Outgoings in Childcare Leases: Who Pays What?

Most childcare lease disputes that land on our desk are not arguments about rent. They are arguments about outgoings. The base rent is one number, agreed once. Outgoings are six or seven numbers, agreed in principle, and recalculated every year — sometimes for a decade — by the side that benefits most from the recalculation. We see operators absorb $40,000–$80,000 a year of outgoings they were never legally required to pay, and we see landlords concede $20,000 a year of recoverable outgoings because the clause was drafted ambiguously in 2014 and nobody has reread it since.

Outgoings sit underneath the rent. Done well, they are a clean pass-through of the property’s running costs. Done badly, they quietly turn a fair lease into an unfair one — for either side.

This guide covers what outgoings actually include in an Australian childcare lease, how the legal split works (gross, net, triple net), where state retail-leases legislation overrides the contract, the annual reconciliation process, and the disputes that come up most often.

Outgoings, in plain terms

Outgoings are the property’s running costs that fall outside the base rent — the costs the landlord incurs simply because they own the building, separate from the costs the operator incurs because they run a childcare service in it.

The lease decides who pays each one. Australian childcare leases sit somewhere on a spectrum from gross (landlord pays most outgoings, baked into the rent) to net (tenant pays specified outgoings on top of rent) to triple net or NNN (tenant pays substantially everything — rates, taxes, insurance, structural). For a complete walk-through of how leases are structured at the headline level, our Childcare Centre Lease Explained guide is the starting point.

Most modern childcare leases are net or triple net. The childcare audience is a long-WALE, low-vacancy investment market — institutional landlords, REITs, SMSFs and private investors all underwrite it on a net-yield basis. They want a clean rent number and a tenant who carries the property’s variable costs. That model works for both sides — when the lease is honest about what is and isn’t recoverable.

The six buckets — what outgoings actually include

Most childcare lease outgoings fall into six buckets. Knowing which bucket each line item belongs to is the first move in deciding whether it should be there at all.

1. Statutory rates and charges. Council rates, water and sewerage rates, fire-services levies. These are non-discretionary government charges based on the property. Every commercial lease typically passes them to the tenant unless it is a true gross lease. There is rarely a fight here — the dollar amount is set by the council or utility, not by either party.

2. Land tax. This is where the most money usually moves. Land tax is a state-government tax on the unimproved land value, levied annually on the owner. In a triple net lease, the landlord typically passes it on. But in some states and some lease types, that recovery is prohibited by law — see the next section. NSW thresholds, VIC absentee surcharges, and QLD aggregation rules all matter here. A 100-place metro centre on land valued at $4–6M can generate $40,000–$90,000+ of land tax annually before any surcharge. Whether the operator pays that or the landlord absorbs it is the single biggest financial question in any net-lease childcare deal.

3. Property insurance. Building insurance, public liability for the structure (separate from the operator’s own public liability and professional indemnity), and increasingly business-interruption components. Childcare-occupied buildings have hardened materially in the recent insurance cycle. Insurance Council of Australia commentary through 2024–2026 has tracked sustained premium increases on commercial buildings, and childcare-specific insurance carries a surcharge over generic commercial because of the occupancy risk profile. Premiums that were $8,000–$12,000 a year on a typical 80-place centre in 2020 now run $15,000–$28,000+ in 2026 on the same building. Whether that increase passes through fully to the operator depends entirely on the lease wording.

4. Repairs and maintenance — but only the right kind. This is the bucket that produces the most disputes. The general rule: operational repairs (plumbing leaks, broken air-conditioning units, faulty lights, gutter clearing, lawn maintenance, gardening, pest control, garden refuse) typically sit with the operator under a net lease. Structural capital expenditure (roof replacement, structural concrete repairs, replacement of major mechanical plant at end of useful life, façade renewal) typically sits with the landlord — even under a triple net — because these are capital costs that improve the asset for the next tenant. The fight is almost always over items in the grey zone: a 12-year-old air-conditioning compressor that fails, the replacement cost of the entire HVAC system, repainting external walls, repaving the car park, replacing a hot-water system.

5. Common-area and management costs. If the centre is in a strata-titled property, a multi-tenant complex, or a corporate-owned portfolio, there are usually body-corporate fees, strata levies, sinking-fund contributions and property management fees. In a freestanding standalone centre on its own title, these can be minor or non-existent — but in a centre inside a larger neighbourhood retail precinct (as a few specialist childcare leases sit), they can run $15,000–$40,000 a year.

