Guides to Different Types of Commercial Leases
Like many business owners, you will most likely need to lease your commercial space from a landlord. Commercial Leases are as diverse as the properties they govern, offering a variety of terms, conditions, and obligations.
Gross Commercial LeasesAlso known as a "full-service" or "all-inclusive" lease, a gross lease requires the tenant to pay one lump sum for the rent, from which the landlord pays all or most expenses associated with the property, such as utilities, maintenance, and janitorial services. Not only is this easier and more convenient for many tenants, but it allows them to calculate business expenses without worrying about future service charges. The landlord assumes all responsibility for the building, leaving tenants to focus on their business.
When faced with a gross lease, you should ask which services fall under the gross payment and how often they are offered. Also see if the lease has a provision regarding excess utility consumption - it is not uncommon for landlords to require tenants pay the difference for services or utilities that are higher than the building standard.
Net Commercial LeasesIn contrast to a gross lease, a net lease typically has a lower base rent, plus some or all the expenses associated with operating or maintaining the building (such as taxes, upkeep of common areas, janitorial services, etc.). Whereas the gross lease is generally considered to be tenant friendly, the net lease is usually more favorable to landlords. Net leases are further broken down into three subcategories.
Single Net Lease - The tenant pays base rent, utilities, and janitorial services, plus a share of the building's property tax proportional to the total building space being lease. The landlord covers the remaining building expenses.
Double Net Lease - The tenant is responsible for base rent plus a proportional share of property taxes and property insurance. The landlord pays for structural repairs and common area maintenance.
Triple Net Lease - Commonly used in retail spaces and freestanding buildings, this lease requires the tenant to pay property taxes, property insurance, and common area maintenance (CAM) in addition to base monthly rent. Sometimes, utilities and operating expenses for the building are also included.
Given that net commercial leases are friendlier to the landlord, tenants should review them very carefully and be prepared to negotiate some of the terms. At the very least, tenants benefit from greater transparency in seeing the building's operating expenses relative to what they are being charged. Moreover, any cost savings in the operation of the building should in turn be passed on to the tenants. Since tenants take on more responsibility for taking care of the building, this sort of lease may incentivize lowering monthly costs.
Modified Gross Commercial LeasesThe modified gross lease, sometimes called the modified net lease, is a happy medium between the above two lease types. Like a gross lease, the rent must be paid in a lump sum, which can include some or all the usual net expenses such as property taxes, insurance, and CAM fees. However, you and the landlord can negotiate which of these expenses are to be included in the base rental rate. (Utilities and janitorial services will usually still be paid separately by the tenant.)
Hire Specialists in Commercial LeasesKnowing what to look for in a commercial lease, and how to negotiate with a landlord for better terms, is critical to the long-term prosperity of your business. Being unwittingly bound to an unfavorable or burdensome lease agreement can saddle your enterprise with unnecessary expenses, or even lead to costly disputes in court. With an attorney that is a specialists in Commercial Leases by your side, you will be equipped with the legal knowledge and experience needed to navigate the complex world of commercial leases. Our attorneys will methodically review every lease that comes your way, and will stop at nothing to represent your best interests during a negotiation. No matter which type of commercial lease you face, we will be ready and able to help you through it.