There are many different types of commercial real estate leases. How do you know which one is best for your situation? What do all of the terms mean? We are here to help you better understand commercial real estate leases so that you can select and negotiate more smoothly with any CRE ventures.
Gross Lease/Full Service Lease
A full service lease, or gross lease, is when the tenant is responsible for paying a fixed rent each month. The landlord is responsible for all other costs including operations costs, maintenance costs, insurance and taxes. Essentially, this lease is similar to an all-inclusive resort. In that, you pay one flat fee that includes all of your amenities.
A Net lease is possibly the most common type of commercial real estate lease agreement. This is when the tenant pays a base rent (fixed amount) but also pays a portion of the buildings operating expenses such as maintenance fees, taxes, utilities and insurance. This type of lease is adjustable and the base rent is typically lower than that of a gross/full service lease. There are 3 types of net leases: single, double, triple and absolute.
Single Net Lease
A single net lease is also referred to as an “N” lease and is a simple form of the net lease. With this lease, the tenant pays the rent, utilities and property taxes. The landlord pays the building insurance and maintenance costs. While they are simple, they are one of the lesser common leases used in commercial real estate. This is because landlords would only use a single net lease over a gross lease to make sure property taxes are paid on time. They essentially collect the money and pay it straight to the city directly.
Double Net Lease
A double net lease, referred to as a “NN” lease, requires the tenant to pay for the base rent, utilities, building insurance and property taxes. The landlord is responsible for paying the building maintenance and other related costs. Double net leases are common among multi-tenant buildings, in which the landlord divides the property tax and building insurance among the tenants.
Triple Net Lease
A triple net lease, also called the “NNN” lease, is the opposite of a gross lease in that the tenant is responsible for the majority of costs. Including, base rent, utilities, property taxes, insurance. maintenance fees and standard property repair costs. Rental prices are usually reduced because of this. These are typically the favorite type of commercial lease for landlords, who are often investors who are using a more hands-off management approach.
Modified Gross Lease/Modified Net Lease
Modified gross leases, or modified net leases is more middle ground for the tenant and landlord. It sits between a gross lease and a triple net lease in that the tenant pays for the rent, utilities and a portion of the operating costs. With these, the tenant is responsible for incremental increases in operational costs. Modified gross leases offer a broad range of negotiations for these operating expenses, though.
Percentage leases require the tenant to pay a base rent in addition to a percentage of the businesses gross income. Landlords typically ask for 7% of the businesses sales, although both parties must agree upon this in advance. These types of leases are most commonly used among retailers and restaurants.
Commercial real estate leases might seem overwhelming at first, but they don’t have to be. Whether you are a landlord or a tenant, we can help you understand the different lease types and figure out which one would be best for your situation. If you need help with commercial leases, or are looking to lease a property, give us a call and let us help you!