6. Audit, legal and compliance costs of the property itself. Annual building certifications (essential safety measures audits in NSW, mandatory inspections in VIC, building-and-pest reports), fire-safety statements, the legal cost of preparing the annual outgoings reconciliation, and accountants’ fees for the audited outgoings statement where required. Most of these are recoverable in standard form. A few — landlord’s own legal costs of disputes, mortgage interest, leasing commissions to find a new tenant — are not, but appear in poorly drafted leases and need to be challenged.

What is never legitimately recoverable in any well-drafted commercial lease, regardless of state: the landlord’s mortgage interest, the cost of finding a replacement tenant, the landlord’s income tax, depreciation on the building or capex incurred at the landlord’s election to upgrade the asset for the next tenant.

Where state law overrides the contract

This is the area where childcare operators most often pay outgoings they don’t legally have to. The lease document says one thing. State retail-leases legislation says another. Where they conflict, legislation wins.

Retail Leases Acts apply to some childcare leases — not all. NSW (Retail Leases Act 1994), VIC (Retail Leases Act 2003) and QLD (Retail Shop Leases Act 1994) all impose tenant-protective rules on retail leases. These rules include: prohibition on recovering land tax, mandatory annual outgoings reconciliation with audited statement, mandatory disclosure statement before signing, and limits on the categories of outgoings recoverable.

The threshold question is whether a childcare lease is a “retail lease” under each state’s Act. The tests are not identical state-to-state, but two factors usually decide it:

• Premises lettable area. NSW excludes premises with a lettable area greater than 1,000 sqm; VIC has its own occupancy thresholds; QLD has lettable area and rent thresholds. A purpose-built standalone childcare centre with indoor space of 800–1,200 sqm sits right at the boundary — sometimes inside the Act, sometimes outside.
• Use. The Acts typically apply to “retail shops” or businesses listed in regulations. Childcare’s status varies by state and by exact use category. Each Act needs to be read against the specific lease and premises.

The practical impact: land tax. Where a childcare lease falls inside the retail-leases regime — for example, a 700 sqm metro NSW centre with rent below the threshold — the landlord cannot legally recover land tax from the operator under s.23 of the NSW Retail Leases Act, regardless of what the lease document says. We see operators paying $40,000–$80,000 a year of land tax that is not recoverable under the Act. The lease says they owe it; the Act says they don’t.

Where the lease falls outside the retail-leases regime — most large purpose-built standalone centres, multi-tenant complexes above the lettable area threshold, and most regional centres above the rent thresholds — the lease’s outgoings clause is the only rule, and land tax is recoverable if the clause says so.

The other side of this: in states or lease types where the Acts don’t apply, the standard contract rules. We’ve also reviewed centres where the operator believed land tax couldn’t be recovered, refused to pay, and was successfully pursued by the landlord because the centre sat outside the retail-leases definition. The default assumption — “I’m a small business, the Act protects me” — is not a substitute for reading the Act against the lease.

Outgoings caps, exclusions and disclosure

A well-drafted childcare lease will include three protective mechanisms that good operators negotiate up-front.

The cap. Most retail-leases regimes — and most well-drafted leases outside them — include a cap on annual outgoings increases. A typical formulation is “outgoings shall not increase by more than CPI + 2% per annum” or “outgoings excluding statutory charges shall not increase by more than X%”. The cap protects the operator from runaway insurance premiums or maintenance costs that the operator cannot control. Without a cap, the tenant carries unbounded landlord-side risk on a property the tenant doesn’t own.

The exclusions list. A modern childcare lease typically excludes specific categories from recoverable outgoings: structural and capital works at end of useful life, landlord’s own legal costs of dispute, costs incurred at the landlord’s discretion to upgrade the asset, mortgage interest, replacement of the asset’s air-conditioning compressor where age-of-failure indicates capital rather than maintenance. The exclusions list is the place to fight at the lease-negotiation stage. Once the lease is signed, every grey-zone item becomes a year-by-year argument.

Disclosure and reconciliation. Under the retail-leases regimes, the landlord must provide a written disclosure statement before the lease is signed listing estimated outgoings categories and amounts, and must provide an audited annual reconciliation comparing estimated to actual outgoings within three to six months of each financial year-end. The operator can audit the underlying invoices. Outside the retail-leases regime, this is contractual rather than mandatory — and a clause requiring annual reconciliation with full invoice access is one we always recommend operators insist on.

For operators reviewing whether their current lease structure is competitive, our fair-rent benchmarking guide frames rent and outgoings together as the all-in occupancy cost — which is the only number that actually matters at the operator P&L level.

