Outgoings Recovery: Are You Actually Claiming Everything You Can?

The silent profit leak that’s costing New Zealand commercial landlords thousands every year.

What Are Outgoings in a Commercial Lease in New Zealand?

Outgoings in a New Zealand commercial lease are the building’s operating expenses that are passed on to the tenant in addition to the base rent. Under the standard Law Association (formerly ADLS) Deed of Lease, recoverable outgoings include council rates, building insurance premiums, Building Warrant of Fitness (BWOF) costs, property management fees, common area maintenance, fire and emergency levies, and security and HVAC service contracts. The specific items recoverable from your tenant depend on what is listed in the First Schedule of your lease, and if an item isn’t listed, you may not be able to recover it.

Sometimes it’s a single line item worth a few hundred dollars a year. Sometimes it’s a cluster of overlooked costs, management fees, BWOF expenses, fire levies, and body corporate admin that adds up to several thousand dollars annually, sitting unclaimed.

This isn’t a theoretical risk. It’s one of the most common and costly blind spots we see among commercial property investors.

Why Do They Matter So Much?

Under the standard Law Association Deed of Lease, which is by far the most widely used commercial lease form in New Zealand, the key principle is straightforward:

The tenant pays the outgoings “properly and reasonably incurred” in respect of the property, as specified in the First Schedule to the lease. (Clause 3.1, Law Association Deed of Lease).

That phrase “specified in the First Schedule” is everything. The outgoings schedule in your lease is the master list of what you can recover. If a legitimate operating cost isn’t on that list, your ability to recover it from your tenant may be severely limited or lost entirely.

This matters for one simple reason: outgoings are a direct line to your net yield. Every dollar of legitimate outgoings that you fail to recover is a dollar coming directly out of your pocket, not your tenant’s.

The Gross Lease vs Net Lease Distinction

It’s worth noting that not all commercial leases work the same way. In a net lease (the most common structure in NZ commercial property), the tenant pays base rent plus outgoings separately. In a gross lease, a single flat rate covers both, meaning the landlord absorbs all outgoings within the rent amount.

This blog focuses on net leases, where outgoings recovery is a live and active obligation for the landlord.

The Full Picture: What Can (& Should) Be Recovered?

The following table outlines the most common recoverable outgoings under a standard New Zealand commercial lease and critically flags where landlords most frequently leave money on the table.

Outgoing Category	Typical Items Included	Commonly Missed?
Local Authority Rates	TCC/WBOPDC general and water rates	Rarely, but apportionment errors occur
Building Insurance Premium	Fire, natural disaster, loss of rent cover	Excess recovery often missed, see note
Building Warrant of Fitness (BWOF)	IQP inspections, compliance signage, and annual BWOF fee	Yes, admin cost often absorbed by the landlord
Property Management Fees	Management commission, admin, reporting fees	Yes, frequently omitted from the outgoings schedule
Common Area Maintenance	FENZ levies, fire system testing and maintenance	Yes, levy recovery is often not specified
Fire & Emergency Levies	Inaccurate or outdated	Regularly reviewed and adjusted
Security Systems	Monitoring, maintenance contracts, and access control	Yes, especially in multi-tenancy buildings
Air Conditioning & HVAC	Service contracts, filter replacement, and breakdowns	Partially, breakdown vs. capital replacement confusion
Lift & Escalator Maintenance	Service contracts and compliance checks	Rarely, but only where applicable
Automatic Doors & Roller Doors	Service contracts (7th Edition now specifies this)	Yes, often an overlooked line item
Body Corporate Levies & Admin	Levies plus body corporate management fees (now a separate line)	Yes, the management fee component is often missed
Waste & Rubbish Removal	Council refuse collection, shared bin costs	Yes, especially in industrial properties
Utilities (shared/common areas)	Common area power, water, and gas	Partially, metering complexity causes losses

Note on insurance excess: Under the 7th Edition, any insurance excess applied to general damage repairs (caused by the tenant) is now treated as a recoverable outgoing.

The 5 Most Commonly Missed Outgoings & How to Fix Them

Based on our experience managing commercial and retail properties across the North Island, here are the five outgoings that landlords most frequently miss or under-recover:

1. Property Management Fees

This is the most surprising one for landlords to hear, but property management fees are a legitimate, recoverable outgoing under the Law Association lease. If they are correctly specified in the First Schedule, they can be recovered from your tenant as part of your annual outgoings wash-up.

The reason they’re so often missed is simple: they’re not in the template. The First Schedule includes a default list of outgoings, but management fees are often not included. If you or your solicitor didn’t specifically include them in the lease negotiations, they may not be recoverable now.

2. Building Warrant of Fitness (BWOF) Costs

Every commercial building with specified systems, such as fire suppression, emergency lighting, mechanical ventilation, automatic doors, and others, requires an annual Building Warrant of Fitness. The costs involved, including Independent Qualified Person (IQP) inspections and compliance documentation, are legitimate outgoing costs.

Yet these costs are regularly absorbed by landlords who either haven’t included them in the outgoings schedule or haven’t been billed for them. For a mid-sized commercial building, BWOF compliance can cost $1,500 to $5,000+ per year, a cost that should not be coming out of your pocket.

3. Fire & Emergency Levies

The Fire and Emergency New Zealand (FENZ) levy, charged as a percentage of commercial insurance premiums, is often paid by landlords without a second thought about whether it’s being recovered. It is a legitimate outgoing. The 7th Edition of the lease now explicitly clarifies that fire and emergency levies are the tenant’s responsibility.

