can’t require them to pay again under a blanket policy. Every cost must be legitimate, disclosed, and only charged once.
Clear Leases Make for Better Relationships
The most important takeaway for landlords is this: if you want to charge tenants for something, you need to say so clearly and make sure it’s allowed under the Act.
Ambiguous or overreaching clauses won’t hold up if challenged, and could end up costing you time, money, or even a good tenant. Being transparent and getting the lease terms right from the start is the best way to avoid conflict and ensure a smooth, professional leasing experience.
If you’re ever unsure about what’s permitted or how to draft a particular clause, it’s worth speaking to a lawyer who knows the retail leasing space. That small investment upfront can help you avoid far more costly problems down the track.
Disclaimer
The information on our website is general and is not legal advice. We put lots of work into making our content insightful but it may not apply to your personal circumstances. We’re more than happy to help with your individual issues – just reach out.