How to audit the annual reconciliation

The annual outgoings reconciliation is the moment outgoings get checked. Most operators don’t check them. They should.

Three questions answer 80% of the audit:

1. Is every line item actually a recoverable outgoing under this lease? Pull the lease’s outgoings definition and exclusions list. Cross-check it line-by-line against the reconciliation statement. The most common errors we see: capital works dressed up as repairs (a $42,000 “roof maintenance” charge that was a partial roof replacement; a $28,000 “air-conditioning service” that was a compressor replacement on a 14-year-old unit), legal fees for landlord disputes with other tenants slipped into the legal-costs line, and management fees calculated on gross income including outgoings (which becomes a fee-on-fee).

2. Are the underlying invoices real and dated within the reconciliation period? Operators have audit rights under retail-leases regimes and standard well-drafted leases. Use them. We’ve seen reconciliations that include invoices from prior years (already recovered once) and invoices for unrelated properties owned by the same landlord.

3. Is the cap (if any) being applied correctly? A cap on “outgoings increases” usually excludes statutory charges (rates, land tax) but covers everything else. Landlords sometimes apply caps in the wrong direction — taking the prior year actual rather than the prior year capped figure as the base for the current year cap. Over five years, that drift can be $20,000–$60,000 a year off-mark.

Where the reconciliation shows the operator overpaid (a “credit”), the operator gets a refund or carry-forward. Where it shows underpayment, the operator pays the difference. The arithmetic is meant to true-up estimate to actual; the audit is what makes sure the actual is honest.

Outgoings at a new lease — what to negotiate

If you’re an operator signing a new childcare lease, four moves materially change the next 10–15 years of cash flow.

1. Demand a complete outgoings list and historical actuals. A landlord who can produce three years of actual outgoings statements and explain every line is a landlord who has nothing to hide. A landlord who can only produce a “budgeted” estimate is a landlord whose actuals are usually higher than what they’re disclosing. Three years of actuals is a reasonable ask.

2. Negotiate a hard cap, not a soft cap. A cap of “CPI + 2%” on non-statutory outgoings is reasonable and protects both sides. A cap of “reasonable increases as determined by the landlord” is not a cap. A cap of “increases consistent with market” is also not a cap.

3. Get the exclusions list explicit. Don’t accept a clause that says “outgoings means all costs the landlord incurs in respect of the property”. That’s a blank cheque. The exclusions list should expressly carve out: capital works, structural repairs at end of useful life, landlord’s mortgage interest, landlord’s income tax, leasing commissions, landlord’s legal costs of disputes, fines or penalties incurred by the landlord, and costs of re-letting the premises.

4. Tie outgoings disclosure to the rent review. Where the rent reviews to market every five years, any agreed market rent should be informed by the actual all-in occupancy cost. A landlord who is double-recovering through high outgoings can’t then push for high rent on the same lease. Make the actual outgoings position part of the market review evidence — the rent review guide explores how each review mechanism interacts with the operator’s bottom-line economics.

Outgoings at lease renewal — what to fix

A lease renewal is the most realistic moment to fix outgoings clauses that have aged badly. By definition, the lease has been operating for 5–15 years — there are actual annual reconciliations to look at, real disputes to point to, and the negotiation has both sides’ historical evidence on the table.

The renewal questions on outgoings:

• Has the outgoings position drifted? Plot the all-in occupancy cost (rent + outgoings) as a percentage of revenue over the lease term. If it has crept from 12% to 19%, the renewal is the moment to reset.
• Are there grey-zone items the landlord has been recovering that shouldn’t have been there? The renewal is the moment to name them and to re-draft the exclusions list.
• Is land tax being recovered in a state where the lease may now sit inside or outside the retail-leases regime due to lettable area changes, premises adjustments, or rent threshold changes? The renewal is the moment to re-test the application.
• Has the insurance line item compounded faster than CPI? The renewal is the moment to negotiate either an insurance cap, a tenant-procured insurance option, or a shared-risk structure.

Our lease renewal negotiation guide covers the broader framework — outgoings is one of the six terms inside that conversation, and it usually has more financial weight over a 10-year horizon than the headline rent.

What this means at sale or purchase

Outgoings flow directly into valuation. On the leasehold-business side, recoverable outgoings are part of the operator’s P&L and reduce EBITDA — a centre carrying $80,000 a year of outgoings the operator shouldn’t have been paying has been understating EBITDA by that amount, and the leasehold business has been priced at a 3.5–5x multiple on the wrong number. Fixing the outgoings position before sale can lift sale price by $280,000–$400,000+ in that example. Buyers running pre-purchase due diligence should always pull the last three years of outgoings reconciliations and audit them against the lease — not just to verify the EBITDA, but to identify a recoverable cost the next operator might not have to pay.

