Before you sign a commercial real estate lease, it’s a good idea to educate yourself on the different types. Throughout this article, you will learn about three kinds of commercial real estate leases: a gross lease, net lease, and modified gross lease. They are structured in relation to two different rent calculation methods: ‘net’ and ‘gross’. Typically, in a gross lease the landlord pays for all utilities and expenses himself, lumping the tenant’s total rent and collecting one payment. In a net lease, the tenant pays the landlord for a smaller rent, but also pays for utilities and other expenses separate. And the final type, a modified gross lease, is a negotiated combination of the two.
Commercial Real Estate Gross Lease
Also know as an all-inclusive rental agreement, the gross lease leaves the tenant with less responsibilities with one larger payment. In this scenario, landlords pay most or all expenses accompanying the estate. This may include but is not limited to insurance, taxes, and upkeep. Tenants have an accumulated sum for rent that can include janitorial amenities and billed utilities. This allows tenants more focus on making their business grow with a simpler, single payment for rent.
Commercial Real Estate Net Lease
A net lease is a type of commercial real estate lease in which the lessee or tenant pays for his space, but also pays for all or some part of certain “usual costs.” These are typically associated expenses with maintaining, operating, and using the property – costs which the landlord would ordinarily pay. Several versions of net leases are common and explained below:
Commercial Property Single Net Lease – N Lease
A single net lease will commonly have a base fee for the renter with a pro-rated portion of estate’s property tax. Typically, the landlord pays the building’s other fees while janitorial services and some utilities are paid by the tenant.
Commercial Property Double Net Lease – NN Lease
A single net lease will commonly have a base fee for the renter with a pro-rated portion of estate’s property tax and insurance for the property. Structural maintenance repair expenses and common area fees are typically covered by the landlord. Tenants are responsible for utility fees and janitorial services.
Commercial Property Triple Net Lease (NNN Lease)
A triple net lease is a commercial real estate lease in which the tenant is responsible for paying everything. He/she pays all or part of the taxes, insurance, and maintenance associated with use of the property. These fees are paid in addition to the tenant’s regular or base monthly rent. This type of arrangement is also known as a “net-net-net” or NNN lease.
Commercial Property Absolute Triple Net Lease
Also referred to as the “hell-or-high-water lease,” this type of lease holds the tenant responsible for the property, real estate, and building under all circumstances. Because of this, it’s a less common selection, where tenants care for all risks.
Commercial Real Estate Modified Gross Lease
This modified gross commercial real estate lease is like a gross lease where the total sum of rent payments are all lumped into one amount. This includes all or any “net” expenses. The landlord and tenant should negotiate what “nets” the base rental rate includes.
Conclusion
The utmost predominant rule of commercial real estate leases is to make sure that the tenant reads their home rental agreement carefully. As the owner, you need them to understand exactly the expenses they’re responsible for. Lay out any circumstance where an added charge can happen, make this identifiable, along with max payment negotiations.
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