4. Body Corporate Management Administration Fees

For properties within a body corporate, landlords often recover the body corporate levy but miss the body corporate management administration fees, which are a separate line item.

5. Common Area Service Contracts, Especially Automatic & Roller Doors

Service and maintenance contracts for common-area systems, security, air conditioning, automatic doors, roller doors, and similar items are recoverable outgoings. However, they’re frequently omitted from outgoings schedules, particularly for older leases drafted before these items were standard.

7th Edition Rule That Every Landlord Must Know: The 24-Month Window

If there’s one change from the Law Association’s 7th Edition Deed of Lease that commercial landlords cannot afford to miss, it’s this:

Critical: The 24-Month Outgoings Recovery Rule

Under the 7th Edition, landlords must notify tenants of the estimated or actual amount of an outgoing within 24 months of that outgoing being incurred.

If you fail to notify within this window, the cost becomes unrecoverable. Full stop.

This means that sloppy outgoings administration, delayed reconciliations, missing annual budgets, and undocumented costs are no longer just an inconvenience. It’s a financial loss that cannot be reversed.

How the Annual Outgoings Cycle Should Work

A well-managed outgoings process follows a clear, annual cycle. Here’s how it should look for every commercial property:

Prepare and issue a written budget of estimated outgoings to your tenant, broken down by line item.
Invoice the tenant for outgoings on a monthly or quarterly basis, based on estimated costs.
Compare actual costs against the budget. If actual outgoings exceeded the estimate, the tenant owes the difference. If actual costs were lower, a credit or refund is issued. This reconciliation must be completed and communicated within the 24-month window.
Retain all documents, including invoices, council rates notices, insurance schedules, BWOF certificates, and service contracts.
Every lease renewal is an opportunity to review and update the First Schedule, adding any outgoings that weren’t captured previously and aligning the outgoings structure with the current edition of the standard lease form.

Tip: The Annual Washup Is Your Safety Net, But Only If You Do It

The annual outgoings reconciliation (‘washup’) is the mechanism that ensures you recover everything you’re entitled to. It compares your actual costs against the amounts invoiced throughout the year. Landlords who skip or delay this process are most likely to fall foul of the 24-month rule and to absorb costs they should be recovering.

What Outgoings Cannot Be Recovered?

Just as important as knowing what you can recover is understanding what falls outside the recoverable outgoings framework. Getting this wrong, accidentally passing capital costs to tenants, can damage tenant relationships and expose you to legal challenges.

Under the standard Law Association lease, the following generally cannot be recovered as outgoings:

Costs to upgrade or improve the building beyond its current condition, such as strengthening the building, new fit-outs, or major infrastructure upgrades, are the landlord’s responsibility and cannot be passed on to tenants as outgoings.
Costs to upgrade the building to comply with the Building Act 2004 are explicitly excluded under the 7th Edition.
Structural repairs or those caused by design or construction defects are the landlord’s responsibility.
Tenants are responsible for usage-driven increases in utilities, but not for capital charges associated with utility infrastructure.
Under the 7th Edition, landlords controlling the body corporate cannot recover management fees charged to themselves by related parties unless specifically agreed in the lease.

FAQS

My outgoings schedule was set up when I bought the property years ago. Do I need to update it?

Almost certainly, yes. Outgoings schedules that were set up under older lease forms are frequently incomplete by today’s standards.
The 7th Edition of the Law Association lease has clarified and expanded the list of recoverable items, including fire and emergency levies, body corporate management fees, and automatic/roller door maintenance contracts, that may not appear in older schedules.

Can I recover my property management fees as an outgoing?

Yes, but only if they are specifically listed in the First Schedule of your lease. Under the 7th Edition, property management costs are explicitly excluded from automatic recovery unless agreed upon in the lease.
This means if management fees aren’t in your outgoings schedule, you cannot simply start charging them. They must be negotiated and documented as part of your lease terms, ideally at the outset of a new lease or at renewal.

What happens if I’ve been under-recovering outgoings for several years? Can I back-claim?

This is one of the most common questions we receive, and unfortunately, the answer is largely no. The 7th Edition’s 24-month rule means that outgoings incurred more than 24 months before tenants are notified become unrecoverable. For leases under earlier editions, back-claiming is often contested and difficult to enforce. The practical answer is: get your outgoings right going forward.

How do outgoings work in a multi-tenancy building with several tenants?

In a multi-tenancy building, outgoings are typically apportioned between tenants based on their proportionate share of the lettable floor area. Each tenant’s proportion should be clearly specified in the First Schedule of their individual lease. The landlord has the right to vary the proportion to ensure each tenant pays a ‘fair proportion’, provided this is documented and communicated.

Common mistakes include using outdated floor-area calculations, failing to apportion correctly when a space is subdivided, and failing to revisit proportions when tenancies change. Errors in multi-tenancy apportionment compound over time and can result in significant under-recovery.

What is an outgoings ‘washup’ and how often should it happen?

An outgoings washup (or reconciliation) is the process of comparing the outgoings invoiced to your tenant throughout the year against the actual costs incurred. If actual costs exceed estimated costs, the tenant pays the shortfall. If actual costs were lower, the tenant receives a credit or refund.

Is Your Outgoings Recovery Leaving Money on the Table?

A quick review of your First Schedule and annual outgoings process could reveal thousands of dollars in legitimate costs you’ve been unnecessarily absorbing.

Commercial Property Partners works with New Zealand landlords to audit outgoings schedules, implement compliant annual processes, and ensure you’re recovering every dollar you’re entitled to.

Talk to the team at CPP, locally owned, expert-led, and always working in your corner.