On the freehold side, the outgoings position affects the net rent the buyer underwrites against yield. A landlord whose lease is structurally over-recovering outgoings has a cash position that won’t survive the next renewal. A buyer paying a 5.0% yield on the gross rent who hasn’t checked outgoings recoverability can find themselves paying a 5.7% effective yield once the next operator pushes back — and the leasehold-vs-freehold value differential tightens accordingly.

Common disputes — and how they typically resolve

Six recurring outgoings disputes show up across our advisory files.

Land tax in a retail-leases jurisdiction. Operator stops paying once they realise the Act applies; landlord pursues; operator wins on the Act. Resolution: cease ongoing recovery, and a partial refund covering the most recent statutory-limitation period (usually six years in most states for civil-recovery purposes, but legal advice is essential here).

Capital works dressed as maintenance. Roof replacement, HVAC compressor replacement, façade renewal billed as “annual maintenance”. Resolution: the test is whether the work extends the asset’s useful life or restores it to a baseline. End-of-life replacement is typically capital and not recoverable — the operator wins, the landlord absorbs.

Insurance recovery without invoices. Landlord recovers a fixed insurance figure that doesn’t tie to underlying premium invoices. Resolution: invoice production is mandatory. If the actual is below the recovered, refund. If above, the cap (if any) caps it.

Management fees on a related entity. Landlord engages their own related management company at above-market rates and recovers the fee. Resolution: most well-drafted leases require management fees to be at arm’s-length market rate. Independent benchmarking shifts the recoverable amount.

Common-area maintenance double-charging. Operator pays a separate cleaning and gardening contract directly, and the landlord also recovers a “common area maintenance” line for the same scope. Resolution: scope clarification. The work can only be billed once.

Outgoings increases above the cap. Landlord applies the cap to a higher base than the prior year capped figure. Resolution: arithmetic correction back to the base year, and refund of the over-recovery.

The pattern: most outgoings disputes resolve once both sides have the lease, the legislation, and the underlying invoices on the table. The disputes that go badly are the ones where neither side has done the homework — and we typically see those resolved in commercial mediation rather than litigation, because the dollars rarely justify a court fight on a single line item.

Key Takeaway

Outgoings are the quiet half of every childcare lease. They look like running costs but they’re priced like rent — every dollar of recoverable outgoing is a dollar off the operator’s EBITDA and a dollar onto the landlord’s effective yield. Get the six buckets right at the lease-signing stage. Test whether state retail-leases legislation overrides the contract on land tax. Cap the increases. Audit the reconciliation. And at renewal — or at sale — treat outgoings as the leverage point it actually is, not as paperwork.

Outgoings position uncertain on your current lease — as the operator or as the landlord? ChildcareLink runs confidential outgoings audits on both sides: lease review against state retail-leases legislation, three-year reconciliation audit, recovery of incorrectly charged items, and renegotiation of the exclusions list at the next available moment. If you’d like a quick read on what your centre is worth before deciding whether the lease is fairly priced, our free centre value estimator takes about 60 seconds. Visit childcarelink.com.au or contact our team directly.

Sources

• NSW Retail Leases Act 1994 (s.23 land-tax recovery prohibition; Part 3 outgoings disclosure and reconciliation)
• VIC Retail Leases Act 2003 — outgoings disclosure, land-tax recovery prohibition, audited annual statement
• QLD Retail Shop Leases Act 1994 — outgoings regulation and audited annual statement
• Revenue NSW — 2026 land tax thresholds and rates, foreign-owner surcharge
• State Revenue Office Victoria — 2026 land tax thresholds and absentee-owner surcharge
• Queensland Revenue Office — 2026 land tax rates and absentee-owner surcharge
• Insurance Council of Australia — commercial property insurance cycle commentary, 2024–2026 hardening
• Stonebridge Childcare and Healthcare Industry Report 2025 — yield benchmarks and net-yield underwriting practice
• Reserve Bank of Australia — Statement on Monetary Policy April 2026 (cash rate 4.10%)
• ChildcareLink advisory experience — outgoings audits and lease renegotiations across NSW, VIC and QLD childcare files 2024–2026

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. ChildcareLink recommends seeking independent professional advice tailored to your specific circumstances before making any business or investment decisions.