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Common Types of Commercial Real Estate Lease Agreements You May Encounter

Posted on December 17, 2018 by Genet Group

There are basic types of leases revolving around net or gross rent calculations. More often than not, the gross lease option is when a tenant pays a one lump sum for rent, and the landlord pays for expenses. The net lease option is when the renter has a lower base rent with costs paid by the tenant. However, a modified gross lease is the best of both worlds.

Gross Lease

Typically, the gross lease is where the rent is all-inclusive. The landlord is responsible for all or most expenses included with the property like taxes, insurance, and maintenance. If negotiating a gross lease, one of the more important topics should be focused around the janitorial services. Inquire about how often they are provided, how extensive the services are, and if the company has a good reputation. Ultimately, the tenant is gaining a massive benefit with this type of lease because they can focus on growing their business, while the landlord assumes all responsibility for the building.

Net Lease

Lower base rent is calculated here along with the added expenses of real estate taxes, property insurance, CAMS, and more. Several different kinds appeal to tenants and landlords alike:

•    Single Net Lease – Pay base rent and portion of the building’s property taxes based on the amount of space being leased by the tenant. Landlord covers all other building expenses.

•    Double Net Lease – Everything included in Single Net Lease, now including property insurance. Landlord will cover the costs for structural repair and CAM.

•    Triple Net Lease – Tenant is responsible for rent, property taxes, insurance, and CAMs. It’s one of the more common agreements for freestanding buildings and retail space.

Modified Gross

The gross lease is more geared in favor of the tenant, and the net rent for landlords. The modified gross option offers a one lump sum option while also including any or all nets like property taxes, insurance, and CAMs. It is sought after less often than the agreements mentioned above, but it provides the advantage of keeping the lease rate the same even if the net costs increase. However, if they decrease, the landlord will see the benefits more so than the tenant.

Whichever option you choose, be sure to educate yourself on the expenses you can afford. Many factors like location, size of space, etc. go into the cost of renting the unit, and growing businesses need to keep their eyes on the prize when signing into a new lease.