Commercial leases are agreements between landlords and tenants that allow businesses to occupy commercial properties for a specified period of time. There are several types of commercial leases, each with its own set of terms and conditions. In this paper, we will explore the most common types of commercial leases and the differences between them.
Gross Lease:
A gross lease is a type of commercial lease where the landlord is responsible for paying all operating expenses, such as property taxes, insurance, and maintenance costs. In a gross lease, the tenant pays a fixed monthly rent that includes all of these costs. This type of lease is beneficial for tenants because they know exactly how much they will be paying each month, and the landlord is responsible for managing the property.
Net Lease:
A net lease is a type of commercial lease where the tenant is responsible for paying a portion or all of the operating expenses in addition to their monthly rent. There are three main types of net leases:
Single Net Lease:
In a single net lease, the tenant pays a portion of the property taxes in addition to their monthly rent.
Double Net Lease:
In a double net lease, the tenant pays a portion of the property taxes and insurance premiums in addition to their monthly rent.
Triple Net Lease:
In a triple net lease, the tenant pays all of the property taxes, insurance premiums, and maintenance costs in addition to their monthly rent. This type of lease is beneficial for landlords because they have minimal expenses and can pass on the costs of operating the property to the tenant.
Percentage Lease:
A percentage lease is a type of commercial lease where the tenant pays a base rent plus a percentage of their gross sales. This type of lease is common in retail spaces where the tenant’s sales are directly tied to the profitability of the property. Percentage leases are typically structured so that the landlord receives a certain percentage of sales above a predetermined threshold.
Modified Gross Lease:
A modified gross lease is a combination of a gross lease and a net lease. In a modified gross lease, the tenant pays a fixed monthly rent that includes some but not all of the operating expenses. The lease may specify which expenses the tenant is responsible for paying, such as utilities or maintenance costs. This type of lease is beneficial for both landlords and tenants because it allows for some flexibility in the payment of operating expenses.
There are several types of commercial leases, each with its own set of terms and conditions. Choosing the right type of lease is crucial for both landlords and tenants. Gross leases are beneficial for tenants who want a predictable rent amount, while net leases are beneficial for landlords who want to pass on the costs of operating the property to the tenant. Percentage leases are common in retail spaces where sales are directly tied to profitability and modified gross leases offer a combination of a gross lease and a net lease. Understanding the differences between these leases is essential for making an informed decision when entering into a commercial lease agreement.